<PAGE> 1
As filed with the Securities and Exchange Commission
on March 26, 1997 (to be effective April 1, 1997)
Securities Act File No. 33-18505
Investment Company Act File No. 811-5388
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. 20 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 21 [ X ]
(Check appropriate box or boxes)
Cowen Funds, Inc.
.................................................................
(Exact Name of Registrant as Specified in Charter)
Financial Square
New York, New York 10005
...................................... ........
(address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 495-6000
Rodd M. Baxter, Esq.
Cowen Funds, Inc.
Financial Square
New York, New York 10005-3531
...........................................
(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, 1997 pursuant to paragraph (b), or
/ / 60 days after filing pursuant to paragraph (a), or
/ / on __________, 1997 pursuant to paragraph (a) of Rule 485
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number of shares of each
series 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 period ended November
30, 1996, was filed with the Securities and Exchange Commission on January 10,
1997.
2
<PAGE> 3
COWEN FUNDS, INC.
FORM N-1A
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
OF COWEN OPPORTUNITY FUND FILED AS PARTS OF POST-EFFECTIVE AMENDMENT
NO. 19 TO THIS REGISTRATION STATEMENT EFFECTIVE ON APRIL 1, 1997, AS WELL
AS COWEN OPPORTUNITY FUND'S ANNUAL REPORT FOR THE PERIOD ENDED
NOVEMBER 30, 1996, ARE HEREBY INCORPORATED BY REFERENCE
COWEN INTERMEDIATE FIXED INCOME FUND
COWEN GOVERNMENT SECURITIES FUND
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's Discussion of Fund. Not applicable
Fund Performance
6. Capital Stock and Other
Securities....................... Dividends,
Distributions and Taxes;
and Additional Information
3
<PAGE> 4
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
Part B. Heading in Statement of
Item No. Additional Information
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
14. Management of the Fund........... Management
15. Control Persons and Principal
Holders of Securities............ See in the Prospectus
"Additional Information"
16. Investment Advisory and
Other Services................... Management; Purchases and
Redemptions; See in the
Prospectus "Management of
the Fund"
17. Brokerage Allocation and
Other Practices.................. Investment Objectives and
Policies
4
<PAGE> 5
18. Capital Stock and Other
Securities....................... See in the Prospectus
"Management of the Fund"
19. Purchase, Redemption and
Pricing of Securities
Being Offered.................... Purchases and Redemptions
20. Tax Status....................... Taxes
21. Underwriters..................... Purchases and
Redemptions; See in the
Prospectus "Purchase of
Shares"
22. Calculations of Yield
Quotations of Money
Market Funds..................... Not applicable
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, 1997
COWEN INTERMEDIATE
FIXED INCOME FUND
COWEN GOVERNMENT
SECURITIES FUND
Financial Square New York, NY
10005-3597 800-262-7116 212-495-6724
Cowen Intermediate Fixed Income Fund ("CIFIF") seeks, as its
investment objectives, current income and stability of
principal. The Fund seeks to achieve its objectives through
investment primarily in high quality intermediate term fixed
income securities.
Cowen Government Securities Fund ("CGSF") seeks, as its
investment objectives, total return consisting of current
income and appreciation of capital through investment
primarily in securities issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.
Each of these funds (each a "Fund" and, collectively, the
"Funds") is a series of Cowen Funds, Inc.
This Prospectus briefly sets forth certain information about
the Funds that investors should know before investing.
Investors are advised to read this Prospectus and retain it
for future reference. Additional information about each Fund,
contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission (the "SEC")
and is available to investors without charge by calling Cowen
& Company ("Cowen") at (212) 495-6724 or (800) 262-7116 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 ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
(COWEN LOGO)
COWEN & COMPANY
principal underwriter
CTFIF-1 4/97
- --------------------------------------------------------------------------------
<PAGE> 7
CONTENTS
The Funds' Expenses............................................................3
Financial Highlights...........................................................5
Objectives and Policies........................................................7
Management of the Funds.......................................................15
Net Asset Value...............................................................17
Purchase of Shares............................................................18
Redemption of Shares..........................................................23
Dividends, Distributions and Taxes............................................25
Performance of the Funds......................................................27
Additional Information........................................................28
The Cowen Family of Funds.....................................................29
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 FUNDS' OFFICIAL SALES
LITERATURE IN CONNECTION WITH THE OFFERING
OF THE FUNDS' SHARES AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE FUNDS. 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
THE FUNDS' EXPENSES
Under the Multiple Pricing System, each 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 a 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 and expenses that an investor will incur, either
directly or indirectly, as a shareholder of each Fund, based upon the Fund's
projected annual operating expenses.
<TABLE>
<CAPTION>
CIFIF CGSF
------------------------------ ------------------------------
Class A Class B Class C Class A Class B Class C
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases of shares (as a
percentage of offering
price)........................ 2.35% 0% 0% 4.75% 0% 0%
Maximum sales charge imposed on
reinvested dividends.......... 0% 0% 0% 0% 0% 0%
Maximum contingent deferred
sales charge (as a percentage
of
redemption proceeds).......... 0% 3.00% 0% 0% 5.00% 0%
Redemption fees................. $0 $0 $0 $0 $0 $0
Exchange fee (per
transaction).................. $0 $0 $0 $0 $0 $0
Annual Portfolio Operating
Expenses --
(as percentage of average net
assets)
Management fees (after expense
reimbursements and waivers)... 0% 0% 0% 0% 0% 0%
12b-1 fees (after expense
reimbursements and waivers)... .25% .50% 0% 0% .50% 0%
Other expenses (after expense
reimbursements and waivers)... .40% .40% .40% .40% .40% .40%
Total Fund Operating Expenses........ .65% .90% .40% .40% .90% .40%
</TABLE>
The nature of the services for which the Funds pay management fees is
described below under "Management of the Funds." Each 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. CIFIF bears an annual Rule 12b-1 fee of .50% of
the value of the average daily net assets attributable to Class B shares,
consisting of a .25% service fee and a .25% distribution fee. CGSF bears 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 Funds --
Distributor."
With respect to CGSF, Cowen is voluntarily waiving its investment
management fee and service fee and absorbing all other expenses, except for .40%
of Other expenses and .50% of the Class B distribution fee. The directors' fees
are being waived by directors. With respect to CIFIF, Cowen is voluntarily
waiving its investment management fee and absorbing all other expenses, except
for .40% of Other expenses and its service and distribution fees. The directors'
fees are being waived by directors. It is currently anticipated that
3
<PAGE> 9
this arrangement will continue with respect to each Fund through March 31, 1998.
Absent a waiver by Cowen, the investment management fees would be .50% and .60%
of annual average daily net assets of CIFIF and CGSF, respectively. Based on the
Funds' average net assets, if these expenses are not waived or absorbed, "Other
expenses" in the above table would be 1.00%, .94% and .90% for Class A Shares,
Class B and Class C Shares, respectively, of CIFIF and 3.83% and 3.76% for Class
A Shares and Class C Shares respectively of CGSF, and "Total Fund Operating
Expenses" would be 1.75%, 1.94% and 1.40% for CIFIF for Class A, B and C,
respectively, and 4.68% and 4.36% for CGSF, for Class A and C, respectively. As
of November 30, 1996, there were no Class B shares of CGSF outstanding. "Other
expenses" in the table above are based on amounts for expenses that include fees
for shareholder services, custodial fees, legal and accounting fees, printing
costs and registration fees.
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 each Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table and the narrative above, in particular the fact
that certain expenses of each Fund will be waived or absorbed through March 31,
1998, (3) Cowen will not permit the Funds' expenses to exceed 2 1/2% per year
and (4) complete redemption at the end of the period.
<TABLE>
<CAPTION>
CIFIF 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A.................................... $ 30 $44 $60 $105
Class B.................................... $ 39 $50 $61 $114
Class C.................................... $ 4 $13 $23 $ 52
</TABLE>
<TABLE>
<CAPTION>
CGSF 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A.................................... $ 52 $60 $69 $ 97
Class B.................................... $ 59 $60 $71 $114
Class C.................................... $ 4 $13 $23 $ 52
</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> <C>
CIFIF...................................... $ 9 $30 $51 $114
CGSF....................................... $ 9 $30 $51 $114
</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 a Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF A 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 a Fund may be greater or
less than the assumed return.
4
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following table has been audited by Ernst & Young LLP, the Funds'
independent auditors, whose unqualified report thereon appears in the Company's
Annual Report to Shareholders which is incorporated by reference in the
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes which also appear in
the Funds' Annual Report to Shareholders as of November 30, 1996. Selected data
for a share of Common Stock outstanding throughout each of the periods noted is
as follows:
<TABLE>
<CAPTION>
Cowen Intermediate Fixed Income Fund
--------------------------------------------------------------------------------
Class A Class B
--------------------------------------------- -------------------------------
Period From
1/20/93
(Commencement Period From
Year Year Year of Operations) Year Year 7/12/94(4)
Ended Ended Ended through Ended Ended through
11/30/96 11/30/95 11/30/94 11/30/93 11/30/96 11/30/95 11/30/94
-------- -------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 9.71 $ 9.12 $ 9.95 $ 9.77 $ 9.78 $ 9.17 $9.32(1)
------- ------- ------ ------ ---- ----- -----
Income from Investment Operations:
Investment Income -- Net............. .63 .67 .51 .40 .61 .65 .20
Net Realized and Unrealized Gains
(Losses) on Investments........... (.15) .59 (.68) .14 (.15) .61 (.15)
------- ------- ------ ------ ---- ----- -----
Net from Investment Operations....... .48 1.26 (.17) .54 .46 1.26 .05
------- ------- ------ ------ ---- ----- -----
Less Distributions:
Dividends from Net Investment
Income.............................. (.63) (.67) (.53) (.36) (.61) (.65) (.20)
Distributions from Net Realized Gains
on Investments...................... (.09) -- (.13) -- (.09) -- --
------- ------- ------ ------ ---- ----- -----
Total Distributions.................. (.72) (.67) (.66) (.36) (.70) (.65) (.20)
------- ------- ------ ------ ---- ----- -----
Net Asset Value,
End of Period........................ $ 9.47 $ 9.71 $ 9.12 $ 9.95 $ 9.54 $ 9.78 $9.17
======= ======= ====== ====== ==== ===== =====
Total Return(5)...................... 5.21% 14.22% (1.77%) 6.50%(2) 4.96% 14.12% 1.25%(2)
Ratios/Supplementary Data
Net Assets (000 Omitted)............. $11,885 $14,667 $2,836 $ 1,167 $ 769 $ 577 $ 313
Ratio of Expenses to Average Net
Assets.............................. .59% .47% .12% -- .85% .68% .19%(3)
Ratio of Net Investment Income -- Net
to Average Net Assets............... 6.61% 6.90% 5.41% 4.93%(3) 6.40% 6.79% 2.15%(3)
Decrease Reflected on Above Ratios
Due to:
Investment Management, Service and
Distribution Fees Waived by Cowen... .50% .50% .63% .75%(3) .50% .50% .18%(3)
Other Expenses Waived or Absorbed.... .52% .86% 3.43% 4.45%(3) .46% 1.25% 1.37%(3)
Portfolio Turnover Rate.............. 110% 264% 159% 143% 110% 264% 159%
<CAPTION>
Class C
---------------------------------
Period From
Year Year 7/11/94(4)
Ended Ended through
11/30/96 11/30/95 11/30/94
-------- -------- -----------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 9.68 $ 9.10 $9.34(1)
------ ------ -----
Income from Investment Operations:
Investment Income -- Net............. .65 .69 .23
Net Realized and Unrealized Gains
(Losses) on Investments........... (.15) .58 (.24)
------ ------ -----
Net from Investment Operations....... .50 1.27 (.01)
------ ------ -----
Less Distributions:
Dividends from Net Investment
Income.............................. (.65) (.69) (.23)
Distributions from Net Realized Gains
on Investments...................... (.09) -- --
------ ------ -----
Total Distributions.................. (.74) (.69) (.23)
------ ------ -----
Net Asset Value,
End of Period........................ $ 9.44 $ 9.68 $9.10
====== ====== =====
Total Return(5)...................... 5.46% 14.41% (.36%)(2)
Ratios/Supplementary Data
Net Assets (000 Omitted)............. $1,745 $1,872 $ 565
Ratio of Expenses to Average Net
Assets.............................. .35% .20% --
Ratio of Net Investment Income -- Net
to Average Net Assets............... 6.87% 7.23% 1.98%(3)
Decrease Reflected on Above Ratios
Due to:
Investment Management, Service and
Distribution Fees Waived by Cowen... .50% .50% .16%(3)
Other Expenses Waived or Absorbed.... .42% .97% 1.87%(3)
Portfolio Turnover Rate.............. 110% 264% 159%
</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 Charge.
