<PAGE> 1
As filed with the Securities and Exchange Commission on March
30, 1998 (to be effective April 1, 1998)
Securities Act File No. 33-18505
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. 21 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 22 [ 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 10022-4669
<PAGE> 2
It is proposed that this filing will become effective (check appropriate box):
Immediately upon filing pursuant to paragraph (b), or
- ----
X on April 1, 1998 pursuant to paragraph (b), or
- ----
60 days after filing pursuant to paragraph (a), or
- ----
on __________ pursuant to paragraph (a) of Rule 485
- ----
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number of shares of 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, 1997 was filed with the Securities and Exchange Commission on January 21,
1998.
<PAGE> 3
COWEN FUNDS, INC.
FORM N-1A
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION OF COWEN
INTERMEDIATE FIXED INCOME FUND AND COWEN GOVERNMENT SECURITIES FUND, EACH AS
FILED AS PART OF POST-EFFECTIVE AMENDMENT NO. 22 TO THIS REGISTRATION STATEMENT
FILED EFFECTIVE ON APRIL 1, 1998, AS WELL AS COWEN INTERMEDIATE FIXED INCOME
FUND AND COWEN GOVERNMENT SECURITIES FUND'S ANNUAL REPORT FOR THE PERIOD ENDED
NOVEMBER 30, 1997 ARE HEREBY INCORPORATED BY REFERENCE.
COWEN OPPORTUNITY FUND
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page..................... Cover Page
2. Synopsis....................... The Fund's Expenses
3. Financial Highlights........... Financial Highlights
4. General Description of
Registrant.................... Cover Page; Investment
Objectives and Policies; and
Additional Information
5. Management of the Fund......... Management of the Fund;
and Investment Objectives
and Policies
5.a. Management Discussion of Fund... Not Applicable
Performance
6. Capital Stock and Other
Securities.................... Dividends,
Distributions and Taxes
and Additional Information
7. Purchase of Securities
Being Offered................. Cover Page;
Management of the Fund;
Net Asset Value;
Purchase of Shares; and
Dividends, Distributions and
Taxes
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
8. Redemption or Repurchase....... Redemption of Shares
9. Pending Legal Proceedings...... Not applicable
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
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
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
23. Financial Statements......... Financial Statements
</TABLE>
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.
<PAGE> 6
- --------------------------------------------------------------------------------
PROSPECTUS APRIL 1, 1998
COWEN
OPPORTUNITY
FUND
Financial Square New York, NY 10005-3597 800-262-7116 212-495-6724
Cowen Opportunity Fund is a mutual fund that seeks to realize its investment
objective of capital appreciation by investing at least 65 percent of its net
assets in small capitalization companies. Cowen Opportunity Fund is a series of
Cowen Funds, Inc., a registered, open-end, diversified management investment
company.
This Prospectus briefly sets forth certain information about Cowen Opportunity
Fund that investors should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. For convenience, certain
terms that appear throughout this Prospectus have been abbreviated: Cowen
Opportunity Fund will be referred to as the "Fund;" Cowen & Company, the Fund's
principal underwriter, will be referred to as "Cowen;" Cowen, through its
investment management division, Cowen Asset Management, serves as the Fund's
investment manager and in that capacity will be referred to as "Cowen Asset
Management;" DST Systems, Inc. will serve as the Fund's transfer & dividend
agent and will be referred to as "DST"; and Investors Fiduciary Trust Company,
the Fund's custodian will be referred to as "IFTC."
Additional information about the Fund, contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission ("SEC")
and is available to investors without charge by calling Cowen at 800-262-7116 or
212-495-6724 or by contacting your account representative. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
COWEN LOGO
COWEN & COMPANY
PRINCIPAL UNDERWRITER
COF-1 4/98
- --------------------------------------------------------------------------------
<PAGE> 7
CONTENTS
<TABLE>
<S> <C>
Financial Highlights......................... 3
The Fund's Expenses.......................... 5
Investment Objectives and Policies........... 6
Management of the Fund....................... 10
Net Asset Value.............................. 12
Purchase of Shares........................... 13
Redemption of Shares......................... 18
Dividends, Distributions and Taxes........... 20
Additional Information....................... 21
The Cowen Family of Funds.................... 23
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH,
OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE> 8
FINANCIAL HIGHLIGHTS
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose unqualified report thereon for each of the five
years ended November 30, 1997 appears in the Fund's annual report to
shareholders which is incorporated by reference in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements and related notes which also appear in the Fund's annual report to
shareholders as of November 30, 1997. The information appearing herein for each
of the years prior to November 30, 1993, also has been audited by Ernst & Young
LLP, whose report thereon was unqualified.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------------------
Years Ended November 30,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 16.61 $ 13.13 $ 12.98 $ 16.06 $ 14.92 $ 14.72 $ 10.78 $10.77 $ 9.09
------- ------- ------- ------- ------- ------- ------- ------ ------
Income from Investment
Operations:
Investment income (loss) --
net....................... (.08)(1) (.07)(1) (.04)(1) (.09)(1) (.16)(1) (.20)(1) (.22)(1) (.17) (.09)
Net realized and unrealized
gains (losses) on
securities................ 2.00 3.86 .97 1.22 3.79 2.22 4.16 .42 1.93
------- ------- ------- ------- ------- ------- ------- ------ ------
Net from investment
operations................ 1.92 3.79 .93 1.13 3.63 2.02 3.94 .25 1.84
------- ------- ------- ------- ------- ------- ------- ------ ------
Less Distributions:
Dividends from net
investment income......... -- -- -- -- -- -- -- -- (.16)
Distributions from net
realized gains on
investments............... (2.06) (.31) (.78) (4.21) (2.49) (1.82) -- (.24) --
------- ------- ------- ------- ------- ------- ------- ------ ------
Total Distributions......... (2.06) (.31) (.78) (4.21) (2.49) (1.82) -- (.24) (.16)
------- ------- ------- ------- ------- ------- ------- ------ ------
Net Asset Value, End of Year... $ 16.47 $ 16.61 $ 13.13 $ 12.98 $ 16.06 $ 14.92 $ 14.72 $10.78 $10.77
======= ======= ======= ======= ======= ======= ======= ====== ======
Total Return(2)................ 13.55% 29.63% 7.91% 9.53% 29.48% 15.33% 36.55% 2.41% 20.56%
Ratios/Supplemental Data
Net assets (000 omitted).... $54,809 $43,950 $38,724 $34,487 $19,147 $13,547 $11,672 $9,197 $7,918
Ratio of expenses to average
net assets................ 1.38% 1.39% 1.43% 1.47% 1.63% 2.52% 2.80% 3.29% 3.28%
Ratio of investment income
(loss) -- net to average
net assets................ (.53%) (.46%) (.28%) (.66%) (1.10%) (1.43%) (1.42%) (1.81%) (.75%)
Decrease effected in above
expense ratios due to
expense reimbursement..... .06% .16% .22% .14% -- -- -- .21% .65%
Portfolio Turnover Rate..... 159% 182% 148% 152% 167% 145% 97% 89% 69%
Average commission rate
paid(3)................... $ .0252 $ .0575 $ .0592
</TABLE>
- ---------------
(1) Based upon average shares outstanding.
(2) Exclusive of sales charge.
(3) Disclosure required for years beginning after September 1, 1995.
