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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 18
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<PAGE> PAGE 19
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<PAGE> PAGE 21
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028 D040400 119
028 E010400 6
028 E020400 19
028 E030400 0
028 E040400 1393
028 F010400 1370
028 F020400 13
028 F030400 0
028 F040400 95
028 G010400 2154
028 G020400 97
028 G030400 0
028 G040400 1992
028 H000400 41
029 000400 Y
030 A000400 1
030 B000400 4.75
030 C000400 0.00
031 A000400 1
031 B000400 0
032 000400 0
033 000400 0
034 000400 Y
035 000400 0
036 A000400 N
036 B000400 0
037 000400 N
038 000400 0
039 000400 N
040 000400 Y
041 000400 Y
042 A000400 0
042 B000400 0
042 C000400 100
042 D000400 0
042 E000400 0
042 F000400 0
042 G000400 0
042 H000400 0
043 000400 4
<PAGE> PAGE 22
044 000400 0
045 000400 Y
046 000400 N
047 000400 Y
048 000400 0.600
048 A010400 0
048 A020400 0.000
048 B010400 0
048 B020400 0.000
048 C010400 0
048 C020400 0.000
048 D010400 0
048 D020400 0.000
048 E010400 0
048 E020400 0.000
048 F010400 0
048 F020400 0.000
048 G010400 0
048 G020400 0.000
048 H010400 0
048 H020400 0.000
048 I010400 0
048 I020400 0.000
048 J010400 0
048 J020400 0.000
048 K010400 0
048 K020400 0.000
049 000400 N
050 000400 N
051 000400 N
052 000400 N
053 A000400 Y
053 B000400 Y
053 C000400 N
054 A000400 Y
054 B000400 Y
054 C000400 Y
054 D000400 N
054 E000400 N
054 F000400 N
054 G000400 Y
054 H000400 Y
054 I000400 N
054 J000400 Y
054 K000400 N
054 L000400 Y
054 M000400 Y
054 N000400 N
054 O000400 N
062 A000400 Y
062 B000400 0.0
<PAGE> PAGE 23
062 C000400 0.0
062 D000400 0.0
062 E000400 0.0
062 F000400 0.0
062 G000400 0.0
062 H000400 0.0
062 I000400 0.0
062 J000400 0.0
062 K000400 0.0
062 L000400 0.0
062 M000400 57.0
062 N000400 42.2
062 O000400 0.0
062 P000400 0.0
062 Q000400 0.0
062 R000400 0.0
063 A000400 0
063 B000400 5.4
064 A000400 N
064 B000400 N
066 A000400 N
067 000400 N
068 A000400 N
068 B000400 N
069 000400 N
070 A010400 Y
070 A020400 N
070 B010400 N
070 B020400 N
070 C010400 Y
070 C020400 N
070 D010400 N
070 D020400 N
070 E010400 Y
070 E020400 N
070 F010400 N
070 F020400 N
070 G010400 Y
070 G020400 N
070 H010400 N
070 H020400 N
070 I010400 Y
070 I020400 N
070 J010400 Y
070 J020400 N
070 K010400 N
070 K020400 N
070 L010400 Y
070 L020400 N
070 M010400 Y
070 M020400 N
<PAGE> PAGE 24
070 N010400 Y
070 N020400 N
070 O010400 N
070 O020400 N
070 P010400 N
070 P020400 N
070 Q010400 N
070 Q020400 N
070 R010400 N
070 R020400 N
071 A000400 6088
071 B000400 5313
071 C000400 2880
071 D000400 184
072 A000400 12
072 B000400 204
072 C000400 0
072 D000400 0
072 E000400 0
072 F000400 18
072 G000400 0
072 H000400 0
072 I000400 5
072 J000400 4
072 K000400 0
072 L000400 2
072 M000400 24
072 N000400 25
072 O000400 0
072 P000400 0
072 Q000400 0
072 R000400 15
072 S000400 3
072 T000400 7
072 U000400 14
072 V000400 0
072 W000400 0
072 X000400 117
072 Y000400 105
072 Z000400 192
072AA000400 23
072BB000400 0
072CC010400 0
072CC020400 16