5
<PAGE> 11
<TABLE>
<CAPTION>
Cowen Government Securities Fund
--------------------------------------------------------------------------------------
Class A
------------------------------------------------
Period From
1/20/93 Class B
(Commencement ----------------------------------
of Period From
Year Year Year Operations) Year Year 7/15/94(4)
Ended Ended Ended through Ended Ended through
11/30/96 11/30/95 11/30/94 11/30/93 11/30/96(6) 11/30/95 11/30/94
----------- -------- -------- ------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 9.83 $ 9.17 $10.11 $ 9.77 $ 10.01 $ 9.28 $ 9.52(1)
------ ------ ----- ----- ----- ----- -----
Income from Investment
Operations:
Investment Income -- Net............. .64 .69 .52 .41 .14 .63 .20
Net Realized and
Unrealized Gains
(Losses) on
Investments....................... (.24) .66 (.84) .30 .10 .73 (.24)
------ ------ ----- ----- ----- ----- -----
Net from Investment Operations....... .40 1.35 (.32) .71 .24 1.36 (.04)
------ ------ ----- ----- ----- ----- -----
Less Distributions:
Dividends from Net Investment
Income.............................. (.64) (.69) (.56) (.37) (.14) (.63) (.20)
Distributions from Net Realized Gains
on Investments...................... -- -- (.06) -- -- -- --
------ ------ ----- ----- ----- ----- -----
Total Distributions.................. (.64) (.69) (.62) (.37) (.14) (.63) (.20)
------ ------ ----- ----- ----- ----- -----
Net Asset Value,
End of Period........................ $ 9.59 $ 9.83 $ 9.17 $ 10.11 --(6) $10.01 $ 9.28
====== ====== ===== ===== ===== ===== =====
Total Return(5)...................... 4.34% 15.23% (3.24%) 8.49%(2) 2.37%(6) 15.09% (1.27%)(2)
Ratios/Supplementary Data
Net Assets (000 Omitted)............. $ 2,631 $3,945 $ 488 $ 547 -- $ 153 $ 60
Ratio of Expenses to Average Net
Assets.............................. .34% .22% -- -- .16%(3) .75% .28%(3)
Ratio of Net Investment Income -- Net
to Average Net Assets............... 6.72% 7.08% 5.24% 5.06%(3) 1.24%(3) 6.62% 2.02%(3)
Decrease Reflected on Above Ratios Due to:
Investment Management, Service and
Distribution Fees Waived by Cowen... .85% .85% .78% .75%(3) .22%(3) 1.10% .30%(3)
Other Expenses Waived or Absorbed.... 2.72% 3.63% 11.85% 16.94%(3) .60%(3) 5.29% 6.05%(3)
Portfolio Turnover Rate.............. 107% 289% 210% 122% 107% 289% 210%
<CAPTION>
Class C
----------------------------------
Period From
Year Year 7/11/94(4)
Ended Ended through
11/30/96 11/30/95 11/30/94
-------- -------- -----------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 9.94 $ 9.17 $ 9.45(1)
----- ----- -----
Income from Investment
Operations:
Investment Income -- Net............. (.65) .70 .22
Net Realized and
Unrealized Gains
(Losses) on
Investments....................... (.23) .77 (.28)
----- ----- -----
Net from Investment Operations....... .42 1.47 (.06)
----- ----- -----
Less Distributions:
Dividends from Net Investment
Income.............................. (.65) (.70) (.22)
Distributions from Net Realized Gains
on Investments...................... -- -- --
----- ----- -----
Total Distributions.................. (.65) (.70) (.22)
----- ----- -----
Net Asset Value,
End of Period........................ $ 9.71 $ 9.94 $ 9.17
===== ===== =====
Total Return(5)...................... 4.48% 16.52% (1.57%)(2)
Ratios/Supplementary Data
Net Assets (000 Omitted)............. $ 93 $ 45 $ 13
Ratio of Expenses to Average Net
Assets.............................. .36% .20% --
Ratio of Net Investment Income -- Net
to Average Net Assets............... 6.75% 7.12% 2.42%(3)
Decrease Reflected on Above Ratios Du
Investment Management, Service and
Distribution Fees Waived by Cowen... .60% .60% .24%(3)
Other Expenses Waived or Absorbed.... 3.14% 5.14% 6.26%(3)
Portfolio Turnover Rate.............. 107% 289% 210%
</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 Charge.
(6) For the period from December 1, 1995 to February 12, 1996, the day on which
all outstanding shares were presented for redemption.
6
<PAGE> 12
OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and policies
of each Fund. There can be no assurance that the Funds will achieve their
investment objectives. Further information about the investment policies of each
Fund, including a list of those restrictions on its investment activities that
cannot be changed without shareholder approval, appears in the Statement of
Additional Information.
COWEN INTERMEDIATE FIXED INCOME FUND
Cowen Intermediate Fixed Income Fund seeks, as its investment objectives,
current income and stability of principal. Although the Fund seeks stability of
principal, the Fund is not a money market fund and its net asset value will
fluctuate in response to changes in interest rates and other market factors. The
Fund seeks to achieve its objectives through investment primarily in high
quality fixed income securities. The average weighted maturity of the securities
held by the Fund may be shortened in order to preserve capital, but not below
three years, if Cowen Asset Management, the Funds' investment manager,
anticipates a rise in interest rates. Conversely, the average maturity may be
lengthened, but not beyond ten years, to maximize yield if interest rates are
expected to decline. The maximum remaining maturity of any investment held by
the Fund is 30 years.
The Fund invests in obligations issued or guaranteed by the U.S.
Government, its agencies, authorities, and instrumentalities ("U.S. Government
Securities"), corporate bonds, debentures, non-convertible fixed income
preferred stocks, asset-backed and receivable-backed securities, floating rate
notes and mortgage related securities, including adjustable rate mortgage
related securities ("ARMs"), collateralized mortgage obligations ("CMOs") and
government stripped mortgage related securities. The securities held by the Fund
are actively managed. Under normal market conditions, at least 65% of the Fund's
net assets will be invested in securities rated high quality -- that is, rated
in the two highest categories -- and all of the Fund's assets will be invested
in securities rated in the four highest categories, established by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"),
and unrated securities determined by Cowen Asset Management to be of comparable
quality. Securities rated in the fourth highest category by S&P or Moody's,
although considered investment grade, may possess speculative characteristics,
and changes in economic or other conditions are more likely to impair the
ability of issuers of these securities to make interest and principal payments
than is the case with respect to issuers of higher grade instruments. See the
Appendix to the Statement of Additional Information for a description of Moody's
and S&P ratings. Although the Fund has no current intention of doing so in the
foreseeable future, it also may attempt to hedge against unfavorable changes in
interest rates by entering into interest rate futures contracts and purchasing
and writing put and call options thereon. These investments are described in the
Statement of Additional Information. The Fund will not invest more than 25% of
its assets in privately issued mortgage related securities. The Fund also may
engage in repurchase agreements, purchase temporary investments, purchase
securities on a when-issued basis and lend its portfolio securities. See "Risk
Factors and Certain Securities and Investment Techniques."
COWEN GOVERNMENT SECURITIES FUND
Cowen Government Securities Fund seeks, as its investment objectives, total
return consisting of current income and appreciation of capital through
investments primarily in U.S. Government Securities. The maturities of the
instruments in which the Fund invests may vary widely depending on prevailing
and anticipated
7
<PAGE> 13
market and economic conditions. The average maturity of the Fund's holdings may
be shortened in order to preserve capital if Cowen Asset Management anticipates
a rise in interest rates. Conversely, the maturity may be lengthened to maximize
return if interest rates are expected to decline. Because the Fund limits its
investments to fixed income securities, the Fund may not achieve as high a level
of capital appreciation as mutual funds that invest in more volatile securities
such as equity securities.
In addition to U.S. Government Securities, the Fund may invest in corporate
bonds, debentures, non-convertible fixed income preferred stocks, asset-backed
and receivable-backed securities and mortgage related securities, including CMOs
and government stripped mortgage related securities. The securities held by the
Fund are actively managed. Under normal market conditions, at least 65% of the
Fund's net assets will be invested in U.S. Government Securities, and the
balance of the Fund's assets will be invested in securities rated in the four
highest categories, established by Moody's or S&P, and unrated securities
determined by Cowen Asset Management to be of comparable quality. Securities
rated in the fourth highest category by S&P or Moody's, although considered
investment grade, possess speculative characteristics, and changes in economic
or other conditions are more likely to impair the ability of issuers of these
securities to make interest and principal payments than is the case with respect
to issuers of higher grade instruments. The Fund will not invest more than 25%
of its assets in privately issued mortgage related securities. Although it has
no present intention of doing so in the foreseeable future, the Fund may attempt
to hedge against unfavorable changes in interest rates by entering into interest
rate futures contracts and purchasing and writing put and call options thereon.
These investments are described in the Statement of Additional Information. The
Fund may engage in repurchase agreements, purchase temporary investments,
purchase securities on a when-issued basis and lend its portfolio securities.
See "Risk Factors and Certain Securities and Investment Techniques."
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
Fixed Income Securities. The market value of fixed income obligations of
the Funds will be affected by general changes in interest rates, which will
result in increases or decreases in the value of the obligations held by the
Funds. The market value of the obligations held by a Fund can be expected to
vary inversely to changes in prevailing interest rates. Investors also should
recognize that, in periods of declining interest rates, a Fund's yield will tend
to be somewhat higher than prevailing market rates and, in periods of rising
interest rates, a Fund's yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to a Fund from the
continuous sale of its shares will tend to be invested in instruments producing
lower yields than the balance of its portfolio, thereby reducing the Fund's
current yield. In periods of rising interest rates, the opposite can be expected
to occur. In addition, securities in which a Fund may invest may not yield as
high a level of current income as might be achieved by investing in securities
with less liquidity, less creditworthiness or longer maturities.
Ratings made available by S&P and Moody's are relative and subjective and
are not absolute standards of quality. Although these ratings are initial
criteria for selection of portfolio investments, Cowen Asset Management also
will make its own evaluation of these securities. Among the factors that will be
considered are the long term ability of the issuers to pay principal and
interest and general economic trends.
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
Cowen Asset Management will consider this event in its determination of whether
the Fund should continue to hold the securities.
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U.S. Government Securities. Each Fund may invest in U.S. Government
Securities, which are obligations issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities. Some U.S. Government Securities,
such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others are supported by: (1) the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Home Loan Banks; (2) the discretionary authority of the U.S. government
to purchase the agency's obligations, such as securities of the Federal National
Mortgage Association ("FNMA"); or (3) only the credit of the issuer, such as
securities of the Student Loan Marketing Association. Although the Funds invest
in securities that are issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities, the Funds' shares are not
guaranteed, and upon redemption, may be worth more or less than the purchase
price due to fluctuations in net asset value. No assurance can be given that the
U.S. government will provide financial support in the future to U.S. government
agencies, authorities or instrumentalities that are not supported by the full
faith and credit of the United States.
U.S. Government Securities include: (1) securities for which the payment of
principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government or any of its agencies, authorities or instrumentalities;
and (2) participations in loans made to foreign governments or other entities
that are so guaranteed. The secondary market for certain of these participations
is limited and, therefore, may be regarded as illiquid.