3
<PAGE> 9
<TABLE>
<CAPTION>
Class B Class I
---------------------------------------- ------------------------------------------
Period from Period from
May 17, May 9,
Year ended 1994(3) Year ended 1994(3)
November 30, through November 30, through
------------------------- November 30, --------------------------- November 30,
1997 1996 1995 1994 1997 1996 1995 1994
---- ---- ---- ------------ ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 16.23 $12.93 $12.91 $12.18(6) $ 16.77 $ 13.20 $ 12.99 $12.36(6)
------- ------ ------ ------ ------- ------- ------- ------
Income from Investment
Operations:
Investment income
(loss) --
net(1)............ (0.20) (.18) (.14) (.09) (0.03) (.01) .01 (.03)
Net realized and
unrealized gains
(losses) on
securities........ 1.95 3.79 .94 .82 2.01 3.89 .98 .66
------- ------ ------ ------ ------- ------- ------- ------
Net from investment
operations........ 1.75 3.61 .80 .73 1.98 3.88 .99 .63
------- ------ ------ ------ ------- ------- ------- ------
Less Distributions:
Dividends from net
investment
income............ -- -- -- -- -- -- -- --
Distributions from
net realized gains
on investments.... (2.06) (.31) (.78) -- (2.06) (.31) (.78) --
------- ------ ------ ------ ------- ------- ------- ------
Total
Distributions..... (2.06) (.31) (.78) -- (2.06) (.31) (.78) --
------- ------ ------ ------ ------- ------- ------- ------
Net Asset Value,
End of Period......... $ 15.92 $16.23 $12.93 $12.91 $ 16.69 $ 16.77 $ 13.20 $12.99
======= ====== ====== ====== ======= ======= ======= ======
Total Return(4)......... 12.72% 28.67% 6.97% 11.04%(5) 13.82% 30.17% 8.40% 9.04%(5)
Ratios/Supplemental Data
Net assets (000
omitted).......... $10,629 $8,794 $6,455 $2,207 $52,944 $40,369 $19,264 $8,151
Ratio of expenses to
average net
assets............ 2.15% 2.17% 2.19% 1.32%(2) 1.02% 1.01% 1.03% .75%(2)
Ratio of investment
income (loss) --
net to average net
assets............ (1.31%) (1.24%) (1.06%) (0.83%)(2) (.19%) (.07%) .11% (.26%)(2)
Decrease effected in
above expense
ratios due to
expense
reimbursement..... .06% .16% .22% 0.12%(2) .06% .15% .22% .13%(2)
Portfolio Turnover
Rate.............. 159% 182% 148% 152% 159% 182% 148% 152%
Average commission
rate paid(7)...... $ .0252 $.0575 $.0592 $ .0252 $ .0575 $ .0592
</TABLE>
- ---------------
(1) Based upon average shares outstanding.
(2) Not annualized.
(3) Commencement of operations.
(4) Exclusive of sales charge.
(5) Annualized.
(6) Based upon the Class A Net Asset Value on the day prior to commencement of
distribution.
(7) Disclosure required for years beginning after September 1, 1995.
4
<PAGE> 10
THE FUND'S EXPENSES
Under the Multiple Pricing System, the Fund presently offers three methods
of purchasing shares, enabling investors to choose the Class that, given the
amount of purchase and intended length of investment, best suits their needs.
When purchasing shares of the Fund, investors must specify whether the purchase
is for Class A shares, Class B shares or Class I 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 the Fund, based upon the Fund's
projected annual operating expenses:
<TABLE>
<CAPTION>
Class A Class B Class I
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases of
shares (as a percentage of offering price).... 4.75% 0% 0%
Maximum sales charge imposed on reinvested
dividends..................................... 0% 0% 0%
Maximum contingent deferred sales charge
(as a percentage of redemption proceeds)...... 0% 5.00% 0%
Redemption fees................................. $ 0 $ 0 $ 0
Exchange fee (per transaction).................. $ 0 $ 0 $ 0
Annual Portfolio Operating Expenses
(as percentage of average net assets)
Management fees................................. .90% .90% .90%
12b-1 fees...................................... .25% 1.00% 0%
Other expenses.................................. .29% .31% .18%
----- ----- -----
Total Fund Operating Expenses........................ 1.44% 2.21% 1.08%
===== ===== =====
</TABLE>
The nature of the services for which the Fund pays management fees is
described below under "Management of the Fund." The Fund bears an annual Rule
12b-1 service fee of .25% of the value of the average daily net assets
attributable to Class A shares and an annual Rule 12b-1 fee of 1.00% of the
value of the average daily net assets attributable to Class B shares, consisting
of a .25% service fee and a .75% distribution fee. Long-term shareholders of
Class B shares may pay more than the economic equivalent of the maximum
front-end sales charge currently permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD") governing investment company
sales charges. See "Management of the Fund -- Distributor."
The percentage of "Other expenses" in the table above is based on amounts
for expenses that include fees for shareholder services, custodial fees, legal
and accounting fees, printing costs and registration fees.
5
<PAGE> 11
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above and (3) complete redemption at the end of
the period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................ $61 $91 $122 $212
Class B ............................... $72 $99 $138 $254
Class I................................ $11 $34 $ 60 $132
</TABLE>
An investor would pay the following expenses on the same investment in
Class B shares assuming no redemption.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$22 $69 $118 $254
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. The example should not be considered to be a
representation of past or future expenses. Actual expenses of the Fund may be
greater or less than those shown above. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Fund is capital appreciation. It seeks to
achieve this objective by investing primarily in small capitalization issuers.
Current income will be incidental to the objective of capital appreciation.
Under normal market conditions, the Fund invests at least 65 percent of its
net assets in small capitalization issuers, which are issuers having total
market capitalization (number of shares outstanding multiplied by current market
price) of less than $1 billion. Cowen Asset Management expects that the Fund's
assets typically will be invested in common stock of those companies. If Cowen
Asset Management believes that the potential for appreciation of other types of
securities of such companies will equal or exceed that of common stocks, the
Fund may also invest in warrants, preferred stocks, convertible securities and
debt securities. The Fund may invest up to 10 percent of its net assets in
securities of foreign companies or in American Depositary Receipts with respect
to those securities. Cowen Asset Management may also invest up to 35 percent of
the Fund's net assets in equity securities of other companies, may invest up to
20 percent of its net assets in money market instruments and, for temporary
defensive purposes, may invest the Fund's assets without limitation in money
market instruments. If so invested, the Fund's investment objective may not be
achieved. See "Temporary Investments." In addition, Cowen Asset Management may
write covered call options and engage in securities lending transactions in an
effort to enhance the Fund's performance. See
6
<PAGE> 12
"Covered Call Options" and "Lending of Securities." The Fund's investment
objective may not be changed without shareholder approval. There is no assurance
that the investment objective will be achieved.
The Fund will rely on the expertise and analytical resources of Cowen Asset
Management to develop a diversified portfolio composed of securities from a
broad group of industry sectors with a focus on small market capitalization
companies. Investments will include, but not be limited to, companies in the
health-care, biotechnology, telecommunications, computers and software, science
and technology, environmental sciences, energy and financial services industries
as Cowen Asset Management deems appropriate from time to time. Investments may
be made in well-known and established companies as well as in relatively new or
lesser-known companies. It is important to note that while investments in
smaller, less seasoned companies may present more opportunities for growth, they
also involve greater risks than customarily are associated with more established
companies. Securities in which the Fund may invest may have limited
marketability and, therefore, may be subject to wide fluctuations in market
value. In addition, certain securities may lack a significant operating history
and be dependent on products or services without an established market share.
The Fund has adopted certain policies designed to limit investment risk. See
"Investment Restrictions."
Current income is not an objective of the Fund, and investors should not
expect income from dividends and interest comparable to that of mutual funds
with current income as a goal. Because the Fund will invest primarily in equity
securities, it will be subject to general conditions prevailing in securities
markets and the net asset value of the Fund's shares will fluctuate with changes
in the market prices of its portfolio securities.