072DD010400 187
072DD020400 5
072EE000400 0
073 A010400 0.6115
073 A020400 0.0000
073 B000400 0.0000
073 C000400 0.0000
<PAGE> PAGE 25
074 A000400 0
074 B000400 0
074 C000400 0
074 D000400 3468
074 E000400 0
074 F000400 0
074 G000400 0
074 H000400 0
074 I000400 0
074 J000400 0
074 K000400 3
074 L000400 41
074 M000400 20
074 N000400 3532
074 O000400 0
074 P000400 0
074 Q000400 0
074 R010400 0
074 R020400 0
074 R030400 0
074 R040400 35
074 S000400 0
074 T000400 3497
074 U010400 358390
074 U020400 6535
074 V010400 9.58
074 V020400 0.00
074 W000400 0.0000
074 X000400 168
074 Y000400 0
075 A000400 0
075 B000400 2971
076 000400 0.00
SIGNATURE CREIGHTON H. PEET
TITLE TREASURER
COWEN OPPORTUNITY FUND
TRANSACTIONS EFFECTED PURSUANT TO RULE 10f-3
QUARTER ENDED: September 30, 1997
Name of Security: AXIOM, INC.
Registration under Securities
Act of 1933? 10f-3(a)(1)(i): Yes
Time of Acquisition 10f-3(a)(2)
-Date Acquired: Trade Date: 7/7/97
-Date First Offered: July 7, 1997
Reasonableness of Spread [10f-3(b)]
-Offering Price Per Share: $12
-Amount of Spread: Gross Spread: $.84
Selling Concession: $.48
-Spread(%): 7%
Evidence of Reasonableness of Spread
(contemporaneous similar offering)
-Name of Issue: Telegroup Inc.
-Date of Offering: July 8, 1997
-Spread: 7.0%
Issuer in Continuous Operation at
Least Three Years? [10f-3(c)]: Yes
Amount Purchased by Fund [10f-3(d)]:
-Total Shares Offered: 2.6 million shares
-Purchase Price per Share: $12
-Total Shares Purchased: 11,900
-Total Purchase Price: $142,800
-Percentage of Offering Purchased: less than .1 of 1%
-Any Shares Purchased by Other Funds
in Family? No
Percentage of Fund Assets Invested
[10f-3(e)]: less than 1%
From Whom Purchased [10f-3(f)]
-Selling Dealers(s): Lehman Brothers
-Syndicate Manager(s): Lehman Brothers
COWEN OPPORTUNITY FUND
TRANSACTIONS EFFECTED PURSUANT TO RULE 10f-3
QUARTER ENDED: December 31, 1997
Name of Security: PERICOM SEMICONDUCTOR CORP.
Registration under Securities
Act of 1933? 10f-3(a)(1)(i): Yes
Time of Acquisition 10f-3(a)(2)
-Date Acquired: Trade Date: 10/31/97
-Date First Offered: October 31, 1997
Reasonableness of Spread [10f-3(b)]
-Offering Price Per Share: $9
-Amount of Spread: Gross Spread: $.63
Selling Concession: $.36
-Spread(%): 7%
Evidence of Reasonableness of Spread
(contemporaneous similar offering)
-Name of Issue: Microcell Telecommunications
-Date of Offering: October 8, 1997
-Spread: 7.0%
Issuer in Continuous Operation at
Least Three Years? [10f-3(c)]: Yes
Amount Purchased by Fund [10f-3(d)]:
-Total Shares Offered: 2.5 million shares
-Purchase Price per Share: $9
-Total Shares Purchased: 30,000
-Total Purchase Price: $270,000
-Percentage of Offering Purchased: less than 1%
-Any Shares Purchased by Other Funds
in Family? No
Percentage of Fund Assets Invested
[10f-3(e)]: less than 1%
From Whom Purchased [10f-3(f)]
-Selling Dealers(s): Soundview Financial
-Syndicate Manager(s): Soundview Financial
COWEN OPPORTUNITY FUND
TRANSACTIONS EFFECTED PURSUANT TO RULE 10f-3
QUARTER ENDED: December 31, 1997
Name of Security: LANDMARK SYSTEMS CORP.