U.S. Government Securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. Government Securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. Government Securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government Securities
that make regular payments of interest. A Fund accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations, in which case the Fund will forego the purchase of
additional income producing assets with these funds. Zero coupon U.S. Government
Securities consist of STRIPS and CUBES, which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and represent scheduled interest and
principal payments on the bonds.
Temporary Investments. For temporary defensive purposes during periods
when Cowen Asset Management believes that pursuing either Fund's basic
investment strategy may be inconsistent with the best interests of its
shareholders, the Fund may invest its assets in the following money market
instruments: U.S. Government Securities (including those purchased in the form
of custodial receipts), repurchase agreements, certificates of deposit and
bankers' acceptances issued by banks or savings and loan associations having
assets of at least $500 million as of the end of their most recent fiscal year
and high quality commercial paper. Each Fund also may hold a portion of its
assets in money market instruments or cash in amounts designed to pay expenses,
to meet anticipated redemptions or pending investments in accordance with its
objectives and
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policies. Any temporary investments may be purchased on a when-issued basis. To
the extent a Fund's assets are invested in money market instruments, the Fund
will not be pursuing its stated investment objectives.
Custodial Receipts. Each Fund may invest up to 25% of its total assets in
custodial receipts or certificates, such as CATs, TIGRs and FICO Strips,
underwritten by securities dealers or banks that evidence ownership of future
interest payments, principal payments or both on certain notes or bonds issued
by the U.S. government, its agencies, authorities or instrumentalities. The
underwriters of these certificates or receipts purchase a U.S. Government
Security and deposit the security in an irrevocable trust or custodial account
with a custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the U.S. Government Security. Custodial receipts evidencing specific
coupon or principal payments have the same general attributes as zero coupon
U.S. Government Securities, described above. Although typically under the terms
of a custodial receipt a Fund is authorized to assert its rights directly
against the issuer of the underlying obligation, the Fund may be required to
assert through the custodian bank such rights as may exist against the
underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, a Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer. In addition, in the event that
the trust or custodial account in which the underlying security has been
deposited is determined to be an association taxable as a corporation, instead
of a non-taxable entity, the yield on the underlying security would be reduced
in respect of any taxes paid.
Mortgage Related Securities. Each Fund may invest in mortgage related
securities without limit. There are several risks associated with mortgage
related securities generally. One is that the monthly cash inflow from the
underlying loans may not be sufficient to meet the monthly payment requirements
of the mortgage related security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten
the term of the underlying mortgage pool for a mortgage related security. Early
returns of principal will affect the average life of the mortgage related
securities remaining in a Fund. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of a Fund. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that a Fund will have to reinvest the proceeds of prepayments at lower
interest rates than those at which the assets were previously invested. If this
occurs, a Fund's yield will correspondingly decline. Thus, mortgage related
securities may have less potential for capital appreciation in periods of
falling interest rates than other fixed income securities of comparable
maturity, although these securities may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that the Funds
purchase mortgage related securities at a premium, unscheduled prepayments,
which are made at par, will result in a loss equal to any unamortized premium.
ARMs have interest rates that reset at periodic intervals, thereby allowing
a Fund to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both higher
current yields and lower price fluctuation than would be the case with more
traditional long-term debt securities. Furthermore, if prepayments of principal
are made on the underlying mortgages during
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periods of rising interest rates, the Fund generally is able to reinvest these
amounts in securities with a higher current rate of return. Conversely, during
periods of declining interest rates the opposite is expected to occur, although
ARMs can generally be expected to experience fewer prepayments of principal than
comparable fixed rate securities. The Fund, however, does not benefit from
increases in interest rates to the extent that interest rates rise to the point
at which they cause the current yield of adjustable rate mortgages to exceed the
maximum allowable annual or lifetime reset limits (or "caps") for a particular
mortgage. In addition, fluctuations in interest rates above these caps could
cause ARMs to behave more like long term fixed rate securities in response to
extreme movements in interest rates. As a result, during periods of volatile
interest rates, the Fund's net asset value may fluctuate more than if it did not
purchase ARMs. In addition, during periods of rising interest rates, changes in
the coupon of the adjustable rate mortgages will slightly lag changes in market
rates, creating the potential for some principal loss for shareholders who
redeem their shares before the interest rates on the underlying mortgages are
adjusted to reflect current market rates.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which a Fund invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage related
securities.
Mortgage related securities may not be readily marketable. To the extent
any of these securities are not readily marketable in the judgment of Cowen
Asset Management, the investment restriction limiting a Fund's investment in
illiquid instruments to not more than 15% of the value of its net assets will
apply. See "Certain Investment Policies."
Government Stripped Mortgage Related Securities. Each Fund may invest up
to 10% of its total assets in government stripped mortgage related securities
issued and guaranteed by the Government National Mortgage Association ("GNMA"),
FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC"). These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage related certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The certificates underlying the government stripped mortgage related securities
represent all or part of the beneficial interest in pools of mortgage loans. The
Funds will invest in government stripped mortgage related securities in order to
enhance yield or to benefit from anticipated appreciation in value of the
securities at times when Cowen Asset Management believes that interest rates
will remain stable or increase. In periods of rising interest rates, the
expected increase in the value of government stripped mortgage related
securities may offset all or a portion of any decline in value of the securities
held by a Fund.
Investing in government stripped mortgage related securities involves the
risks normally associated with investing in mortgage related securities issued
by government or government related entities. See "Mortgage Related Securities"
above. In addition, the yields on government stripped mortgage related
securities are extremely sensitive to the prepayment experience on the mortgage
loans underlying the certificates collateralizing the securities. If a decline
in the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only government
stripped mortgage related securities and increasing the yield to maturity on
principal-only government stripped mortgage related securities. Sufficiently
high prepayment rates could result in a Fund not fully recovering its initial
investment in an interest-only government stripped
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mortgage related security. Under current market conditions, the Funds expect
that investments in government stripped mortgage related securities will consist
primarily of interest-only securities. Government stripped mortgage related
securities are currently traded in an over-the-counter market maintained by
several large investment banking firms. There can be no assurance that a Fund
will be able to effect a trade of a government stripped mortgage related
security at a time when it wishes to do so. The Funds will acquire government
stripped mortgage related securities only if a secondary market for the
securities exists at the time of acquisition.
Asset-Backed and Receivable-Backed Securities. Each Fund may invest up to
25% of its total assets in asset-backed and receivable-backed securities. To
date, several types of asset-backed and receivable-backed securities have been
offered to investors, including "Certificates for Automobile Receivables"
("CARssm") and interests in pools of credit card receivables. CARssm represent
undivided fractional interests in a trust, the assets of which consist of a pool
of motor vehicle retail installment sales contracts and security interests in
the vehicles securing the contracts. Payments of principal and interest on
CARssm are passed through monthly to certificate holders and are guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the trustee or originator of the
trust.
An investor's return on CARssm may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the Fund may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the availability of deficiency judgments
following these sales, because of depreciation, damage or loss of a vehicle,
because of the application of federal and state bankruptcy and insolvency laws
or other factors. As a result, certificate holders may experience delays in
payment if the letter of credit is exhausted. Consistent with the Fund's
investment objective and policies and subject to the review and approval of the
Board of Directors and appropriate disclosure to investors, the Funds also may
invest in other types of asset-backed and receivable-backed securities.
Repurchase Agreements. Each Fund may, without limitation, engage in
repurchase agreement transactions. Under the terms of a typical repurchase
agreement, a 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-upon
price and time, thereby determining the yield during the Fund's holding period.
Thus, repurchase agreements are the functional equivalent of secured loans
collateralized by the underlying securities. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Fund's
holding period. A Fund may enter into repurchase agreements with respect to U.S.
Government Securities with member banks of the Federal Reserve System and
certain non-bank dealers approved by the Board of Directors. Under each
repurchase agreement, the selling institution is required to maintain the value
of the securities subject to the repurchase agreement at not less than their
repurchase price. Cowen Asset Management, acting under the supervision of the
Board of Directors, reviews on an ongoing basis the value of the collateral and
the creditworthiness of those non-bank dealers with whom the Fund enters into
repurchase agreements. A Fund will not invest in a repurchase agreement maturing
in more than seven days if the investment, together with all other illiquid
securities held by the Fund, exceeds 15% of the Fund's total assets. See
"Certain Investment Policies." In entering into a repurchase agreement, a Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligation and the Fund is delayed in or prevented from
exercising its rights to dispose of the underlying securities, including the
risk of a possible decline in the value of the underlying securities during the
period in
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<PAGE> 18
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.
Mortgage Dollar Rolls. To take advantage of attractive financing
opportunities in the mortgage market and to enhance current income, the Funds
may enter into mortgage dollar roll transactions with respect to not more than
25% of the Fund's total assets. A dollar roll transaction involves a sale by the
Fund of a security to a financial institution, such as a bank or broker-dealer,
concurrently with an agreement by the Fund to repurchase a similar security from
the institution at a later date at an agreed upon price. The securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in additional instruments
for the Fund. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. Dollar roll transactions involve the risk that the market value of
the securities sold by the Fund may decline below the repurchase price of those
securities to be purchased. At the time that the Fund enters into a mortgage
dollar roll transaction, it will place in a segregated account maintained with
its custodian or a designated sub-custodian cash, U.S. Government Securities or
other liquid, unencumbered securities having a value equal to the repurchase
price (including accrued interest) and will subsequently monitor the account to
insure that its value is maintained.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving the sale of a security. The
Funds do not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
Lending Portfolio Securities. Each Fund may lend securities to brokers,
dealers and other financial organizations. These loans, if and when made, may
not exceed 30% of a Fund's assets taken at value. A Fund's loans of securities
will be collateralized by cash, letters of credit or U.S. Government Securities.
The cash or instruments collateralizing a Fund's loans of securities will be
maintained at all times in a segregated account with the Fund's custodian, or
with a designated sub-custodian, in an amount at least equal to the current
market value of the loaned securities. In lending securities to brokers, dealers
and other financial organizations, a Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, each Fund may, without limitation, purchase
securities on a when-issued or delayed-delivery basis, in which case delivery of
the securities occurs beyond the normal settlement period; payment for or
delivery of the securities would be made prior to the reciprocal delivery or
payment by the other party to the transaction. A Fund will enter into
when-issued or delayed-delivery transactions for the purpose of acquiring
securities and not for the purpose of leverage. When-issued securities purchased
by the Fund may include securities purchased on a "when, as and if issued" basis
under which the issuance of the securities depends on the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or debt
restructuring. The Fund will establish with its custodian, or with a designated
sub-custodian, a segregated account consisting of cash, U.S. Government
Securities or other liquid, unencumbered in an amount equal to the amount of its
when-issued or delayed-delivery purchase commitments.
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Securities purchased on a when-issued or delayed-delivery basis may expose
a Fund to risk because the securities may experience fluctuations in value prior
to their actual delivery. A Fund does not accrue income with respect to a
when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
Non-Publicly Traded Securities. Each Fund may invest up to 10% of its
total assets in non-publicly traded securities, which may be less liquid than
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Funds. In addition, companies whose securities are
not publicly traded are not subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. A Fund also may purchase securities that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), but that can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act ("Rule 144A Securities"). Rule 144A Securities will be considered
illiquid and therefore subject to the Fund's 15% limitation on the purchase of
illiquid securities. This investment practice could have the effect of
increasing the level of illiquidity in a Fund to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
Securities. The Board of Directors has instructed Cowen Asset Management to
determine and monitor on a daily basis the liquidity of Rule 144A Securities,
although the Board of Directors will retain ultimate responsibility for any
determination regarding liquidity.