OTHER INVESTMENTS
The Fund may invest to a limited degree in securities of companies with
more than $1 billion in market capitalizations and in the following money market
instruments: corporate bonds rated at least Baa by Moody's Investors Service,
Inc. or BBB by Standard & Poor's Corporation, commercial paper rated at least
Prime-2 by Moody's or A-2 by Standard & Poor's and obligations issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities and
repurchase agreements in respect of such obligations. Because investments in
large capitalization issuers are not directly in furtherance of the Fund's
investment objective, the Fund will limit its investment in these securities to
not more than 35 percent of its net assets. For the same reason, the Fund will,
under normal market conditions, limit its investment in money market instruments
to 20 percent of its net assets and in excess of that amount only when Cowen
Asset Management believes market conditions warrant a temporary defensive
posture. Bonds rated Baa by Moody's or BBB by Standard & Poor's may have
speculative characteristics not present in higher rated obligations.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the "full faith and credit" of the U.S. Government; others, such as those of
the Export-Import Bank, are supported by the right of the issuer to borrow from
the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. In addition, certain obligations, such as
long-term obligations issued by the Government National Mortgage Association and
the Federal National Mortgage Association, represent ownership interests in
pools of mortgages that may be subject to significant unscheduled prepayments as
a result of a decline in mortgage interest rates. Because these prepayments must
be
7
<PAGE> 13
reinvested, possibly in pools including mortgages bearing lower interest rates,
these obligations may have less potential for capital appreciation during
periods of declining interest rates than other investments of comparable
maturity, while having a comparable risk of decline during periods of rising
interest rates.
WARRANTS
A warrant confers upon its holder the right to purchase an amount of
securities at a particular time and price. Because a warrant does not carry with
it the right to dividends or voting rights with respect to the securities which
it entitles a holder to purchase, and because it does not represent any rights
in the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date. For so
long as the Fund's shares are sold in states so requiring, the Fund will limit
its purchase of warrants to five percent of its net assets, with no more than
two percent of its net assets to be invested in warrants not listed on the New
York Stock Exchange or the American Stock Exchange. The acquisition of warrants
in units or attached to other securities is not subject to these restrictions.
FOREIGN SECURITIES
The Fund may invest up to 10 percent of its assets in securities of foreign
issuers and up to an additional 10 percent of its assets in securities of
Canadian issuers. There are certain risks involved in investing in securities of
companies in foreign nations that are in addition to the usual risks inherent in
investments in domestic companies. These risks include those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers and the lack of
uniform accounting, auditing and financial reporting standards or of other
regulatory practices and requirements comparable to those applicable to domestic
companies. Moreover, securities of many foreign companies may be less liquid and
their prices more volatile than those of securities of comparable domestic
companies. These investments may be in the form of American Depositary Receipts,
which typically are issued by a U.S. bank or trust company to evidence ownership
of underlying securities issued by a foreign corporation. American Depositary
Receipts are not necessarily denominated in the same currency as the securities
into which they may be converted.
COVERED CALL OPTIONS
To assist in the management of its portfolio and to enhance the Fund's
performance, the Fund may engage in the writing (selling) of call option
contracts on securities at such times as Cowen Asset Management shall determine
to be appropriate. However, options shall be written solely as "covered" call
options; that is, options on securities that the Fund owns. The Fund will write
covered call options on securities held in the portfolio at the exercise price
which would approximate the price at which Cowen Asset Management would desire
to sell the security. The Fund will not write covered call options on portfolio
securities having an aggregate value in excess of 25 percent of the Fund's net
assets.
A call option gives the purchaser of the option the right to buy a security
from a writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under
8
<PAGE> 14
the option contract. The writer foregoes the opportunity to profit from an
increase in the market price of the underlying security above the exercise price
except insofar as the premium represents a profit.
The Fund will purchase options only to close out a call option position. In
order to close out a position, the Fund will make a "closing purchase
transaction" -- the purchase of a call option on the same security with the same
exercise price and expiration date as a call option which it has previously
written. When a security is sold from the Fund's portfolio, the Fund will effect
a closing purchase transaction so as to close out any existing call option on
that security. The Fund will realize a profit or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale thereof. There can be no assurance that the
Fund will be able to effect closing purchase transactions at a time when it
desires to do so. To facilitate closing purchase transactions, however, the Fund
will write options only if a secondary market for the options exists on a
national securities exchange.
Securities for the Fund's portfolio will at all times be bought and sold
solely on the basis of investment considerations and appropriateness to the
fulfillment of the Fund's objective.
LENDING OF SECURITIES
The Fund may lend its portfolio securities to broker-dealers and other
financial institutions pursuant to agreements requiring that the loans be
continuously secured by cash, letters of credit or U.S. Government securities of
a value equal to at least the fair market value of the securities lent. These
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30 percent of the value of the Fund's total assets taken at current
value.
ILLIQUID SECURITIES
The Fund may invest up to five percent of its assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including repurchase agreements with maturities greater than
seven days and securities of companies that are not publicly traded or for which
no readily ascertainable market quotation is available. The Fund may not be able
to dispose of illiquid securities at a time when, or at a price at which, it
desires to do so and may have to bear expenses associated with registering the
securities.
INVESTMENT RESTRICTIONS
In order to limit investment risk, the Fund has adopted certain investment
restrictions that are changeable only by shareholder vote. These restrictions,
among other things, prohibit the Fund from purchasing securities of any issuer,
other than U.S. Government securities, if the purchase would cause more than
five percent of the Fund's assets, taken at market value, to be invested in the
securities of that issuer, except that 25 percent of the Fund's assets may be
invested without regard to this limit; purchasing more than 10 percent of the
voting securities or any class of securities of any issuer; making loans to
others, except through the purchase of qualified debt obligations or lending
portfolio securities; engaging in short sales or purchasing securities on
margin; borrowing money or mortgaging or hypothecating the Fund's assets,
although the prohibition against borrowing does not prohibit short-term
borrowings from banks in an amount not exceeding 20 percent of the Fund's total
assets to meet redemption requests (and other circumstances not relating to
leveraging) and the prohibition against mortgaging or hypothecating assets does
not prohibit collateral arrangements with respect
9
<PAGE> 15
to such short-term borrowings or escrow arrangements contemplated by writing
covered call options (whenever borrowings exceed five percent of the value of
the Fund's total assets, the Fund will not make any additional investments);
purchasing securities of any issuer, other than U.S. Government securities, if
the purchase would cause more than five percent of the Fund's assets, taken at
market value, to be invested in securities of issuers that have been in
continual operation for less than three years; or buying or selling commodities
or commodity contracts.
PORTFOLIO TRANSACTIONS
All orders for transactions in securities and options on behalf of the Fund
are placed with broker-dealers selected by Cowen Asset Management. Cowen may
serve as the Fund's broker in effecting portfolio transactions on national
securities exchanges and retain 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 FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors. By virtue of the responsibilities assumed by Cowen Asset
Management under its Investment Management Agreement with the Fund, the Fund
will not require any executive employees other than its officers, none of whom
will devote full time to the affairs of the Fund.
INVESTMENT MANAGER
Cowen, an investment adviser and broker-dealer registered with the SEC,
through Cowen Asset Management, serves as the Fund's investment manager. Cowen's
principal address is Financial Square, New York, New York 10005.
Pursuant to the Investment Management Agreement between Cowen Asset
Management and the Fund, Cowen Asset Management has agreed to be responsible for
the Fund's investment program. Subject to the supervision and direction of the
Fund's Board of Directors, Cowen Asset Management manages the Fund's portfolio
in accordance with the stated policies of the Fund. Cowen Asset Management makes
investment decisions for the Fund and places the purchase and sale orders for
portfolio transactions. Cowen Asset Management also furnishes the Fund's
statistical and research data, clerical help 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, computed daily
and payable monthly, at the annual rate of .90 percent of the Fund's average
daily net assets. This fee exceeds the fee paid by most other investment
companies.
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<PAGE> 16
William Church, Vice President and Senior Investment Officer, is primarily
responsible for the daily management of the Fund. Mr. Church has had such
responsibility since the Fund commenced operations on March 31, 1988. Mr. Church
has been with Cowen since 1982 and is currently a Class I Limited Partner of
Cowen and Chief Investment Officer of Cowen Asset Management.