Registration under Securities
Act of 1933? 10f-3(a)(1)(i): Yes
Time of Acquisition 10f-3(a)(2)
-Date Acquired: Trade Date: 11/18/97
-Date First Offered: 11/18/97
Reasonableness of Spread [10f-3(b)]
-Offering Price Per Share: $7
-Amount of Spread: Gross Spread: $.49
Selling Concession: $.29
-Spread(%): 7%
Evidence of Reasonableness of Spread
(contemporaneous similar offering)
-Name of Issue: Healthworld Corp.
-Date of Offering: November 21, 1997
-Spread: 7.0%
Issuer in Continuous Operation at
Least Three Years? [10f-3(c)]: Yes
Amount Purchased by Fund [10f-3(d)]:
-Total Shares Offered: 3.2 million shares
-Purchase Price per Share: $7
-Total Shares Purchased: 100,000
-Total Purchase Price: $700,000
-Percentage of Offering Purchased: less than 1%
-Any Shares Purchased by Other Funds
in Family? No
Percentage of Fund Assets Invested
[10f-3(e)]: less than 1%
From Whom Purchased [10f-3(f)]
-Selling Dealers(s): C.E. Unterberg Tobin
-Syndicate Manager(s): C.E. Untergerg Tobin
Report of Independent Auditors
To the Shareholders and Board of Directors of
Cowen Funds, Inc.
In planning and performing our audit of the financial statements of Cowen
Funds, Inc. (comprising, respectively, Cowen Opportunity Fund, Cowen
Intermediate
Fixed Income Fund and Cowen Government Securities Fund) for the year
ended
November 30, 1997, we considered its internal control, including control
activities for safeguarding securities, in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial
statements
and to comply with the requirements of Form N-SAR, not to provide
assurance on
the internal control.
The management of Cowen Funds, Inc. is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and
related
costs of controls. Generally, controls that are relevant to an audit pertain
to the entity's objective of preparing financial statements for external
purposes
that are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or irregularities
may occur and not be detected. Also, projection of any evaluation of
internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of the internal control would not necessarily disclose all
matters in the internal control that might be material weaknesses under
standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or
more
of the internal control components does not reduce to a relatively low level
the risk that errors or irregularities in amounts that would be material in
relation to the financial statements being audited may occur and not be
detected
within a timely period by employees in the normal course of performing
their
assigned functions. However, we noted no matters involving the internal
control
and its operation, including controls for safeguarding securities, that we
consider to be material weaknesses as defined above at November 30, 1997.
This report is intended solely for the information and use of the board of
directors and management of Cowen Funds, Inc. and the Securities and
Exchange
Commission.
ERNST & YOUNG LLP
New York, New York
January 9, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors of Cowen Income + Growth Fund, Inc.
Board of Directors of Cowen Funds, Inc.
Partners of Cowen and Company
We have examined the accompanying description of the
multiple distribution system of Cowen and Company (the
"Advisor") for calculating the net asset value and
dividends and distributions with respect to the
allocation of income and expenses to the three
classes of shares of the Cowen Group of Funds listed
on Exhibit I (the "Funds"). Our examination
included procedures to obtain reasonable assurance
about whether (1) the accompanying description
presents fairly, in all material respects, the aspects
of the Advisor's policies and procedures that may be
relevant to the Funds' internal control, (2) the
internal control policies and procedures included in
the description were suitably designed to achieve the
control objectives specified in the description,
if those policies and procedures were complied with
satisfactorily, and the Funds' organization applied
the internal control policies and procedures
contemplated in the design of the Advisor's policies
and procedures, and (3) such policies and procedures
were in existence as of November 30, 1997. The
control objectives were specified by the Advisor. Our
examination was performed in accordance with standards
established by the American Institute of Certified
Public Accountants and included those procedures we
considered necessary in the circumstances to obtain
a reasonable basis for rendering our opinion.