CERTAIN INVESTMENT POLICIES
Cowen Funds, Inc. on behalf of each Fund has adopted certain investment
restrictions that are enumerated in detail in the Statement of Additional
Information. Among other restrictions, each Fund may not, with respect to 75% of
its total assets taken at market value, invest more than 5% of its total assets
in the securities of any one issuer, except U.S. Government Securities, or
acquire more than 10% of the outstanding voting securities of any one issuer. In
addition, each Fund may not invest more than 25% of its total assets in
securities of issuers in any one industry. Cowen Funds, Inc. on behalf of a Fund
may borrow money as a temporary measure from banks in an aggregate amount not
exceeding one-third of the value of the Fund's total assets to meet redemptions
and for other temporary or emergency purposes not involving leveraging and a
Fund may not purchase securities while borrowings exceed 5% of the value of the
Fund's total assets. A Fund will not invest more than 15% of the value of its
total assets in securities that are illiquid, including repurchase agreements
maturing in more than seven days and that cannot be liquidated prior to
maturity, as well as securities that are restricted as to disposition under the
1933 Act that are illiquid by virtue of the absence of a readily available
market.
The investment restrictions listed above (with the exception of that
regarding illiquid investments) as well as the Funds' investment objectives are
fundamental policies and accordingly may not be changed with respect to either
Fund without the approval of a majority of the outstanding shares of that Fund,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
Unless otherwise specifically stated, however, the investment policies and
practices of each Fund are not fundamental and may be changed by the Board of
Directors.
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PORTFOLIO TRANSACTIONS
All orders for transactions in securities 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 commissions 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 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. Consistent with the NASD's Rules of Fair Practice,
Cowen Asset Management may consider a broker-dealer's sales of shares of the
Fund as a factor in selecting from among those brokers providing comparable
prices and execution on the Fund's portfolio transactions.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction of
the Board of Directors of Cowen Funds, Inc. By virtue of the responsibilities
assumed by Cowen Asset Management under its Investment Management Agreement with
each Fund, the Fund will require no executive employees other than its officers,
none of whom will devote full time to the affairs of the Fund.
INVESTMENT MANAGER
Cowen, an investment adviser and broker-dealer registered with the SEC,
through Cowen Asset Management, serves as each Fund's investment manager. Cowen
currently serves as investment manager for four other mutual funds, Cowen
Standby Reserve Fund, Inc., Cowen Standby Tax-Exempt Reserve Fund, Inc., Cowen
Income + Growth Fund, Inc. and Cowen Opportunity Fund (another 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 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 each Fund, Cowen Asset Management has agreed to be responsible
for the Fund's investment program. Subject to the supervision and direction of
the 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 and 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 from each Fund,
computed daily and payable monthly, at the annual rate of .50 percent of average
daily net assets of CIFIF and .60 percent of the average daily net assets of
CGSF.
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Alan E. Koepplin, Senior Vice President of Cowen Asset Management, is an
investment officer of each Fund and is primarily responsible for the daily
management of each Fund's portfolio. Mr. Koepplin has had such responsibility
since the Fund commenced operations in January, 1993. Mr. Koepplin has been with
Cowen Asset Management since May, 1992. Prior thereto he was the Senior Fixed
Income Manager with the Bank of New York.
DISTRIBUTOR
Cowen acts as distributor of the Funds' 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 Funds 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 Cowen Funds, Inc. with respect to each Fund
pursuant to Rule 12b-1 under 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 Funds regarding their ownership of shares or
their accounts with the Funds or who provide other similar services not
otherwise required to be provided by the Funds' investment adviser, transfer
agent or other agent of the Funds.
In addition, pursuant to the Plan, each Fund pays to Cowen a monthly
distribution fee at the annual rate of .25% for CIFIF, and .75% for CGSF, of
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 of
the respective Fund; (2) costs of printing and distributing the Funds'
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 Cowen Funds, Inc.
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.
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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 a 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 ("IFTC"), a subsidiary of State Street
Boston Corp., serves as the custodian of each of the Funds' investments and as
its transfer and dividend agent. Communications to IFTC should be directed to
P.O. Box 419111, Kansas City, MO 64141.
EXPENSES OF THE FUND
Operating expenses of each Fund generally consist of all costs not
specifically borne by Cowen or 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. Organizational expenses of each Fund have
been deferred and are being amortized over a period not in excess of five years
from the time the Fund commenced investment operations. In addition, the Funds
bear certain expenses relating to the servicing of shareholder accounts and the
distribution of its shares. The Funds' Investment Management Agreement with
Cowen Asset Management provides that Cowen Asset Management will reimburse the
Funds 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 Management, in its sole discretion and as it deems appropriate, may
reimburse or waive a portion or all of any Fund's operating expenses or 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 each Fund is calculated on each day on
which the New York Stock Exchange, Inc. is open as of 4:15 p.m. Eastern time.
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 cost at the time of its purchase and thereafter
assuming a constant amortization to maturity of any discount or
17
<PAGE> 23
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 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. 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 a 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. Each Fund reserves the right to vary these minimums at any time.
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 Funds offer an Automatic Investment Plan
whereby IFTC 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, Cowen Funds, Inc., IFTC, or Cowen.
Further information regarding the Automatic Investment Plan may be obtained
through any Cowen account representative.
Under the Multiple Pricing System, each 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 C 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 .20% of the net asset value for
shares of CGSF and .16% of the net asset value for shares of CIFIF 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
18
<PAGE> 24
annual rate of .25% of the value of the Fund's average daily net assets
attributable to this Class. See "Management of the Funds -- Distributor." The
sales charge payable upon the purchase of Class A shares will vary with the
amount of purchase as set forth below.
CIFIF
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Shares Purchased in Percentage of the Percentage of the Dealer
Single Transaction Public Offering Price Net Amount Invested Reallowance
------------------------------ --------------------- ------------------- -----------
<S> <C> <C> <C>
Up to $49,999................. 2.35% 2.40% 2.00%
$50,000 - $99,999............. 2.25% 2.30% 1.90%
$100,000 - $249,999........... 2.00% 2.04% 1.75%
$250,000 - $499,999........... 1.75% 1.78% 1.50%
$500,000 - $999,999........... 1.45% 1.47% 1.25%
$1,000,000 - $2,999,999....... 0% 0% .60%
$3,000,000 - $3,999,999*...... 0% 0% .30%
</TABLE>
CGSF
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
Shares Purchased in Percentage of the Percentage of the Dealer
Single Transaction Public Offering Price Net Amount 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% .80%
$3,000,000 - $3,999,999*...... 0% 0% .40%
</TABLE>
- ---------------
* Investors who purchase $4 million or more of shares will receive Class C
shares, which are not subject to any front-end sales charge. See "Class C
Shares."
The above schedules of sales charges are 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 schedules 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 Income + Growth Fund, Inc. and Cowen Opportunity Fund previously
or simultaneously purchased subject to a sales charge, amounts to $50,000 or
more. The foregoing schedules 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
19
<PAGE> 25
period, of Class A shares of a Fund, Cowen Income + Growth Fund, Inc. and Cowen
Opportunity Fund from Cowen. Class A shares of a Fund, Cowen Income + Growth
Fund, Inc. and Cowen Opportunity 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. The tax status of a
gain realized on a redemption will not be affected by exercise of the
reinvestment privilege but a loss will be nullified if the reinvestment is made
within 30 days of the redemption. See the Statement of Additional Information
for the tax consequences when, within 90 days of a purchase of shares, the
shares are redeemed and reinvested in the Fund or another mutual fund.
Each 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 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 of CGSF and a
sales commission equal to 2.00% of the amount invested to dealers who sell Class
B shares of CIFIF. Class B shares may be subject upon redemption to a contingent
deferred sales charge ("CDSC"). See "Redemption of Shares." Class B shares of
CIFIF are subject to a service fee at the annual rate of .25%, and a
distribution fee at the annual rate of .25%, and Class B shares of CGSF 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 respective Fund's average daily net
assets attributable to this Class. See "Management of the Funds -- 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 C shares. Cowen reserves the right
to vary these guidelines at any time.
20
<PAGE> 26
CLASS C SHARES
The public offering price of Class C shares is the net asset value per
share next determined after a purchase order is received without imposition of
any sales charge. Certain dealers may refer to Class C shares as "institutional
shares." Class C 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 that firm has contacted the Fund. Cowen or
any subsidiary of Cowen with respect to furnishing advice to the client 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) by 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 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.
EXCHANGE PRIVILEGE
Shares of one Fund may be exchanged for shares of the same Class (or the
sole class offered) of the other Fund or any of the mutual funds listed below
for which Cowen serves as a distributor.
- Cowen Opportunity Fund, a fund that seeks capital appreciation through
investment in the equity securities of companies that are expected to
benefit from scientific developments and advances.
- Cowen Income + Growth Fund, Inc., a fund that seeks a high level of
dividend income, to the extent consistent with prudent investment
management, by investing primarily in income-producing equity securities.
- Cowen 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.
21
<PAGE> 27
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 Income + Growth Fund, Inc. and Cowen Opportunity 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 one Fund with
shares of the other Fund or 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 a
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 C shares (depending on his eligibility for Class C shares) in the
exchange transaction. 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 Funds 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 a 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 CIFIF, holders of these shares
will not be able to exchange their shares with shares of CGSF 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 CIFIF 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 CGSF 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 CGSF, such shareholder will be deemed to have held
the Class B shares for a period of
22
<PAGE> 28
four full years on the date of the last exchange. If the shareholder were then
immediately to redeem his Class B shares of CGSF, 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 CGSF 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 CIFIF, holders of these shares will not be able to exchange their shares with
shares of CGSF 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 CGSF or of any of the non-money market funds that offer Class B shares
subject to a higher CDSC than that imposed by CIFIF, 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 CIFIF will apply.
REDEMPTION OF SHARES
GENERAL INFORMATION
Each 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 IFTC, 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 IFTC
on that day and the proceeds of the redemption will be transmitted in accordance
with the investor's instructions within seven days. Redemption requests received
at or after that time will be effected on the next business day. Proceeds of any
redemption 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 15 or more days. Pending 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 a participating securities dealer or transmitted to IFTC by wire transfer.
Cowen generally will effect redemptions of shares upon oral instruction
received from a shareholder. If shares are to be redeemed pursuant to an order
sent to IFTC by the shareholder, IFTC will require written redemption
instructions signed by the shareholder of record, which signature must be
guaranteed by a commercial bank or trust company (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, the 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 IFTC with the redemption request. Cowen
or IFTC 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 IFTC at
1-800-262-7116.
23
<PAGE> 29
Each Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
Each Fund reserves the right to redeem shares in any account, 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 increase the Fund account
to $250 or more before the redemption is processed by the Fund.
The Funds offer a Systematic Withdrawal Plan under which a shareholder with
$10,000 or more in a 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 the commencement of participation in the plan. A shareholder
who elects to use the Systematic Withdrawal Plan should be aware that 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. 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>
CDSC
YEAR SINCE PURCHASE IN WHICH ----------------
REDEMPTION IS EFFECTED CIFIF CGSF
------------------------------------------------------ ----- -----
<S> <C> <C>
Year 1................................................ 3.00% 5.00%
Year 2................................................ 3.00% 4.00%
Year 3................................................ 2.00% 3.00%
Year 4................................................ 2.00% 3.00%
Year 5................................................ 1.00% 2.00%
Year 6................................................ 1.00% 1.00%
Thereafter............................................ None 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 of CGSF that he purchased
seven years ago, 100,000 shares that he purchased more than
24
<PAGE> 30
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 multiplied by 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
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of each Fund will be declared daily
and distributed monthly and distributions of net realized capital gains of the
Fund, if any, will be declared and distributed annually after the close of the
fiscal year in which they are earned. Unless a shareholder instructs the Fund
that dividends and capital gains distributions on shares of any Class should be
paid in cash, dividends and capital gains distributions will be reinvested
automatically in additional shares of the same Class of the Fund at net asset
value, without a sales charge. A shareholder will be entitled to receive
dividends declared with respect to shares of a Fund from the date on which a
purchase payment is made (ordinarily the fifth business day after a purchase
order is placed) through the date on which a redemption order for those shares
is placed. Each Fund is subject to a 4% nondeductible excise tax measured with
respect to certain undistributed amounts of net investment income and capital
gains. If necessary to avoid the imposition of this tax, and if in the best
interests of its shareholders, a Fund will declare and pay dividends of its net
investment income and distributions of its net capital gains more frequently
than stated above. 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 Funds' Expenses,"
"Purchase of Shares," "Management of the Funds -- Distributor" and "Additional
Information."