DISTRIBUTOR
Cowen acts as distributor of the Fund's shares. Cowen is a member of the
NASD and of the New York, American and other principal national securities
exchanges. Cowen is paid monthly fees by the Fund in connection with (1) the
servicing of shareholder accounts in Class A and Class B shares and (2)
providing distribution related services in respect of Class B shares. A monthly
service fee, authorized pursuant to a Shareholder Servicing and Distribution
Plan (the "Plan") adopted by Cowen Funds, Inc. with respect to the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), is calculated at the annual rate of .25% of the value of the average
daily net assets of the Fund attributable to each of Class A and Class B shares
and is used by Cowen to provide compensation for ongoing servicing and/or
maintenance of shareholder accounts with the Fund. Compensation is paid by Cowen
to persons, including Cowen employees, who respond to inquiries of shareholders
of the Fund regarding their ownership of shares or their accounts with the Fund
or who provide other similar services not otherwise required to be provided by
the Fund's investment adviser, transfer agent or other agent of the Fund.
In addition, pursuant to the Plan, the Fund pays to Cowen a monthly
distribution fee at the annual rate of .75% of the Fund's average daily net
assets attributable to Class B shares. The distribution fee is used by Cowen to
provide (1) initial and ongoing sales compensation to its registered
representatives or those of other broker-dealers that enter into selected dealer
agreements with Cowen in respect of sales of Class B shares; (2) costs of
printing and distributing the Fund's Prospectus, Statement of Additional
Information and sales literature to prospective investors in Class B shares; (3)
costs associated with any advertising relating to Class B shares; and (4)
payments to, and expenses of, persons who provide support services in connection
with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service and/or
distribution expenses actually incurred by Cowen, and the payments may exceed
expenses actually incurred by Cowen. The Board of Directors evaluates the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so considers all relevant factors, including expenses borne by Cowen and
amounts it receives under the Plan.
Under its terms, the Plan continues from year to year, so long as its
continuance is approved annually by vote of the Board of Directors, including a
majority of the Directors who are not interested persons of 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.
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
11
<PAGE> 17
the Fund's expenditures under the Plan will benefit the Fund and its
shareholders by providing better shareholder services and by facilitating the
distribution of shares.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, a subsidiary of State Street Boston
Corp., serves as the custodian of the Fund's investments. Communications to the
Bank should be directed at P.O. Box 419111, Kansas City, Missouri 64141. DST,
Inc. serves as the Fund's transfer and dividend agent. Communications to DST
should be directed to 210 West 10th Street, Kansas City, Missouri 64105.
EXPENSES OF THE FUND
Operating expenses for the Fund generally consist of all costs not
specifically borne by Cowen Asset Management, including investment management
fees, fees for necessary professional and brokerage services, the costs of
regulatory compliance and costs associated with maintaining legal existence and
shareholder relations. The Fund's Investment Management Agreement with Cowen
Asset Management provides that Cowen Asset Management will reimburse the Fund to
the extent required by applicable state law for certain expenses that are
described in the Statement of Additional Information. From time to time, Cowen
Asset Management, in its sole discretion and as it deems appropriate, may waive
a portion or all of the fees payable to it by the Fund.
Each Class bears its own expenses, which generally include all costs not
specifically borne by Cowen Asset Management. Included among a Class' expenses
are (1) transfer agency fees as identified by the transfer agent as being
attributable to a specific Class; (2) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; (3) Blue Sky registration fees incurred by
a Class; (4) SEC registration fees incurred by a Class; (5) the expenses of
administrative personnel and services as required to support the shareholders of
a specific Class; (6) litigation or other legal expenses relating solely to one
Class; and (7) directors' fees incurred as a result of issues relating to one
Class. In addition, each Class will bear an allocable portion of all other Fund
expenses not attributable to a particular Class based on the Class' relative net
assets.
NET ASSET VALUE
The net asset value per share of the Fund is calculated 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. 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. 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
premium, generally without regard to the effect of fluctuating interest rates on
the market value of the instrument.
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<PAGE> 18
PURCHASE OF SHARES
GENERAL INFORMATION
Shares of the Fund are sold at the net asset value per share next
determined after receipt of an order, plus a sales charge in the case of Class A
shares. Investors whose orders are received by Cowen not later than 4:15 p.m.,
New York time, will become shareholders on that day. Investors whose orders are
received after 4:15 p.m., New York time, will become shareholders on the
following business day. The Fund reserves the right to reject any order to
purchase shares. Certificates for shares will be issued only upon the specific
request of a shareholder.
The minimum initial investment in the Fund is $1,000 and the minimum
subsequent investment is $100, except that the minimum initial and subsequent
investments for purchases of Fund shares through Retirement Plans for
Self-Employed Persons and Individual Retirement Accounts will be $500 and $50,
respectively. The Fund reserves the right to vary these minimums at any time.
Retirement Plans. Shares may be purchased in connection with various
qualified tax-deferred retirement plans. Forms for establishing these plans are
available through any Cowen account representative. Investors are urged to
consult with a tax adviser in connection with the establishment of retirement
plans.
Automatic Investment Plan. The Fund offers an Automatic Investment Plan
whereby DST is permitted through preauthorized checks of $100 or more ($50 in
the case of Retirement Plans for Self-Employed Persons and Individual Retirement
Accounts) to charge the regular bank account of a shareholder on a regular basis
to provide systematic additions to the Fund account of the shareholder. While
there is no charge to shareholders for this service, a charge of $10.00 will be
deducted from a shareholder's Fund account for checks returned for insufficient
funds. A shareholder's Automatic Investment Plan may be terminated at any time
without charge or penalty by the shareholder, the Fund, DST or Cowen. Further
information regarding the Automatic Investment Plan may be obtained through any
Cowen account representative.
Under the Multiple Pricing System, the Fund presently offers three methods
of purchasing shares, enabling investors to choose the Class that, given the
amount of purchase and intended length of investment, best suits their needs.
Cowen account representatives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. From time to time, Cowen's registered
representatives and those of other broker-dealers that enter into selected
dealer agreements with Cowen will receive additional non-cash compensation in
the form of gifts or prizes such as merchandise or trips. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class I shares, as described below. In addition, the
Distributor will from its own resources make additional payments to Branch
Cabell and Company at a maximum annual rate of .25% of the net asset value of
all shares of the Fund sold by Branch Cabell and Company.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per
Class A share next determined after a purchase order is received plus a sales
charge, if applicable. Class A shares are subject to a service fee at the annual
rate of .25% of the value of the Fund's average daily net assets attributable to
this Class. See
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<PAGE> 19
"Management of the Fund -- Distributor." The sales charge payable upon the
purchase of Class A shares will vary with the amount of purchase as set forth
below.
<TABLE>
<CAPTION>
Sales Charge as a Sales Charge as a
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% 1.00%
$3,000,000-$3,999,999*............ 0% 0% .50%
</TABLE>
- ---------------
* Investors who purchase $4 million or more of shares will receive Class I
shares, which are not subject to any front-end sales charge. See "Class I
Shares."
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (1) an individual; (2) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his or her
own accounts; (3) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account; (4) a pension, profit-sharing or
other employee benefit plan qualified or non-qualified under Section 401 of the
Internal Revenue Code of 1986 (the "Code"); (5) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (6) employee benefit plans
qualified under Section 401 of the Code of a single employer or of employers who
are "affiliated persons" of each other, as defined in the 1940 Act and for
investments in Individual Retirement Accounts of employees of a single employer
through Systematic Payroll Deduction plans; or (7) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
You may benefit from a reduction of the sales charges in accordance with
the above schedule if the cumulative value (at current net asset value) of Class
A shares purchased in a single transaction, together with those Class A shares
previously purchased subject to payment of a sales charge, plus Class A shares
of Cowen Income + Growth Fund, Inc., Cowen Intermediate Fixed Income Fund and
Cowen Government Securities Fund previously or simultaneously purchased subject
to a sales charge, amounts to $50,000 or more. The foregoing schedule of reduced
sales charges will also be available to investors who enter into a written
Letter of Intent providing for the purchase, within a 13-month period, of Class
A shares of the Fund, Cowen Income + Growth Fund, Inc., Cowen Intermediate Fixed
Income Fund and Cowen Government Securities Fund from Cowen. Class A shares of
the Fund, Cowen Income + Growth Fund, Inc., Cowen Intermediate Fixed Income Fund
and Cowen Government Securities Fund previously purchased during a 90-day period
prior to the date of receipt by Cowen of the Letter of Intent and still owned by
the shareholder may also be included in determining the applicable reduction.