In our opinion, the accompanying description of the
aforementioned multiple distribution system presents
fairly, in all material respects, the relevant
aspects of the Advisor's policies and procedures
that had been placed in operation as of November 30,
1997. Also, in our opinion, the policies and
procedures, as described, are suitably designed to
provide reasonable assurance that the specified control
objectives would be achieved if the described policies
and procedures were complied with satisfactorily.
In addition to the procedures we considered necessary
to render our opinion as expressed in the previous
paragraph, we applied tests to specific policies and
procedures, listed in the attached description, to
obtain evidence about their effectiveness in meeting
the specific control objectives described in the
attached
description of the system, during the period from
December 1, 1996 to November 30, 1997. The specific
policies and procedures and the nature, timing, extent,
and results
of the tests are listed in the attached description.
In our opinion, the policies and
procedures that were tested, as described in the
attached description, were operating with
sufficient effectiveness to provide reasonable, but
not absolute, assurance that the specific
control objectives specified in the attached
description were achieved during the period
from December 1, 1996 to November 30, 1997. However,
the scope of our engagement did
not include tests to determine whether specific control
objectives not listed in the
attached description were achieved; accordingly, we
express no opinion on the achievement
of control objectives not included in the attached
description.
The description of policies and procedures at the
Advisor is as of November 30, 1997,
and information about tests of operating effectiveness
of specified policies and
procedures covers the period from December 1, 1996 to
November 30, 1997. Any
projection of such information to the future is
subject to the risk that, because
of change, the description may no longer portray
the system in existence.
The potential effectiveness of specific policies
and procedures at the Advisor
is subject to inherent limitations and, accordingly,
errors or fraud may occur
and not be detected. Furthermore, the projection
of any conclusions, based on
our findings, to future periods is subject to the
risk that changes may alter
the validity of such conclusions.
This report is intended solely for the use by the
Board of Directors of the
Funds and management of the Advisor, and the Securities
and Exchange
Commission and should not be used for any other purpose.
ERNST & YOUNG LLP
New York, New York
January 9, 1998
<PAGE>
Policies and Procedures for Calculating Net Asset
Value and Dividends and
Distributions Relating to the Allocation of Income
and Expenses to the Multiple
Classes of Shares of the Cowen Group of Funds
Description of the System
Cowen and Company (the "Advisor") and the Funds
listed on Exhibit I have
implemented a plan relating to the establishment
of a multiple distribution
system (the "System") for different classes of
shares of the Funds to be
offered to different categories of investors.
The System would enable the Funds to offer investors
the option of purchasing
shares subject to;
(i) a conventional front-end sales charge
("Class A shares"); or (ii) a
contingent deferred sales charge ("Class B shares");
or (iii) not subject
to any such sales charges ("Class C shares").
The Funds will pay to Cowen
and Company (also the "Distributor") a distribution
fee pursuant to the
Fund Rule 12b-1 distribution plan at an annual rate
of up to .75 of 1% of
the average daily net asset value of the Class B shares
. The Fund may
also pay to the Distributor a service fee on Class A
and Class B shares
at an annual rate of up to .25 of 1% of the average
daily net asset value
of Class A and Class B shares, respectively. The
three classes each
represent interests in the same portfolio of
investments of the Funds.
For accounting purposes, the three classes of the
Funds will be identical
except that (i) the distribution fees payable by the
Funds to the Distributor
will be only for Class B shares; (ii) the service fees
payable by the Funds
to the Distributor may differ among the Class A and
Class B shares;
(iii) class-level expenses (limited to: (a) transfer
agency fees as identified
by the transfer agent as being attributable to a
specific class; (b) printing
and postage expenses related to preparing and distributing
materials such as
shareholder reports, prospectuses and proxies to current
shareholders;
(c) Blue Sky registration fees incurred by a class
of shares; (d) commission
registration fees incurred by a class of shares;
(e) the expenses of
administrative personnel and services as required
to support the shareholders
of Class B shares; (f) litigation or other legal
expenses relating solely to
one class of shares; and (g) directors' fees incurred
as a result of issues
relating to one class of shares) attributable to each
of the Class A, Class
B and Class C shares may differ; (iv) each class will
bear any other
incremental expenses subsequently identified that
should be properly allocated
to the class which shall be approved by the Commission
pursuant to an amended
order.