TAXES
Cowen Funds, Inc. intends that each Fund qualify each year as a regulated
investment company within the meaning of the Code. To qualify as a regulated
investment company for federal income tax purposes, the Fund will limit its
income and investments so that (1) less than 30% of its gross income is derived
from the sale or disposition of stocks, other securities and certain financial
instruments (including certain forward contracts) that were held for less than
three months and (2) at the close of each quarter of the taxable year (a) not
more than 25% of the market value of the Fund's total assets is invested in the
securities (other than U.S.
25
<PAGE> 31
Government Securities) of a single issuer or of two or more issuers controlled
by the Fund that are engaged in the same or similar trades or businesses or in
related trades or businesses and (b) at least 50% of the market value of the
Fund's total assets is represented by (i) cash and cash items, (ii) U.S.
Government Securities and (iii) other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the market value of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer. The requirements for qualification may cause the Fund
to restrict the degree to which it sells or otherwise disposes of securities and
certain financial instruments held for less than three months. If a Fund
qualifies as a regulated investment company and meets certain distribution
requirements, the Fund will not be subject to federal income tax on its net
investment income and net realized capital gains that it distributes to its
shareholders.
Dividends paid by a Fund out of net investment income and distributions of
net realized short-term capital gains will be taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional Fund
shares. Distributions of net realized long-term capital gains will be taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Dividends and distributions paid by the Fund
will generally not qualify for the federal dividends received deduction for
corporate shareholders.
Statements as to the tax status of each Fund shareholder's dividends and
distributions will be mailed annually. Shareholders will also receive, as
appropriate, various written notices after the close of the Fund's taxable year
regarding the tax status of certain dividends and distributions that were paid
(or that are treated as having been paid) by the Fund to its shareholders during
the preceding taxable year, including the amount of dividends that represent
interest derived from U.S. Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
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PERFORMANCE OF THE FUNDS
YIELD
From time to time, the Funds may advertise the 30-day "yield" for each
Class. The yield of a Fund refers to the income generated by an investment in
the Class over the 30-day period identified in the advertisement and is computed
by dividing the net investment income per share earned by the Class during the
period by the net asset value per share on the last day of the period. This
income is "annualized" by assuming that the amount of income is generated each
month over a one-year period and is compounded semi-annually. The annualized
income is then shown as a percentage of the net asset value.
TOTAL RETURN
From time to time, the Funds may advertise their "average annual total
return" over various periods of time for each Class. This total return figure
shows the average percentage change in value of an investment in the Class from
the beginning date of the measuring period to the ending date of the measuring
period. The figure reflects changes in the price of shares and assumes that any
income, dividends and/or capital gains distributions made by the Fund during the
period are reinvested in shares of the same Class. Figures will be given for
recent one-, five- and ten-year periods, or for the life of the Class to the
extent that it has not been in existence for the full length of those 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, investors should note that the Fund's annual total return for any one year
in the period might have been greater or less than the average for the entire
period. A Fund also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in the
Fund for the specific period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate total returns
may be calculated either with or without the effect of the sales charge to which
Class A shares are subject or any applicable CDSC for Class B shares and may be
shown by means of schedules, charts or graphs, and may indicate subtotals of the
various components of total return (that is, the change in value of initial
investment, income dividends and capital gains distributions).
It is important to note that yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
Statement of Additional Information describes the method used to determine the
Funds' yield and total return. Shareholders may make inquiries regarding a Fund,
including current yield quotations or total return figures, to any Cowen account
representative. The offering of Class B and Class C shares is expected to
commence in the future. Accordingly, no performance information is available at
this time for these shares.
In reports or other communications to shareholders or in advertising
material, a Fund may compare the performance of its Classes with that of other
mutual funds (or classes thereof) as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds or with other appropriate indexes of investment
securities, such as the Lehman Brothers Government Bond Index, the Lehman
Brothers Corporate Bond Index, the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Intermediate Government/Corporate Bond Index and the
Lehman Brothers Intermediate Government Bond Index. The performance information
of the Classes also may include evaluations of the Funds published by nationally
recognized ranking services and by financial publications that are nationally
recognized, such as Business Week, Forbes, Fortune, Institutional Investor,
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<PAGE> 33
Barron's, Investor's Daily, Kiplingers Personal Finance, The Wall Street
Journal, USA Today, The New York Times and Money.
Cowen Funds, Inc. sends to each shareholder a semi-annual report and an
audited annual report, each of which includes a list of the investment
securities held by the Funds. 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.
ADDITIONAL INFORMATION
Each Fund is a series of Cowen Funds, Inc., which was incorporated on June
26, 1986 under the laws of the State of Maryland. All shares of the Fund have
equal rights and privileges as to participation in dividends and distributions
and in the net distributable assets 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 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.
When matters are submitted for shareholder vote, shareholders of each
series of Cowen Funds, Inc., including each Fund, will have one vote for each
full share held and proportional, fractional votes for each fractional share
held. Shareholders of all series of Cowen Funds, Inc. will vote collectively on
certain matters affecting all series, such as the election of directors and the
selection of accountants; shareholders of one series are not entitled to vote on
a matter that does not affect that series but that does require a separate vote
of another series, such as a particular series' investment management agreement.
In turn, all matters affecting only the interests of one Class, such as the
terms of the Plan as it relates to a Class, require a separate vote of the
shareholders of that Class. Unless otherwise required by the 1940 Act,
ordinarily it will not be necessary for Cowen Funds, Inc. to hold annual
meetings of shareholders. As a result, shareholders may not consider each year
the election of directors or the appointment of accountants. However, pursuant
to the By-Laws of Cowen Funds, Inc., the holders of at least 10 percent of the
shares outstanding and entitled to vote may require a special meeting of
shareholders to be held for any purpose, including that of removing a director
from office. Shareholders of Cowen Funds, Inc. may remove a director by the
affirmative vote of a majority of the outstanding voting shares. In addition,
the Board of Directors will call a special meeting of shareholders for the
purpose of electing directors if, at any time, less than a majority of the
directors holding office at that time was elected by shareholders.
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THE COWEN FAMILY OF FUNDS
COWEN INTERMEDIATE FIXED INCOME FUND, a series of Cowen Funds, Inc., seeks
current income and stability of principal. The Fund seeks to achieve its
objectives through investment primarily in high quality intermediate term fixed
income securities.
COWEN GOVERNMENT SECURITIES FUND, a series of Cowen Funds, Inc., seeks
total return consisting of current income and appreciation of capital through
investment primarily in securities issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities.
COWEN OPPORTUNITY FUND, a series of Cowen Funds, Inc., seeks capital
appreciation through investment in the equity securities of companies that are
expected to benefit from scientific developments and advances.
COWEN INCOME + GROWTH FUND, INC. seeks a high level of dividend income, to
the extent consistent with prudent investment management, by investing primarily
in income-producing equity securities.
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.
For more complete information regarding any of these funds, including
charges and expenses, contact your account representative or call 800-262-7116.
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STATEMENT OF ADDITIONAL INFORMATION
April 1, 1997
COWEN INTERMEDIATE FIXED INCOME FUND
COWEN GOVERNMENT SECURITIES FUND
each a series of
COWEN FUNDS, INC.
Financial Square, New York, NY 10005, (212) 495-6724,
(800) 262-7116
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Cowen Intermediate Fixed Income Fund and
Cowen Government Securities Fund (each a "Fund" and, collectively, the "Funds")
dated April 1, 1997 and is incorporated by reference in its entirety therein.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Funds should be made solely upon the information
contained herein. Copies of the Funds' Prospectus may be obtained by calling
Cowen & Co. ("Cowen"), the Fund's principal underwriter, at (212) 495-6724 or by
contacting any Cowen account representative.
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies........... 2
Purchases and Redemptions.................... 10
Management................................... 11
Taxes........................................ 16
Performance Information...................... 18
Financial Statements......................... 21
Appendix..................................... A-1
COWEN & COMPANY
Principal Underwriter
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INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Prospectus discusses the investment objectives of the Funds and
the policies to be employed to achieve those objectives. Supplemental
information is set out below concerning the types of securities and other
instruments in which the Funds may invest, the investment policies and
strategies that the Funds may utilize and certain risks attendant to those
investments, policies and strategies.
RATINGS AS INVESTMENT CRITERIA
In general, the ratings of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P") represent the opinions of
those agencies as to the quality of debt obligations that they rate. It should
be emphasized, however, that these ratings are relative and subjective, are not
absolute standards of quality and do not evaluate the market risk of securities.
These ratings will be used by the Funds as initial criteria for the selection of
portfolio securities, but the Funds also will rely upon the independent advice
of Cowen, through Cowen Asset Management, their investment manager, to evaluate
potential investments. Among the factors that will be considered are the long
term ability of the issuer to pay principal and interest and general economic
trends. The Appendix to this Statement of Additional Information contains
further information concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by a Fund, an issue of debt obligations
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event will require the sale of the debt
obligation by the Fund, but Cowen Asset Management will consider the event in
its determination of whether the Fund should continue to hold the obligation. In
addition, to the extent that the ratings change as a result of changes in rating
organizations or their rating systems or owing to a corporate restructuring of
Moody's or S&P, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with its investment objectives and policies.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government or one of its
agencies, authorities or instrumentalities ("U.S. Government Securities") in
which the Funds may invest include debt obligations of varying maturities issued
by the U.S. Treasury or issued or guaranteed by an agency or instrumentality of
the U.S. government, including the Federal Housing Administration, Farmers Home
Administration, The Financing Corporation, Export-Import Bank of the U.S., Small
Business Administration, Government National Mortgage Association ("GNMA"),
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association ("FNMA"), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association and Resolution Trust Corporation. Direct obligations of the U.S.
Treasury include a variety of
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securities that differ in their interest rates, maturities and dates of
issuance. Because the U.S. government is not obligated by law to provide support
to an instrumentality that it sponsors, a Fund will invest in obligations issued
by an instrumentality of the U.S. government only if Cowen Asset Management
determines that the instrumentality's credit risk does not make its securities
unsuitable for investment by the Fund.
MORTGAGE RELATED SECURITIES
The average maturity of pass-through pools of mortgage related
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location of
the mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to accurately predict the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.
Mortgage related securities may be classified as private, governmental
or government related, depending on the issuer or guarantor. Private mortgage
related securities represent pass-through pools consisting principally of
conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage related securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of such securities, is a wholly owned U.S. governmental corporation within the
Department of Housing and Urban Development. Government related mortgage
securities are not backed by the full faith and credit of the United States.
Issuers of these securities include FNMA and FHLMC. FNMA is a government
sponsored corporation owned entirely by private stockholders that is subject to
general regulation by the Secretary of Housing and Urban Development.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA. FHLMC is a corporate instrumentality of the
United States, the stock of which is owned by the Federal Home Loan Banks.
Participation certificates representing interests in mortgages from FHLMC's
national portfolio are guaranteed as to the timely payment of interest and
ultimate collection of principal by FHLMC.
Cowen Asset Management expects that private, governmental entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may be shorter than
previously customary. As new types of mortgage related securities are developed
and offered to investors, the Funds, consistent with their objectives and
policies, will consider making investments in those new types of securities.
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The Funds also may invest in pass-through securities backed by
adjustable rate mortgages that have been introduced by GNMA, FNMA and FHLMC.
These securities bear interest at a rate that is adjusted monthly, quarterly or
annually. The prepayment experience of the mortgages underlying these securities
may vary from that for fixed rate mortgages. The Funds will only purchase
mortgage related securities issued by persons that are governmental agencies or
instrumentalities or fall outside, or are excluded from, the definition of
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act").