A shareholder who has redeemed his Class A shares may reinvest all or part
of the redemption proceeds within 30 days without imposition of a sales charge.
This privilege may be exercised only once by a shareholder. Shareholders in the
Fund should note that no loss will be allowed on the sale of Fund shares to
14
<PAGE> 20
the extent that the shareholder acquired other shares in the Fund within a
period beginning 30 days before the sale or disposition of the shares in which
the shareholder incurred a loss and ending 30 days after such sale.
The Fund offers Class A shares without imposition of a sales charge to (1)
employees of Cowen and registered representatives of securities dealers that
participate in distribution of the Fund's shares; (2) Individual Retirement
Accounts for those persons; (3) the spouses, children, parents, grandparents,
siblings, spouse's parents and sibling's children of those persons when purchase
orders on their behalf are placed by those persons; (4) directors and trustees
of registered investment companies whose shares are distributed by Cowen,
Individual Retirement Accounts for those persons, employee benefit plans for
those persons, and the spouses and minor children of those persons when purchase
orders on their behalf are placed by those persons; (5) Cowen and its
subsidiaries; (6) participants in any pension, profit-sharing or other employee
benefit plan qualified or non-qualified under Section 401 of the Code when
purchase orders are placed by such participants pursuant to such plans; (7)
officers, directors, partners and employees of the Fund's counsel or auditors;
and (8) investors who purchase shares of the Fund to the extent that the
investment represents (a) the proceeds from the redemption made within the
preceding 60 days of shares of another mutual fund not affiliated with Cowen
Asset Management whose shares were purchased subject to a sales charge, or (b)
the net proceeds of the sale within the preceding 60 days of shares of any
closed-end investment company. The Distributor pays a sales commission equal to
1.00% of the amount invested to dealers who sell Class A Shares without
imposition of a sales charge to investors described in items (6) and (8).
CLASS B SHARES
The public offering price of Class B shares is the net asset value per
share next determined after a purchase order is received without imposition of
any front-end sales charge. The Distributor pays a sales commission equal to
4.00% of the amount invested to dealers who sell Class B shares. Class B shares
may be subject upon redemption to a contingent deferred sales charge ("CDSC").
See "Redemption of Shares." Class B shares are subject to a service fee at the
annual rate of .25%, and a distribution fee at the annual rate of .75%, of the
value of the Fund's average daily net assets attributable to this Class. See
"Management of the Fund -- Distributor." Cowen has adopted guidelines, in view
of the relative sales charges, service fees and distribution fees, directing
account representatives that all purchases of shares should be for Class A
shares when the purchase is for $500,000 or more by an investor not eligible to
purchase Class C shares. Cowen reserves the right to vary these guidelines at
any time.
CLASS I SHARES
The public offering price of Class I shares is the net asset value per
share next determined after a purchase order is received without imposition of
any sales charge. Class I shares were previously designated as Class C shares.
Certain dealers may refer to Class I shares as "institutional shares." Class I
shares, which are not subject to any service fee or distribution fee, are
available exclusively to (1) employee benefit plans for employees of Cowen and
securities dealers that participate in the 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
15
<PAGE> 21
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 the Fund may be exchanged for shares of the same Class (or the
sole class offered) of the mutual funds listed below for which Cowen serves as a
distributor.
- Cowen 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.
- Cowen Intermediate Fixed Income Fund, a fund that seeks current income
and stability of principal by investing primarily in high quality
intermediate term fixed income securities. This fund is a series of Cowen
Funds, Inc.
- Cowen Government Securities Fund, a fund that seeks total return
consistent of current income and appreciation of capital through
investing primarily in securities issued or guaranteed by the U.S.
Government; its agencies, or authorities or instrumentalities. This fund
is a series of Cowen Funds, Inc.
- Cowen Large Cap Value Fund, a fund that seeks capital appreciation
through investing primarily in securities of issuers which are deemed to
be undervalued. This fund is a series of Cowen Series Funds, Inc.
For purposes of this discussion, Cowen Standby Reserve Fund, Inc. and Cowen
Standby Tax-Exempt Reserve Fund, Inc. are referred to as "money market funds"
and Cowen Income + Growth Fund, Inc., Cowen Intermediate Fixed Income Fund and
Cowen Government Securities Fund are referred to as "non-money market funds."
16
<PAGE> 22
Shares of these mutual funds are available only to investors residing in
states where these mutual funds are qualified for sale. They are sold pursuant
to separate prospectuses that may be obtained through any Cowen account
representative, through account representatives of Cowen correspondents, or
through any other member of the NASD, or any foreign nonmember of the NASD,
which has entered into a Sales Agreement with Cowen with respect to such funds.
An exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. The exchange privilege is subject to termination and its terms are
subject to change upon 60 days' notice to shareholders.
Under the Multiple Pricing System, an exchange of shares of the Fund with
other Cowen funds' shares will be limited to shares of the same class or the
sole class (money market funds only) of shares of a fund from which the exchange
is to be effected. For example, if a holder of Class A shares of a non-money
market fund exchanges his shares for shares of a money market fund and
thereafter wishes to exchange those shares for shares of the Fund, he may
receive only Class A shares in the latter transaction. As another example, if a
holder of shares of a money market fund acquired as a result of an initial
investment and not from an exchange wishes to exchange his shares for shares of
a non-money market fund, he may receive Class A shares, Class B shares or Class
I shares (depending on his eligibility for Class I shares) in the exchange
transaction. Thereafter, any further exchanges would be subject to the principal
described above limiting subsequent exchanges to the same class or the sole
class of shares of other funds.
Class A Exchanges. A shareholder may effect exchanges among the mutual
funds listed above and the Fund on the basis of relative net asset values
without imposition of a sales charge; provided, however, that where shares of a
money market fund acquired through a direct purchase are exchanged for Class A
shares of the Fund or another non-money market fund, the appropriate sales
charge will be imposed at the time of the exchange. Because a substantially
lower sales charge is paid upon purchase of Class A shares of Cowen Intermediate
Fixed Income Fund, holders of these shares will not be able to exchange their
shares with shares of the Fund or any of the non-money market funds for a period
of 90 days from the date of purchase. After the 90-day waiting period has
expired, Class A shares of Cowen Intermediate Fixed Income Fund will be
exchangeable without the imposition of any additional sales charge.
Class B Exchanges. As described below under "Redemption of Shares," the
CDSC payable by Class B shareholders upon redemption of their shares will vary
with the period of time that the shares are held (the "CDSC holding period").
For purposes of calculating the CDSC holding period, any Class B shares received
in an exchange will be deemed to have been purchased on the same date as the
Class B shares given in exchange. If, however, a Class B shareholder exchanges
his shares for shares of either money market fund, which do not offer a class of
shares subject to a CDSC, such exchange will toll, or suspend, the running of
the CDSC holding period for as long as the money market fund shares are held
and, if those shares are redeemed, a CDSC will be imposed based on the CDSC
holding period without regard to the period during which the money market fund
shares were held. For example, if a holder of Class B shares of the Fund who has
held those shares for a period of more than four but less than five years
exchanges his shares for shares of a money market fund, holds those shares of
the money market fund for a period of one year, and thereafter exchanges those
shares for Class B shares of the Fund, such shareholder will be deemed to have
held the Class B shares for a period of four full years on the date of the last
exchange. If the shareholder were to then immediately redeem his Class B shares
of the Fund, such redemption would be subject to a 2.00% CDSC. Similarly, the
same CDSC would be imposed if at any time the money market fund shares were
redeemed. Conversely, if the shareholder
17
<PAGE> 23
had held his Class B shares of the Fund for the full six year period, no CDSC
would have been imposed upon redemption.