On a daily basis, the net asset value of all
outstanding shares of the three
classes will be determined by dividing the ending
total net assets applicable
to a specific class by the number of shares
outstanding relating to that class.
Expenses are attributable to each class of shares
depending on the nature of
the expenditure and are accrued on a daily basis.
These expenses fall
into two categories: (1) fund level expenses that
are attributable to each
class that are allocated based on relative net assets
at the beginning of
the day (e.g., advisory, accounting, legal, audit,
etc.) and, (2) certain
class level expenses that may have a different cost
for one class versus the
others (e.g., 12b-1 fees, service fees and transfer
agent fees). Because of
the additional expense that is borne by the Class A and
Class B shares,
the net income attributable to and the dividends
payable on Class A and
Class B shares will be lower than the net income
attributable to and the
dividends payable on Class C shares.
Specific Control Objectives
The following are the specific control objectives
of the Funds system of
internal accounting control relating to the allocation
of income and
expenses to the three classes of shares within the
Funds:
Income and fund level (including realized and/or
unrealized gain or losses)
expenses are properly allocated among the three
classes of shares within
the Funds.
Distribution expenses, service fee expenses and
class level expenses with
respect to each class are properly calculated.
Dividends and distributions are recorded correctly
as to account, amount,
period and class of shares of the Funds.
Net asset value per share (NAV) of each class
of shares of the Funds
includes the appropriate amount of income and
expense, including those
expenses allocated to each class of shares.
Procedures to Achieve Specific Control Objectives
The following procedures are designed to account for
the three classes of shares in the Funds:
On a daily basis, a fund accountant calculates the
distribution fees to be charged
to Class B shares by applying an annual fee rate
of up to .75 of 1% to the prior
day's closing netassets. The fund accountant also
calculates the service fee to
be charged to Class A and Class B shares at a
rate not to exceed .25 of 1% of the
prior day's closing net assets. The fund
accountant also calculates class level
expenses to be allocated to each class of shares.
In addition, the fund accountant
calculates fund level expenses to be allocated to
each class of shares.
Using the Multiple Class NAV Rollforward, the fund
accountant allocates the total
daily income and expenses (including realized and/or
unrealized gains or losses)
among Class A, Class B and Class C shares, based
upon
their respective net assets
at the beginning of the current day after
considering prior day's capital share
transactions. The number of shares outstanding
in each class is provided to
the fund accountant by the Fund's transfer agent
who maintains each class of shares
in a separate account.
Cowen Income + Growth Fund, Inc. and Cowen
Opportunity Fund (a series of
Cowen Funds, Inc.) do not distribute net
investment income daily; therefore,
the sum of net investment income available
for all classes is determined (but
before consideration of expenses unique to
each class) and this sum is divided
by total record date shares for all classes
combined to arrive at a gross dividend
rate for all shares. From this gross dividend
rate, an amount per share for each
class (which represents unique and incrementally
higher, if any, expenses accrued
during the period attributable to that class
divided by record date shares for
that class) is subtracted. The result is the
actual per share rate available to
each class.
Cowen Intermediate Fixed Income Fund and Cowen
Government Securities Fund (two
series of Cowen Funds, Inc.) distribute net
investment income daily; therefore,
upon completion of the daily Multiple Class NAV
Rollforward, the fund
accountant determines the required distribution
by class of shares by dividing
daily net investment income allocated to each
class by the number of shares
eligible to receive dividends for the respective
shares.
Distributions of realized gains are calculated by
dividing the realized gains
available for distribution by the record date
shares for each class so that
all shares receive the per share distribution.
The NAV by class will be determined by dividing
the ending total net
assets applicable to a specific class by the
number of shares outstanding
relating to that class.