FUTURES CONTRACTS AND COMMODITY OPTIONS
Although there is no present intention to do so in the foreseeable
future, each Fund may enter into futures contracts and purchase and write (sell)
options on these contracts, including but not limited to interest rate and
securities index futures contracts and put and call options on these futures
contracts. These contracts will be entered into only upon the judgment of Cowen
Asset Management that such contracts are necessary or appropriate in the
management of the Fund's assets. These contracts will be entered into on
exchanges designated by the Commodity Futures Trading Commission ("CFTC") or,
consistent with CFTC regulations, on foreign exchanges. These transactions may
be entered into for bona fide hedging and other permissible risk management
purposes including protecting against anticipated changes in the value of
securities a Fund intends to purchase.
A Fund will not enter into futures contracts and commodity options for
which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Fund's assets after taking into account unrealized profits and
unrealized losses on any contracts it has entered into. All futures and options
on futures positions will be covered by owning the security or segregation of
assets. With respect to long positions in a commodity futures contract or option
(e.g., futures contracts to purchase the underlying commodity and call options
purchased or put options written on these futures contracts or commodities), the
underlying commodity value of the futures contract at all times will not exceed
the sum of cash, short term U.S. debt obligations or other high quality
obligations set aside for this purpose.
A Fund may lose the expected benefit of these futures or options
transactions and may incur losses if the prices of the underlying commodities
move in an unanticipated manner. In addition, changes in the value of the Fund's
futures and options positions may not prove to be perfectly or even highly
correlated with changes in the value of its portfolio securities. Successful use
of futures and related options is subject to Cowen Asset Management's ability to
predict correctly movements in the direction of the securities markets
generally, which ability may require different skills and techniques than
predicting changes in the prices of individual securities. Moreover, futures and
options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Fund may realize a
loss on a futures contract or option that is not offset by an
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<PAGE> 41
increase in the value of its portfolio securities that are being hedged or a
Fund may not be able to close a futures or options position without incurring a
loss in the event of adverse price movements.
Futures contracts and options thereon may be undertaken for hedging and
other risk management purposes in an effort to reduce the impact of several
kinds of anticipated price fluctuation risks on the securities held by a Fund.
For example, put options on interest rate futures might be purchased to protect
against declines in the market values of debt securities occasioned by higher
interest rates. If these transactions are successful, the futures or options
positions taken by a Fund will rise in value by an amount which approximately
offsets the decline in value of the portion of the securities held by a Fund
that is being hedged.
On other occasions, a Fund may enter into contracts to purchase the
underlying commodity. For example, futures contracts for the purchase of debt
securities might be entered into to protect against an anticipated increase in
the price of debt securities to be purchased in the future resulting from
decreased interest rates.
A Fund will incur brokerage costs whether or not its hedging is
successful and will be required to post and maintain "margin" as a good-faith
deposit against performance of its obligations under futures contracts and under
options written by the Fund. Futures and options positions are marked to the
market daily and the Fund may be required to make subsequent "variation" margin
payments depending upon whether its positions increase or decrease in value. In
this context margin payments involve no borrowing on the part of the Fund.
LENDING PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to brokers, dealers and other
financial organizations. These loans, if and when made, may not exceed 33-1/3%
of the value of a Fund's total assets. A Fund will not lend securities to Cowen
unless the Fund has applied for and received specific authority to do so from
the Securities and Exchange Commission (the "SEC"). A Fund's loans of securities
will be collateralized by cash, letters of credit or U.S. Government Securities.
The cash or instruments collateralizing a Fund's loans of securities will be
maintained at all times in a segregated account with the Fund's custodian or
with a designated sub-custodian in an amount at least equal to the current
market value of the loaned securities. From time to time, a Fund may pay a part
of the interest earned from the investment of collateral received for securities
loaned to the borrower and/or a third party that is unaffiliated with the Fund
and is acting as a "finder." A Fund will comply with the following conditions
whenever it loans securities: (1) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower; (2) the borrower must
increase the collateral whenever the market value of the securities loaned rises
above the level of the collateral; (3) the Fund must be able to terminate the
loan at any time; (4) 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; (5) the Fund may pay only reasonable custodian
fees in connection with the loan; and (6) voting rights on the loaned securities
may pass to the borrower except that, if a material event
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<PAGE> 42
adversely affecting the investment in the loaned securities occurs, the Board of
Directors must terminate the loan and regain the right to vote the securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
When a Fund engages in when-issued or delayed-delivery securities
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 10 below have been
adopted by Cowen Funds, Inc. as fundamental policies of each of the Funds. Under
the 1940 Act, a fundamental policy may not be changed without the vote of a
majority of the outstanding voting securities of a Fund, which is defined in the
1940 Act as the lesser of (1) 67% or more of the shares present at a Fund
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (2) more than 50% of the outstanding
shares of the Fund. Investment restrictions 11 through 16 may be changed by a
vote of a majority of the Board of Directors at any time.
Under the investment restrictions adopted by the Funds:
1. A Fund will not purchase securities (other than U.S. Government
Securities) of any issuer if, as a result of the purchase, more than 5% of the
value of the Fund's total assets would be invested in the securities of the
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to this 5% limitation.
2. The Funds will not purchase more than 10% of the voting securities
of any one issuer, except that this limitation is not applicable to the Fund's
investments in U.S. Government Securities, and up to 25% of the Fund's assets
may be invested without regard to this 10% limitation.
3. A Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. This limitation is not
applicable to a Fund's investments in U.S. Government Securities.
4. A Fund will not borrow money, except that the Fund may borrow from
banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise require the untimely
disposition of securities, in an amount not to exceed one-third of the value of
the Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing is
made. Whenever a Fund's borrowings exceed 5% of the value of its total assets,
it will not make any additional investments.
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<PAGE> 43
5. A Fund will not lend any funds or other assets, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements consistent with the Fund's investment objective and
policies.
6. A Fund will not purchase securities on margin, except that the Fund
may obtain any short term credits necessary for the clearance of purchases and
sales of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or options on
futures contracts will not be deemed to be a purchase of securities on margin.
7. A Fund will not make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of the securities or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short.
8. A Fund will not purchase or sell real estate or real estate limited
partnership interests, except that it may purchase and sell mortgage related
securities and securities of companies that deal in real estate or interests
therein.
9. A Fund will not purchase or sell commodities or commodity contracts
(except financial futures contracts and related options and other similar
contracts).
10. A Fund will not act as an underwriter of securities, except as the
Fund may be deemed an underwriter in connection with dispositions of its
investments.
11. A Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
12. A Fund will not make investments for the purpose of exercising
control of management.
13. A Fund will not purchase any security if as a result (unless the
security is acquired pursuant to a plan of reorganization or an offer of
exchange) the Fund would own any securities of a registered open-end investment
company or more than 3% of the total outstanding voting stock of any registered
closed-end investment company or more than 5% of the value of the Fund's total
assets would be invested in securities of any one or more registered closed-end
investment companies.
14. A Fund will not purchase any security if as a result the Fund would
then have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
15. A Fund will not purchase or retain securities of any company if, to
the knowledge of Cowen Funds, Inc., any of its officers or Directors or any
officer or director of Cowen individually
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<PAGE> 44
owns more than 1/2 of 1% of the outstanding securities of the company and
together they own beneficially more than 5% of the securities.
16. A Fund will not invest in excess of 5% of the value of its net
assets in warrants, valued at the lower of cost or market value. Included within
this amount, but not to exceed 2% of the value of the Fund's net assets, may be
warrants that are not listed on the New York or American Stock Exchanges.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value.
Cowen Funds, Inc. may make commitments more restrictive than the
restrictions listed above so as to permit the sale of shares of a Fund in
certain states. Should Cowen Funds, Inc. determine that a commitment is no
longer in the best interests of the Fund and its shareholders, Cowen Funds,
Inc. will revoke the commitment by terminating the sale of shares of the Fund
in the state involved. The percentage limitations contained in the
restrictions listed above apply at the time of purchases of securities.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities and other financial instruments
for each Fund are made by Cowen Asset Management, which also is responsible for
placing these transactions, subject to the overall review of the Board of
Directors. Although investment requirements for each Fund are reviewed
independently from those of the other accounts managed by Cowen Asset
Management, investments of the type a Fund may make may also be made by these
other accounts. When a 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 a Fund or the size of the position obtained or disposed of
by a Fund.
Portfolio transactions effected on U.S. stock exchanges 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. Purchase 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.
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To the extent consistent with applicable provisions of the 1940 Act,
other securities laws and the rules and exemptions adopted by the thereunder,
the 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 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 a Fund except pursuant to
exemptive rules or orders adopted by the SEC.
In selecting brokers or dealers to execute portfolio transactions on
behalf of each 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 Cowen Asset Management or
its affiliates exercise investment discretion. Cowen Asset Management's fees
under its agreement with the Funds are not reduced by reason of its receiving
brokerage services. The Board of Directors periodically reviews the commission
paid by the Funds to determine if the commission paid over representative
periods of time are reasonable in relation to the benefits inuring to the Funds.
For the fiscal period ended November 30, 1996, the Funds did not pay any
brokerage commissions.
PORTFOLIO VALUATION
The assets of each 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 market 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. Although this method
provides certainty in valuation, it may result in periods during which
9
<PAGE> 46
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
NET ASSET VALUE
The net asset value per share of each Fund is calculated on each day on
which the New York Stock Exchange, Inc. (the "Exchange") is open as of 4:15 p.m.
Eastern time. The Exchange is currently open on each Monday through Friday,
except (1) January 1st, 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 (2) 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.
PURCHASES
Shares of each Fund are offered by Cowen Funds, Inc. and are
distributed on a best efforts basis by Cowen as its principal underwriter
pursuant to a Distribution Agreement.
The word "Cowen" in each 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 a Fund may be suspended or the
date of payment postponed (1) for the periods during which the Exchange is
closed (other than for customary weekend and holiday closings); (2) 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 (3) for such other periods as the SEC by order may permit for
protection of the Fund's shareholders.
10
<PAGE> 47
MANAGEMENT
BOARD OF DIRECTORS
The names of the directors and executive officers of the Funds, their
addresses, principal occupations during the past five years and other
affiliations are set forth below. Each Director who is an "interested person" of
the Funds, as defined in the 1940 Act, is indicated by an asterisk; unless noted
otherwise the business address of each such individual is Financial Square, New
York, New York 10005. Each of the directors is also a director of one or more
investment companies of which Cowen is Investment Manager.
Directors of the Funds
James H. Carey, Director, age 64. Managing Director of Briarcliff
Financial Associates, Inc. (since June, 1991) and Chief Executive Officer,
Director and Treasurer of National Capital Benefits Corporation (since March,
1994). Mr. Carey is also a Director of Airborne Freight Corporation,
Jonathan Woodner Company, NCB Insurance Limited (Bermuda), The Midland
Company, The Murray & Isabella Rayburn Foundation and the U.S. Committee for
UNICEF. Prior thereto he was President and Chief Executive Officer, The
Berkshire Bank (May 1989 to June 1991). His address is Village View and
Canterbury Roads, Manchester Center, VT 05255 .
*Joseph M. Cohen, Chairman and Chief Executive Officer of the Funds,
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.
Dr. Peter P. Gil, Director, age 74. Director, Arthur D. Little
Management Institute Board since 1991 and currently Acting Dean of the
Institute; Trustee and Executive Committee Member, Plimoth Plantation,
(Plymouth, Mass.); Member of the Dominion Bridge Corporation's Technology
Committee. From July 1988 to July 1994, Dr. Gil served in a variety of senior
administrative positions at the Sloan School of Management, Massachusetts
Institute of Technology, as Director, Management of Technology Program, the
Senior Executive Program, External Relations of the School; and Senior Lecturer.
Prior to July 1988 he was Associate Dean of the School. His address is 79 Main
Street, New Castle, New Hampshire 03854-0651.