Because a substantially lower CDSC schedule is applicable to Class B shares
of Cowen Intermediate Fixed Income Fund, holders of these shares will not be
able to exchange their shares with shares of the Fund or any of the non-money
market funds for a period of 90 days from the date of purchase. After the 90-day
waiting period has expired, if a holder of these shares wanted to exchange all
or a portion of his shares for Class B shares of the Fund or of any of the
non-money market funds that offer Class B shares subject to a higher CDSC than
that imposed by Cowen Intermediate Fixed Income Fund, the exchanged Class B
shares will not be subject to the higher applicable CDSC. Upon redemption, the
lower CDSC schedule applicable to Class B shares of Cowen Intermediate Fixed
Income Fund will apply.
REDEMPTION OF SHARES
GENERAL INFORMATION
The Fund will redeem shares without charge at the net asset value per share
next determined after receipt of a redemption order in proper form by Cowen or
DST, less any CDSC imposed on Class B shares. Any redemption request received by
Cowen prior to 4:15 p.m., New York time, will be transmitted to DST on that day
and the proceeds of such redemption will be transmitted in accordance with the
investor's instructions within seven days. Redemption requests received at or
after that time will be effected on the next business day. Proceeds of any
redemptions will not be sent until the check (including a certified or cashier's
check) used for investment has been cleared for payment by the investor's bank,
which may take 15 or more days. Pending such clearance, Cowen will hold
redemption proceeds under circumstances resulting in no earnings to investors.
Investors can avoid the inconvenience associated with check clearance delays by
purchasing shares with immediately available funds held in a brokerage account
with Cowen or a participating securities dealer or transmitted to DST 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 DST by the shareholder, DST will require written redemption instructions
signed by the shareholder of record, which signature must be guaranteed by a
commercial bank or trust company (not a savings bank) located or having a
correspondent in New York City, or by a member organization of the New York
Stock Exchange, Inc. The redemption order must specify which Class of shares is
being redeemed. If certificates have been issued representing the shares to be
redeemed, such certificates must also be endorsed, or a duly executed stock
power must be furnished, with signatures guaranteed as discussed above, and must
be submitted to Cowen or DST with the redemption request. Cowen or DST may
require further documentation if the shareholder is a corporation, partnership,
trust, estate or other entity. The payment of redemptions may be wired to a
shareholder's commercial bank account. There is a $10 charge for each federal
funds wire transaction. The minimum amount for wire redemptions is $10,000. A
shareholder who wishes to redeem by wire should contact DST at 1-800-262-7116.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
The Fund reserves the right to involuntarily 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
18
<PAGE> 24
has a value of less than $250 and will be allowed 60 days to make an additional
investment before the redemption is processed by the Fund.
The Fund offers a Systematic Withdrawal Plan under which a shareholder with
$10,000 or more in the Fund may elect to redeem periodic payments to himself or
a designated payee on a monthly, quarterly or annual basis. For accounts other
than qualified retirement plans, the minimum rate of withdrawal is $50 per month
and the maximum monthly withdrawal is one percent of the current account value
in the Fund as of commencement of participation in the plan. Maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund may be disadvantageous to the shareholder because of the sales charge
on such purchases. A shareholder who elects to use the Systematic Withdrawal
Plan should be aware that such periodic payments will be made from redemptions
of his shares. However, any Class B shares redeemed under the Systematic
Withdrawal Plan will not be subject to a CDSC as described below. Dividends and
distributions paid on his shares may not cover the full amount of each periodic
payment.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Cowen is imposed on any redemption of Class B shares held
less than six years equal to a specified percentage, as set forth below, of the
net asset value of the shares redeemed at the time of purchase or at the time of
redemption, whichever is lower. Class B shares held six years or longer and
Class B shares purchased through reinvestment of dividends or capital gains
distributions are not subject to the redemption fee. Furthermore, no CDSC will
be imposed on an amount that represents an increase in value of the
shareholder's account resulting from capital appreciation.
In circumstances in which the CDSC is imposed, the amount of the charge
will depend on the number of years since the shareholder purchased the shares
being redeemed. The following table sets forth the rates of the CDSC for
redemptions of Class B shares by investors:
<TABLE>
<CAPTION>
Year Since Purchase
in Which Redemption
is Effected CDSC
------------------- ----
<S> <C>
Year 1...................................................... 5.00%
Year 2...................................................... 4.00%
Year 3...................................................... 3.00%
Year 4...................................................... 3.00%
Year 5...................................................... 2.00%
Year 6...................................................... 1.00%
Thereafter.................................................. None
</TABLE>
In determining the applicability and rate of any CDSC, redemptions of Class
B shares are made first of amounts due to capital appreciation, next of shares
representing reinvestment of dividends and capital gains distributions, and then
of other shares held by the shareholder for the longest period of time. As a
result, the CDSC, if any, will be imposed at the lowest possible rate. For
example, assume that an investor owns 100,000 shares that he purchased seven
years ago, 100,000 shares that he purchased more than four but less than five
years ago at $10 per share and 1,000 shares received in respect of reinvestment
of dividends and distributions. The shares now have a net asset value of $20 per
share. The investor may redeem the
19
<PAGE> 25
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
The Fund generally pays dividends from its net investment income and
distributes its net realized capital gains once a year, normally at the end of
the year in which they were earned or at the beginning of the next year. Unless
a shareholder instructs that dividends and distributions on shares of any Class
be paid in cash, dividends and distributions will automatically be reinvested in
additional shares of the same Class at net asset value, without a sales charge.
The Fund intends to qualify each year as a regulated investment company
that is not subject to federal income tax on the investment income and capital
gains that it distributes to shareholders. The Fund is subject to a four-percent
nondeductible excise tax on certain undistributed amounts of taxable income and
gains. The Fund expects to be able to pay any such additional dividends and
distributions as are necessary to avoid the application of this tax. The per
share dividends and distributions on Class C shares will be higher than those on
Class A shares, which in turn will be higher than those on Class B shares, as a
result of the different service, distribution and transfer agency fees
applicable to the Classes. See "The Fund's Expenses," "Purchase of Shares,"
"Management of the Fund -- Distributor" and "Additional Information."
Dividends and distributions of short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Fund. Distributions of long-term net capital gains are
taxable to shareholders as such, whether received in cash or reinvested, and
regardless of how long a shareholder has held Fund shares. The portion of
long-term capital gains distributed to individual shareholders that is
attributable to the sale of investments that the Fund has held more than 18
months will be eligible for a 20% maximum rate. If a shareholder receives a
long-term capital gains distribution with respect to Fund shares and redeems or
transfers the shares before holding them for more than six months, any loss on
the redemption or transfer will be a long-term capital loss. In general, only
dividends from the Fund that reflect its dividend income from U.S. corporations
may, subject to certain limitations, qualify for the federal dividends-received
deduction for corporate shareholders. Dividends or distributions declared in
October, November or December and paid in January are taxable to shareholders as
if paid in December.
Dividends or interest earned on foreign securities may be subject to
foreign taxes which the Fund will pay.
20
<PAGE> 26
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Shareholders are urged to consult their own
tax advisers as to the state and local tax consequences of investing in the
Fund, and as to specific federal tax issues.
ADDITIONAL INFORMATION
The Fund is a series of Cowen Funds, Inc., which was incorporated on June
26, 1986, under the laws of the State of Maryland. Cowen Funds, Inc. has an
authorized capitalization of 3,000,000,000 shares with a par value of $.001 per
share and transferable without restriction of which 250,000,000 have been
allocated in respect of each Class of the Fund. All shares of the Fund have
equal rights and privileges as to participation in dividends and distributions
and in the net distributable assets 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 the 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 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 were elected by shareholders.