On a daily basis, the Fund's accounting supervisor
will review the
distribution, serviceand class-level expense
calculations, income and
expense allocations, the NAV and dividends per
share calculations
for each class, if applicable, and initial the
Multiple Class Fund daily
checklist.
If the fund accountant notes any unusual
fluctuations among NAVs and
dividend rates of the classes in the Funds,
the fund accountant will
research the matter and document the reasons.
The Funds accounting
supervisor reviews and initials this documentation
evidencing final
approval of the NAVs and dividend rates.
Before the NAVs and dividend rates are released,
the Fund's
accounting supervisor reviews the reasonableness
of the NAVs
and dividend rates. Special attention is paid
to the differences
between the NAVs and dividend rates of each class
of shares.
Once the Funds' accounting supervisor is satisfied
that all of the
above steps have been completed and that the
NAVs and dividend rates
appear reasonable, the NAVs and dividend rates
are made available to
the transfer agent for processing purposes.
Tests of Effectiveness of Internal Control Procedures
Our tests of the effectiveness of internal control
procedures were
designed to determine whether:
The description of the Advisor's policies
and procedures included
in this report present fairly, in all material
respects, those aspects
of the Advisor's internal control that may be relevant
to a user organization's
internal control;
the internal control procedures described in this
report were suitably
designed to achieve the control objectives defined
in this report, if
those policies and procedures were complied with
satisfactorily;
the internal control procedures described in this
report had been
placed in operation during the period from December 1,
1996 to
November 30, 1997; and
the internal control procedures were operating with
sufficient effectiveness
to provide reasonable, but not absolute, assurance
that the control objectives
described in this report were achieved during the
period from December 1,
1996 to November 30, 1997.
Our tests of the effectiveness of internal control
procedures included the
following procedures, to the extent we considered
necessary: (a) a review
of the Advisor's organizational structure, including
the segregation of
functional responsibilities, policy statements
and personnel policies,
(b) discussions with management, accounting,
administrative and other
personnel who are assigned responsibilities for
developing, ensuring
adherence to and for applying internal control
procedures, (c) observations
of personnel on the performance of their assigned
duties, and (d) a review
of the actions taken in response to recommendations,
if any, to improve
internal control procedures by regulators having
supervisory oversight
over the Advisor's activities.
Our tests of the effectiveness of internal control
procedures included
such other tests as we considered necessary in the
circumstances to
evaluate whether those procedures, and the extent
of compliance with
them, were sufficient to provide reasonable, but not
absolute,
assurance that the specified control objectives were
achieved during
the period from December 1, 1996 to November 30, 1997.
Our tests of
the operational effectiveness of internal control
procedures were
designed to cover a representative number of
calculations throughout
the period from December 1, 1996 to November 30, 1997
for each of the
functions listed in this report which satisfy the
control objectives
listed in this report. In selecting particular tests
of the operational
effectiveness of internal control procedures, we
considered the:
(a) nature of the items being tested, (b) the kinds
and competence of
available evidential matter, (c) the nature of the
audit objectives to
be achieved, (d) the assessed level of control risk, and
(e) the
expected efficiency and effectiveness of the tests.
Tests of effectiveness of internal control procedurs included:
Test of source documentation to ensure validity of
information.
Tests of supervisory control procedures in place to
ensure accuracy,
completeness, validity and integrity of processing.
Recalculation of output to verify accuracy.
Tests of output control procedures and resultant
documentation and
reports relative to specific calculations to
ensure that
accurate and
timely updates of account records were achieved.
Testing procedures were designed and performed to
enable us to conclude
whether the control objectives listed in this report were
achieved during
the period December 1, 1996 to November 30, 1997
.<PAGE>
EXHIBIT 1
COWEN GROUP OF FUNDS
Cowen Income + Growth Fund, Inc.
Cowen Opportunity Fund (a series of Cowen Funds, Inc.)
Cowen Intermediate Fixed Income Fund (a series of Cowen
Funds, Inc.)
Cowen Government Securities Fund (a series of Cowen Funds,
Inc.)