Dr. Martin J. Gruber, Director, age 59. Chairman, Department of
Finance and Nomura Professor of Finance, Leonard N. Stern School of Business
Administration, New York University. He is also a Director of BT Pyramid
Mutual Funds, Japan Equity Fund, Inc., and the Taiwan Equity Fund, Inc.; and
a trustee of BT Leadership Trust and the T.I.A.A. Board. His address is New
York University, 44 West 4th Street, New York, New York 10012.
11
<PAGE> 48
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 Funds Not Noted Above
Rodd M. Baxter, Secretary. General Counsel of Cowen Asset Management
and Director of Cowen. His address is Financial Square, New York, New York
10005.
Gordon Ifill, Investment Officer. Portfolio Manager of Cowen Asset
Management. His address is Financial Square, New York, New York 10005.
Alan Koepplin, Investment Officer. Senior Vice President of Cowen since
May 1992. His address is Financial Square, New York, New York 10005.
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.
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.
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 Cowen Funds, Inc. for serving as an officer
or director of Cowen Funds, Inc. Directors who are not officers, directors,
partners, stockholders or employees of Cowen or its affiliates receive a fee, in
respect of each Fund that has commenced investment operations, 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. The Directors
have agreed to waive all fees until such time as Cowen ceases to waive its
Investment Management Fee. As of March 5, 1997, the officers and Directors of
the Funds beneficially owned as a group less than 1% of the outstanding shares
of each Fund. As of March 5, 1997, the following persons owned 5% or more of a
class of the CIFIF securities: Class A-- Mary M. Steinhilber (6%), 9171 Thyme
Court, Fort Meyers, Florida 33919-8343. Class B-- Dorothy B. Bryant & Barbara B.
Enfield (14%), 501 Latane
12
<PAGE> 49
Drive, Richmond, Virginia 23236; Celia R. Klein (41%), 215 Beaumont Street,
Brooklyn, New York 11235; Henry M. Green (117%), 41 State Street, Albany, New
York 12207; Alta Marie Yarger (5%), 4917 Walden Lane, Kettering, Ohio
45429-5528. Class C-- G. Wesley Patterson Trust (62%), 19 Hernandez Avenue, Los
Gatos, California 95030. As of March 4, 1997, the following persons own 5% or
more of a class of the CGSF securities: Class A-- Cowen & Co. (5%), Financial
Square, New York, NY 10005-3597. Class C-- Salvatore F. Cimbolo, Jr. (6%), 1
Meadowbrook Club Way, Far Hill, New Jersey 07931; Pump Services Profit Sharing
(40%), 303 State Street, North Haven, Connecticut 06473; Judith Love Cimbolo
(6%), 1 Meadowbrook Club Way, Far Hill, New Jersey 07931; Branch Cabell & Co.
401K (44%), Post Office Box 27602, Richmond, Virginia 23261-7602.
COMPENSATION TABLE
CGSF
<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 -0- -0- -0- $21,500
Peter Gil -0- -0- -0- $21,500
Martin J. Gruber -0- -0- -0- $21,500
Burton J. Weiss -0- -0- -0- $21,500
</TABLE>
COMPENSATION TABLE
CIFIF
<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 -0- -0- -0- $21,500
Peter Gil -0- -0- -0- $21,500
Martin J. Gruber -0- -0- -0- $21,500
Burton J. Weiss -0- -0- -0- $21,500
</TABLE>
*There are six funds in the complex.
13
<PAGE> 50
INVESTMENT MANAGER
Cowen, through Cowen Asset Management, its investment management
division, serves as investment manager to each Fund pursuant to an Investment
Management Agreement. 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.
From time to time Cowen Asset Management, in its sole discretion and as
it deems appropriate, may assume certain expenses of one or more of the Funds
while retaining the ability to be reimbursed by the applicable Fund for such
amounts prior to the end of the fiscal year. This will have the effect of
lowering the applicable Fund's overall expense ratio and of increasing yield to
investors, or the reverse, at the time such amounts are assumed or reimbursed,
as the case may be. Cowen Asset Management will not be reimbursed for such
amounts if such action would violate the provisions of any applicable state
securities laws relating to the limitation of the applicable Fund's expenses.
For the fiscal period ended November 30, 1995, no reimbursement was necessary
for either Fund. With respect to CGSF and CIFIF, through July 11, 1994, Cowen
waived all of each Fund's Investment Management Fee and has agreed to pay all of
each Fund's expenses. From July 11, 1994 through March 31, 1995, Cowen continued
to waive all of each Fund's Investment Management Fee and to pay all of each
Fund's expenses. With respect to CGSF, Cowen voluntarily waived its investment
management fee and service fee and absorbed all other expenses, except for .25%
through March 31, 1996 and .40% thereafter of other expenses and .50% of the
Class B distribution fee. The directors' fees are being waived by the directors.
With respect to CIFIF, Cowen voluntarily waived its investment management fee
and absorbed all other expenses, except for .25% through March 31, 1996 and .40%
thereafter of other expenses and its service and distribution fees. The
directors' fees are being waived by directors.
Shareholder Servicing and Distribution Plan (the "Plan")
Cowen is paid monthly fees by the Funds 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 Funds 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 average daily net assets
of the Funds 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 Funds. Compensation is paid by Cowen to persons,
including Cowen employees, who respond to inquiries of shareholders of the Funds
regarding their ownership of shares of their accounts with the Funds or who
provide other similar services not otherwise required to be provided by the
Funds' investment adviser, transfer agent or other agent of the Funds.
14
<PAGE> 51
In addition, pursuant to the Plan, the Funds pay to Cowen a monthly
distribution fee at the annual rate of .25% for CGSF and .75% for CIFIF 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, 1996, 1995 and 1994, Cowen
received $8,231, $7,251 and $504 respectively for CGSF and $33,421, $25,585 and
$2,881 respectively for CIFIF in servicing fees from Class A shares and $293,
$1,126 and $102 respectively for CGSF and $3,914, $2,184 and $230 respectively
for CIFIF in servicing and distribution fees from Class B shares.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company ("IFTC") is custodian of each Fund's
assets pursuant to a Custody Agreement. Under the Custody Agreement, IFTC (1)
maintains a separate account or accounts in the name of the Fund, (2) holds and
transfers portfolio securities on account of the Fund, (3) makes receipts and
disbursements of money on behalf of the Fund and (4) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities.
IFTC has also agreed to serve as each Fund's transfer and dividend
disbursing agent pursuant to a Transfer Agency Agreement, under which IFTC (1)
issues and redeems shares of the Fund, (2) addresses and mails all
communications by the Fund to its shareholders and (3) maintains shareholder
accounts.
AUDITORS AND COUNSEL
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has
been selected as each Fund's independent auditors.
15
<PAGE> 52
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, serves as counsel for Cowen Funds, Inc.
TAXES
Set forth below is a summary of certain income tax considerations
generally affecting each Fund and its shareholders. The summary is not intended
as a substitute for individual tax planning, and shareholders are urged to
consult their tax advisors regarding the application of federal, state, local
and foreign tax laws to their specific tax situations.
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund's net investment income, capital gains and distributions
will be determined separately from any other series that Cowen Funds, Inc. may
designate.
Cowen Funds, Inc. intends for each Fund to qualify each year as a
"regulated investment company" under the Code. If a Fund (1) is a regulated
investment company and (2) distributes to its shareholders at least 90% of its
net investment income (including for this purpose its net realized short-term
capital gains), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
Each Fund's transactions in options and futures contracts will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Fund (that is, may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Fund and defer Fund losses. These rules (1) could affect the
character, amount and timing of distributions to shareholders of the Fund, (2)
will require the Fund to "mark to market" certain types of the positions in its
portfolio (that is, treat them as if they were closed out), and (3) may cause
the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes described above and in the Prospectus. Each
Fund will seek to monitor its transactions, will seek to make the appropriate
tax elections and will seek to make the appropriate entries in its books and
records when it acquires any option, futures contract or hedged investment, to
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
As a general rule, a shareholder's gain or loss on a sale or redemption
of Fund shares will be a long-term capital gain or loss if the shareholder has
held the shares for more than one year. The gain or loss will be a short-term
capital gain or loss if the shareholder has held the shares for one year or
less.
Each Fund's net realized long-term capital gains will be distributed as
described in the Prospectus. The distributions ("capital gain dividends"), if
any, will be taxable to shareholders as
16
<PAGE> 53
long-term capital gains, regardless of how long a shareholder has held Fund
shares, and will be designated as capital gain dividends in a written notice
mailed by Cowen Funds, Inc. to the shareholders of a Fund after the close of the
Fund's prior taxable year. If a shareholder receives a capital gain dividend
with respect to any Fund share, and if the share is sold before it has been held
by the shareholder for more than six months, then any loss on the sale or
exchange of the share, to the extent of the capital gain dividend, will be
treated as a long-term capital loss. Investors considering buying Fund shares on
or just prior to the record date for a taxable dividend or capital gain
distribution should be aware that the amount of the forthcoming dividend or
distribution payment will be a taxable dividend or distribution payment.
Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of a fund sponsored by Cowen on
which a sales charge normally is imposed without paying a sales charge in
accordance with the exchange privilege described in the Prospectus. In these
cases, any gain on the disposition of the Fund shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the adjusted basis of the fund shares subsequently
acquired. In addition, if shares of the Fund are purchased within 30 days of
redeeming shares at a loss, the loss will not be deductible and instead will
increase the basis of the newly purchased shares.
If a shareholder fails to furnish Cowen Funds, Inc. with a correct
taxpayer identification number, fails to report fully dividend or interest
income, or fails to certify that he or she has provided a correct taxpayer
identification number and that he or she is not subject to "backup withholding,"
then the shareholder may be subject to a 31% "backup withholding" tax with
respect to (1) taxable dividends and distributions from the Fund and (2) the
proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his or her social security number. The 31% backup
withholding tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
PERFORMANCE INFORMATION
From time to time, a Fund may quote its yield or total return, on a
Class basis in advertisements or in reports and other communications to
shareholders.
YIELD
A Fund's 30-day yield figure described in the Prospectus is calculated
according to a formula prescribed by the SEC, expressed as follows:
17
<PAGE> 54
6
YIELD = 2[( a-b +1) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates,
a Fund's yield will tend to be somewhat higher than prevailing market rates and
in periods of rising interest rates will tend to be somewhat lower. In addition,
when interest rates are falling, the inflow of net new money to a Fund from the
continuous sale of its shares will likely be invested in instruments producing
lower yields than the balance of its portfolio of securities, thereby reducing
the current yield of the Fund. In periods of rising interest rates the opposite
can be expected to occur.
AVERAGE ANNUAL TOTAL RETURN
A Fund's "average annual total return" figures described in the
Prospectus are computed according to a formula prescribed by the SEC, expressed
as follows:
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 a 1-, 5- or 10-year
period (or fractional portion thereof), assuming reinvestment of all dividends
and distributions.
18
<PAGE> 55
CGSF
Class A Shares/Average Annual Total Return for the periods ended
November 30, 1996:
1 year = (.61%)
*Inception = 4.61%
* January 20, 1993
Class B Shares/Average Annual Total Return for the periods ended
November 30, 1996:
(As of November 30, 1996, there were no Class B shares
outstanding.)
Class C Shares/Average Annual Total Return for the periods ended
November 30, 1996:
1 year = 4.48%
*Inception = 8.30%
*July 11, 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.
CIFIF
Class A Shares/Average Annual Total Return for the periods ended
November 30, 1996:
1 year = 2.78%
*Inception = 5.24%
*January 20, 1993
Class B Shares/Average Annual Total Return for the periods ended
November 30, 1996:
1 year = 1.96%
*Inception = 7.31%
*July 12, 1994
19
<PAGE> 56
Class C Shares/Average Annual Total Return for the periods ended
November 30, 1996:
1 year = 5.46%
*Inception = 8.11%
*July 11, 1994
The Class A total return figures calculated in accordance with the
above formula assumes that the maximum 2.35% 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.