From time to time, the Fund may advertise its "average annual total return"
over various periods of time. These total return figures show the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the end of the measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were invested in shares of the Fund. Figures will be given for recent one, five
and ten year periods, or the life of the Fund to the extent it has not been in
existence for any such periods, and may be
21
<PAGE> 27
given for other periods as well, such as on a year-by-year basis. When
considering "average" total return figures for periods longer than one year, it
is important to note that the Fund's annual total return for any one year in the
period might have been greater or lesser than the average for the entire period.
The Fund may also use "aggregate" total return figures for various periods,
representing the cumulative period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate total returns
may be shown by means of schedules, charts, or graphs, and may indicate
subtotals of the various components of total return (i.e., change in value of
initial investment, income dividends, and capital gains distributions). The
Statement of Additional Information further describes the method used to
determine the Fund's performance. The performance of the Fund also might be
compared to rankings prepared by Lipper Analytical Services, Inc., which is a
widely recognized, independent service that monitors the performance of mutual
funds, as well as to various unmanaged indices, such as the Standard & Poor's
500 Composite Stock Price Index. Performance information may be useful in
reviewing the performance of the Fund and in providing a basis for comparison
with other investment alternatives. Investors should be aware that, because the
performance of the Fund changes in response to fluctuations in interest rates,
price fluctuations in securities markets, the Fund's expenses and other factors,
a performance quotation should not be considered representative of the Fund's
performance for any future period. Shareholders may make inquiries regarding the
Fund, including current performance quotations, by calling any Cowen account
representative.
Year 2000 Risks. Like other mutual funds, the Fund could be adversely
affected if the computer systems used by Cowen and other service providers do
not properly process and calculate data-related information from and after
January 1, 2000. This is commonly known as the 'Year 2000 Problem.' Cowen is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
22
<PAGE> 28
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 small capitalization
companies.
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.
COWEN LARGE CAP VALUE FUND, a series of Cowen Series Funds, Inc., seeks
capital appreciation through investing in securities of issuers which are deemed
to be undervalued.
For more complete information regarding any of these funds, including
charges and expenses, contact your account representative or call 800-262-7116.
23
<PAGE> 29
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1998
COWEN OPPORTUNITY FUND
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 Cowen Opportunity Fund Prospectus dated April 1, 1998, 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 Cowen Opportunity Fund should be made solely upon the information contained
herein. Copies of the Cowen Opportunity Fund Prospectus may be obtained by
calling Cowen & Co. ("Cowen"), the Fund's principal underwriter, at (212)
495-6724 or (800) 262-7116 or by contacting any Cowen account representative.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies . . . . . 2
Purchases and Redemptions . . . . . . . . . . 9
Management . . . . . . . . . . . . . . . . . 10
Taxes . . . . . . . . . . . . . . . . . . . . 15
Performance Information . . . . . . . . . . . 18
Financial Statements . . . . . . . . . . . . 19
</TABLE>
COWEN & COMPANY
Principal Underwriter
1
<PAGE> 30
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the investment objectives of the Fund and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning the types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the funds may utilize and certain risks attendant to those
investments, policies and strategies.
Additional Information on Investment Practices
U.S. Government Securities. Examples of the types of U.S. Government
securities that the Fund may hold include, in addition to those described in the
Prospectuses and U.S. Treasury Bills, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks and Maritime
Administration. It is not anticipated that the Funds will in the foreseeable
future invest in excess of five percent of their respective net assets in U.S.
Government securities that represent interests in pools of mortgages.
Lending of Securities. The Fund has the authority to lend securities to
brokers, dealers and other financial organizations. A Fund will not lend
securities to Cowen or its affiliates. By lending its securities, a Fund can
increase its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short term securities or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. The Fund will adhere to the
following conditions whenever its securities are loaned: (a) the Fund must
receive at least 100 percent cash collateral or equivalent securities from the
borrower; (b) the borrower must increase this collateral whenever the market
value of the securities including accrued interest rises above the level of the
collateral; (c) the Fund must be able to terminate the loan at any time; (d) the
Fund must receive reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities and any increase in
market value; (e) the Fund may pay only reasonable custodian fees in connection
with the loan; and (f) voting rights on the loaned securities may pass to the
borrower; provided, however, that if a material event adversely affecting the
investment occurs, the Board of Directors must terminate the loan and regain the
right to vote the securities.
Covered Call Options. Options written by a Fund will normally have
expiration dates between one and nine months from the date written. So long as
the obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction.
2
<PAGE> 31
The Fund can no longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice. To secure its obligation to
deliver the underlying security when it writes a call option the Fund will be
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "Clearing
Corporation") and of the national securities exchange on which the option is
written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized national securities
exchange or in the over-the-counter market. In light of this fact and current
trading conditions, the Fund expects to write options only on national
securities exchanges and in the over-the-counter market. As of the date of this
Statement of Additional Information, the national securities exchanges on which
options are traded are: The Chicago Board Options Exchange, The Board of Trade
of the City of Chicago, American Stock Exchange, Philadelphia Stock Exchange,
Pacific Stock Exchange and New York Stock Exchange ("NYSE"). Options are also
traded on the national securities exchanges with respect to unlisted securities
reported through the NASDAQ system.
Although the Fund will write only those options for which Cowen Asset
Management believes there is an active secondary market so as to facilitate
closing purchase transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will exist
for any particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the Clearing Corporation and the
national securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing purchase transactions in particular options.
If as a covered call option writer the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
The national securities exchanges have established limitations governing
the maximum number of options of each class that may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different national securities exchanges or are held, written or exercised in one
or more accounts or through one or more brokers). It is possible that the Fund
and other clients of Cowen Asset Management and certain of its affiliates may be
considered to be such a group. A national securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions.
3
<PAGE> 32
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stocks but the Fund may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.
Venture Capital Investments. Cowen Opportunity Fund may invest up to five
percent of its assets in venture capital investments, i.e., new and early stage
companies whose securities are not publicly traded. Venture capital investments
may present significant opportunities for capital appreciation but involve a
high degree of business and financial risk that can result in substantial
losses. The disposition of U.S. venture capital investments, which may include
limited partnership interests, would normally be restricted under federal
securities laws. Generally, restricted securities may be sold only in privately
negotiated transactions, in public offerings registered under the Securities Act
of 1933, as amended (the "1933 Act") or in transactions pursuant to Rule 144A
under the 1933 Act. As a result of these restrictions, the Fund may be unable to
dispose of these investments at times when disposition is deemed appropriate due
to investment or liquidity considerations. Alternatively, the Fund may be forced
to dispose of these investments at less than their fair value. Where
registration is required, the Fund may be obligated to pay part or all of the
expenses of such registration.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions involving its portfolio securities with banks, registered
broker-dealers and government securities dealers approved by the Board of
Directors. It is not anticipated that a Fund will in the foreseeable future
invest in excess of five percent of its net assets in repurchase agreements.
Under the terms of a typical repurchase agreement, 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 price and time, thereby determining the
yield during the Fund's holding period. Thus, repurchase agreements may be seen
to be loans by the Fund collateralized by the underlying debt obligation. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The Fund bears a risk of loss in
the event that the other party to a repurchase agreement defaults on its
obligations and the Fund is delayed in or prevented from exercising its rights
to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert these rights. The Fund's investment manager, Cowen Asset
Management, acting under the supervision of the Board of Directors, reviews the
creditworthiness of those banks
4
<PAGE> 33
and dealers with which the Fund enters into repurchase agreements to evaluate
these risks and monitors on an ongoing basis the value of the securities subject
to repurchase agreements to ensure that the value is at least equal at all times
to the total amount of the repurchase obligation, including interest.
Investment Restrictions
The investment restrictions numbered 1 through 12 below have been adopted
by the Fund as fundamental policies, which means that they may not be changed
without the vote of a majority of the outstanding voting securities of the Fund,
which is defined as the lesser of (a) 67 percent or more of the shares present
at a shareholders' meeting if the holders of more than 50 percent of the
outstanding shares of the Fund are present or represented by proxy, or (b) more
than 50 percent of the outstanding shares. Investment restrictions 13 through 18
may be changed by vote of a majority of the Board of Directors at any time.