AGGREGATE TOTAL RETURN
A Fund's aggregate total return figures described in the Prospectus
represent the cumulative change in the value of an investment in the Fund for
the specified period and are computed by the following formula:
ERV-P
-----
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000 investment made
at the beginning of the 1-, 5- or 10-year period at the end of the 1-, 5- or
10-year period (or fractional portion thereof), assuming reinvestment of all
dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period.
A Fund's total return figures calculated in accordance with the above
formulas assume that the maximum sales load, 2.35% for Cowen Intermediate Fixed
Income Fund and 4.75% for Cowen Government Securities Fund, have been deducted
from the hypothetical initial investment at the time of purchase. The Class B
aggregate total return figures calculated in accordance with the above formula
assumes the deduction of the appropriate contingent deferred sales charge.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in
20
<PAGE> 57
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in the Fund with certain bank deposits or
other investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
FINANCIAL STATEMENTS
Cowen Funds, Inc. hereby incorporates by reference the financial
statements and related notes and the report of Ernst & Young LLP thereon
included in the Annual Report to Shareholders of Cowen Intermediate Fixed Income
Fund and Cowen Government Securities Fund for the fiscal year ended November 30,
1996. Cowen Funds, Inc. will provide a copy of the Cowen Intermediate Fixed
Income Fund and Cowen Government Securities Fund Annual Report to each person
who requests a copy of this Statement of Additional Information. Cowen Funds,
Inc. will also furnish a copy of the Cowen Intermediate Fixed Income Fund and
Cowen Government Securities Fund Annual Report, without charge, to any
shareholder of this Fund upon request directed to Cowen Funds, Inc., at the
address or telephone number given on the cover page of this Statement of
Additional Information.
21
<PAGE> 58
APPENDIX
DESCRIPTION OF S&P AND MOODY'S RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa -- Bonds rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
A-1
<PAGE> 59
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. the modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
A-2
<PAGE> 60
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements included in Registration Statement:
(i) Incorporated by reference under "Financial Highlights" included in
Part A of Cowen Opportunity Fund and Cowen Special Value Fund.
(ii) Incorporated by reference under "Financial Statements" in Part B
of Cowen Opportunity Fund is that Fund's Annual Report to Shareholders, which
includes the Statement of Investments and Statement of Assets and Liabilities as
of November 30, 1996; Statement of Operations for the year ended November 30,
1996; Statement of Changes in Net Assets for the years ended November 30, 1995
and 1996; Notes to Financial Statements; and the Report of Ernst & Young LLP,
Independent Auditors, dated January 3, 1997.
(iii) Incorporated by reference under "Financial Highlights"
included in Part A of Cowen Intermediate Fixed Income Fund and Cowen
Government Securities Fund.
(iv) Incorporated by reference under "Financial Statements" included in
Part B of Cowen Intermediate Fixed Income Fund and Cowen Government Securities
Fund is the Funds' Annual Report to Shareholders which includes the Statement of
Investments and Statement of Assets and Liabilities as of November 30, 1996;
Statement of Operations for the year ended November 30, 1996; Statement of
Changes in Net Assets for the years ended November 30, 1995 and November 30,
1996; Notes to Financial Statements and the Report of Ernst & Young LLP,
Independent Auditors, dated January 3, 1997.
(b) Exhibits:
Exhibit No. Description of Exhibits
- ----------- -----------------------
1 (i) Articles of Incorporation of Registrant (a)
(ii) Form of Articles Supplementary of Registrant relating to the
Fixed Income Funds (a)
(iii) Form of Articles of Amendment (a)
2 (i) By-Laws (a)
(ii) Amendment of Article I, Section 2 of the Fund's By-Laws (a)
3 Not applicable
4 Not applicable
5 (i) Form of Investment Management Agreement relating to Cowen
Opportunity Fund and Cowen Special Value Fund (a)
(ii) Form of Investment Management Agreement Relating to the Fixed
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<PAGE> 61
Income Funds (a)
(iii) Form of New Investment Management Agreement (a)
6 Form of Distribution Agreement (a)
7 Not applicable
8 Custody Agreement (a)
9 Transfer Agency Agreement (a)
10 (i) Opinion and consent of Willkie Farr & Gallagher relating to
Cowen Opportunity Fund and Cowen Special Value Fund (a)
(ii) Opinion and consent of Willkie Farr & Gallagher relating to
Cowen Intermediate Fixed Income Fund and Cowen Tradition Fixed
Income Fund (a)
(iii) Opinion of Counsel (a)
11 Consent of Independent Auditors
12 Not applicable
13 Form of 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 Amendment No. 19 to
Registrant's Registration 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 Income + Growth Fund, Inc. Each of these registered investment companies
is incorporated under the laws of Maryland.
Item 26. Number of Holders of Securities
As of March 5, 1997, there were 4,002 record holders of Cowen
Opportunity Fund, 802 record holders of Cowen Intermediate Fixed Income Fund and
189 record holders of Cowen Government Securities Fund.
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Item 27. Indemnification
Incorporated by reference to Item 27 of Part C of Registrant's
Registration Statement filed on November 13, 1987.
Items 28 Business and Other Connections of Investment
and 29. Manager; and Principal Underwriter
Cowen & Co. ("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 Income +
Growth Fund, Inc. ("CI+G"), 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 Partners of Cowen as of March 5, 1997,
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 "CFI").
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<PAGE> 63
<PAGE> 64
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNER POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
AND PRINCIPAL BUSINESS --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
Cowen Incorporated (1)
CLASS I LIMITED PARTNERS
Anthony J. Aliberti (1)...... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Richard A. Altschuler (3).... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Michael H. Bassett (1)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
William A. Belfiore (1)...... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Anthony R.Bergamaschi (1).... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Christopher A. Beyer (1)..... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Andrew C. Brosseau (3)....... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Kennedy M. Buckley (1)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Richard S. Chu (3)........... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
William R. Church (1)........ V, SI V, SI Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Jarrod M. Cohen (1).......... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Joseph M. Cohen (1).......... C, D C, D C, D C, D Since 3/30/91 -- Cowen
Incorporated (1) -- P, D
Peter E. Cohen (1)........... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Terrence R. Connelly (1)..... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Philip A. Conti (1).......... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Arthur Cowen, III (1)........ ETC Enterprises, Inc. (8)
P; Since 3/30/91 Cowen
Incorporated (1) -- MD
Nancy M. Crowell (6)......... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
John P. Dunphy (1)........... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
James R. Dwyer (1)........... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNER POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Alec D. Green(7).............. Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Edward I. Herbst (1).......... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Thomas L. Hyde (1)............ Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Gerald P. Kaminsky (1)........ D, SI D, SI Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Thomas King (3)............... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Albert F. Laub (3)............ Since 3/30/91 -- Cowen
Incorporated (1) -- MD
William D. Lautman (1)........ Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Daniel T. Lemaitre (3)........ Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Dana T. Lerch (1)............. Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Maria F. Lewis-Kussmaul (3)... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Stuart S. Lovejoy (1)......... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Arthur S. Lutzke (1).......... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
David E. Mack (1)............. Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Stephen Malfitano (1)......... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Joseph M. Marinaro (1)........ Since 3/30/96 -- Cowen
Incorporated (1) -- MD
William O. Matthews (1)....... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
William K. McCormick (5)...... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Carl A. Merz (1).............. Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Raymond K. Moran (3).......... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNER POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- ------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Jerrold B. Newman (6).... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Donald F. Novell (1)..... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Gary S. Pardo (1)........ Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Elizabeth T. Pawel (1)... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Drew Peck................ Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Creighton H. Peet (1).... D, T D, T V, SI, T V, SI, T Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Antonio G. Pinto (1)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Edward M. Posner (1)..... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Peter J. Power (1)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Paul S. Raniolo (1)...... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
William Rechter (1)...... SI SI Since 3/30/92 -- Cowen
Incorporated (1) -- MD
Stephen E. Reilly (3).... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Todd B. Robbins (1)...... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Richard L. Rugani
(1 and 3).............. Since 3/30/92 -- Cowen
Incorporated (1) -- MD
David R. Sarns (1)....... P P P P Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Ravi P. Singh (1)........ Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Arthur J. Stavaridis
(1 and 3).............. Since 3/30/92 -- Cowen
Incorporated (1) -- MD
David K. Stone (3)....... Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Richard S. Striefler (1). Since 3/30/93 -- Cowen
Incorporated (1) -- MD
Franklyn Theis (3)....... Since 3/30/92 -- Cowen
Incorporated (1) -- MD
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNER POSITION, IF ANY, WITH FUND LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI ADDRESS
- --------------------------- ------------ ------------ ------------ ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Robert Valdez (6).......... Since 3/30/94 -- Cowen
Incorporated (1) -- MD
Cai Von Rumohr (3)......... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Harold Vogel (1)........... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Stephen R. Weber (3)....... Since 3/30/91 -- Cowen
Incorporated (1) -- MD
Miriam C. Willard (1)...... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Jonathan H. Zauderer (1)... Since 1/1/96 -- Cowen
Incorporated (1) -- MD
Michael Zolezzi (6)........ Since 3/30/94 -- Cowen
Incorporated (1) -- MD
</TABLE>
<TABLE>
<CAPTION>
LIMITED PARTNERS
- -------------------------
<S> <C> <C> <C> <C> <C>
Jacques Coe (4).......... None
George N. Cowen (4)...... None
Richard B. Frackman (1).. None
John B. Greene (5)....... None
Joseph V. Perri (1)...... None
Charles L. Wood (2)...... None
</TABLE>
- ---------------
(1) Financial Square, New York, New York 10005
(2) Texaco Heritage Plaza, 111 Bagby St., #2350, Houston, Texas 77002
(3) Two International Place, Boston, Massachusetts 02110
(4) West Building, 31st Floor, 280 Park Avenue, New York, New York 10017
(5) Courthouse Plaza Northeast, Dayton, Ohio 45402
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<PAGE> 68
(6) Four Embarcadero Center, Suite 1200, San Francisco, California 94111
(7) One Angel Court, London, England ECZR, 7HJ
(8) 30 West 75th Street, New York, New York 10023
<TABLE>
<S> <C> <C>
P -- President
C -- Chairman of the Board
D -- Director
V -- Vice President
T -- Treasurer
S -- Secretary
SI -- Senior Investment Officer
AS -- Assistant Secretary
MD -- Managing Director
</TABLE>
Item 29(c) Not Applicable
Item 30. Location of Accounts and Records
(1) Cowen Funds, Inc.
Financial Square
New York, New York 10005
(2) Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Item 31. Management Service
Not applicable.
Item 32. Undertakings
Not applicable.
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<PAGE> 69
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 25th day of March, 1997.
COWEN FUNDS, INC.
/s/ Joseph M. Cohen
by Creighton H. Peet,
Attorney-in-Fact
Joseph M. Cohen, Chairman
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933, and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, and State of New York, on the
25th day of March, 1997.
Signature Title Date
/s/ Joseph M. Cohen Chairman (Chief March 25, 1997
by Creighton H. Peet, Executive Officer)
Attorney-in-Fact and Director
Joseph M. Cohen
/s/ James H. Carey Director March 25, 1997
by Creighton H. Peet,
Attorney-in-Fact
James H. Carey
/s/ Peter P. Gil Director March 25, 1997
by Creighton H. Peet,
Attorney-in-Fact
Peter P. Gil
/s/ Martin J. Gruber Director March 25, 1997
by Creighton H. Peet,
Attorney-in-Fact
Martin J. Gruber
/s/ Creighton H. Peet Treasurer (Chief March 25, 1997
- ----------------------- Financial Officer)
Creighton H. Peet
/s/ Burton J. Weiss Director March 25, 1997
by Creighton H. Peet,
Attorney-in-Fact
Burton J. Weiss
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<PAGE> 70
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
11 Consent of Independent Auditors
<PAGE> 1
Exhibit 11
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 3, 1997 on
Cowen Funds, Inc. in this Registration Statement (Form N-1A
No. 18505).
ERNST & YOUNG LLP
New York, New York
March 25, 1997