The investment policies adopted by the Fund prohibit it from:
1. With respect to 75 percent of its assets, purchasing the securities of
any issuer, other than U.S. Government securities, if as a result more than five
percent of the value of the Fund's total assets would be invested in the
securities of the issuer.
2. Purchasing more than 10 percent of the voting securities of any one
issuer or more than 10 percent of the securities of any class of any one issuer.
This limitation shall not apply to investments in U.S. Government securities.
3. Purchasing securities on margin, except that the Fund may obtain any
short-term credit necessary for the clearance of purchases and sales of
securities.
4. Making short sales of securities or maintaining a short
position.
5. Borrowing money, except that the Fund may borrow from banks for
temporary or emergency (but not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition of
securities, in any amount not exceeding 20 percent of the value of the Fund's
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever borrowings exceed five percent of the value of the
Fund's total assets, the Fund will not make any additional investments.
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
20 percent of the value of the Fund's total assets, except that this prohibition
shall not prohibit collateral arrangements with respect to borrowings described
in Investment Restriction No. 5 or the escrow arrangements contemplated by
writing covered call options.
5
<PAGE> 34
7. Underwriting the securities of other issuers, except insofar as the
Fund may be deemed to be an underwriter under the 1933 Act by virtue of
disposing of portfolio securities.
8. Making loans to others, except through purchasing qualified
debt obligations or lending portfolio securities.
9. Investing in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, reorganization, acquisition
of assets or offer of exchange.
10. Purchasing any securities that would cause more than 25 percent of the
value of the Fund's total assets to be invested in the securities of issuers
conducting their principal business activities in the same industry; provided
that there shall be no limit on the purchase of U.S. Government securities.
11. Investing in commodities.
12. Purchasing any security if as a result the Fund would then have more
than five percent of its total assets invested in securities of issuers
(including predecessors) that have been in continual operation for less than
three years. This limitation shall not apply to investments in U.S. Government
securities.
13. Purchasing or selling real estate or interests in real estate, except
that the Fund may purchase and sell securities that are issued by companies that
invest or deal in real estate.
14. Writing or selling puts, calls, straddles, spreads or combinations
thereof, except that the Fund may write covered call options and enter into
closing purchase transactions with respect to options it has written, provided
these transactions are conducted in a manner consistent with, and subject to the
limitations set forth in, the description of these transactions in its
Prospectus and this Statement of Additional Information.
15. Investing in oil, gas or other mineral exploration or development
programs, except that the Fund may invest in the securities of companies that
invest in or sponsor those programs.
16. Purchasing restricted securities, illiquid securities (such as
repurchase agreements with maturities in excess of five business days) or
securities that are not readily marketable or for which no readily ascertainable
market value is available if more than five percent of the total assets of the
fund would be invested in those securities.
17. Making investments for the purpose of exercising control or
management.
6
<PAGE> 35
18. Purchasing or retaining the securities of any issuer if, to the
knowledge of the Fund, any of the officers or directors of Cowen Funds, Inc. or
Cowen individually owns more than 0.5 percent of the outstanding securities of
the issuer and together they own beneficially more than five percent of the
securities.
The percentage limitations contained in the restrictions listed above
apply at the time of purchases of securities. If a percentage restriction is
adhered to at the time of an investment, a later increase or decrease in
percentage resulting from a change in values or assets will not constitute a
violation of the restriction. The Fund may make commitments more restrictive
than the restrictions listed above so as to permit the sale of shares of the
Fund in certain states. Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, the Fund will
revoke the commitment by terminating the sale of shares of the Fund in the state
involved.
Portfolio Transactions
Decisions to buy and sell securities and other financial instruments for
the Fund are made by Cowen Asset Management, which also is responsible for
placing these transactions, subject to the overall review of the Board of
Directors. Although investment requirements for the Fund are reviewed
independently from those of the other accounts managed by Cowen Asset
Management, investments of the type 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 are in most cases effected on U.S. stock exchanges
and involve the payment of negotiated brokerage commissions. There is generally
no stated commission in the case of securities traded in the over-the-counter
markets, but the prices of those securities may include commissions or mark-ups.
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.
7
<PAGE> 36
To the extent consistent with applicable provisions of the Act, other
securities laws and rules and exemptions adopted by the Securities and Exchange
Commission (the "SEC") 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 the Fund, Cowen Asset Management seeks the best overall terms
available. In assessing the best overall terms available for any transaction,
Cowen Asset Management will consider the factors it deems relevant, including
the breadth of the market in the investment, the price of the investment, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, Cowen Asset Management is authorized, in
selecting parties to execute a particular transaction and in evaluating the best
overall terms available, to consider the brokerage and research services, as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934,
provided to the Fund and/or other accounts over which Cowen Asset Management or
its affiliates exercise investment discretion. Cowen Asset Management's fees
under its agreements with the Funds are not reduced by reason of its receiving
brokerage services. The Board of Directors periodically reviews the commissions
paid by the Funds to determine if the commissions paid over representative
periods of time are reasonable in relation to the benefits inuring to the Funds.
For the fiscal year ended November 30, 1995, Cowen Opportunity Fund paid
an aggregate of $431,866 in commissions to broker-dealers for execution of
portfolio transactions. Cowen did not effect any transactions for the Fund
during that year. They were paid to other broker-dealers which furnished
research services to the Fund.
For the fiscal year ended November 30, 1996, Cowen Opportunity Fund paid
an aggregate of approximately $601,830 in commissions to broker-dealers for
execution of portfolio transactions. Cowen effected approximately .11% of the
aggregate dollar amount of such transactions for which it received
approximately $1,610 (.27%) of the commissions paid by the Fund during that
year. The balance of the commissions ($600,220) was paid to other
broker-dealers which furnished research services to the Fund and which effected
the remaining 99.89% of the aggregate dollar amount of portfolio transactions
involving the payment of commissions.
For the fiscal year ended November 30, 1997, Cowen Opportunity Fund paid
an aggregate of approximately $835,217 in commissions to broker-dealers for
execution of portfolio transactions. Cowen effected approximately .04% of the
aggregate dollar amount of such transactions for which it received approximately
$245 (.03%) of the commissions paid by the Fund during that year. The balance of
the commissions ($834,972) was paid to other broker-dealers which furnished
research services to the Fund and which effected the remaining 99.97% of the
aggregate dollar amount of portfolio transactions involving the payment of
commissions.
8
<PAGE> 37
Portfolio Valuation
The assets of the Fund are generally valued on the basis of market
quotations. Securities whose principal market is on an exchange are valued at
the last sales price on the exchange or, in the absence of currently reported
sales on the exchange, at the most recent bid price in the over-the-counter
market or, in the absence of a recent bid price, the bid equivalent as obtained
from one or more of the major market makers for the securities to be valued.
Securities traded principally in the over-the-counter market are valued at the
most recent bid price. Other investments and other assets, including restricted
securities and securities for which market quotations are not readily available,
are valued at fair value under procedures approved by the Board of Directors.
High-quality, short-term securities with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board of Directors. Amortized cost valuation involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. Although this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.
PURCHASES AND REDEMPTIONS
Net Asset Value
The net asset value per share of the Fund is calculated on each day on
which the New York Stock Exchange ("NYSE") is open as of 4:15 p.m. Eastern time.
The NYSE is currently open Monday though Friday, except (a) January 1st, Martin
Luther King Day (the third Monday in January), Washington's Birthday (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May), July
4th, Labor Day (the first Monday in September), Thanksgiving Day (the fourth
Thursday in November) and December 25th; and (b) the preceding Friday when one
of those holidays falls on a Saturday or the subsequent Monday when one of those
holidays falls on a Sunday.
9
<PAGE> 38
Purchases
Shares of the 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 the Fund's name has been adopted pursuant to a
provision contained in the Distribution Agreement. Under that provision, Cowen
may terminate the Fund's license to use the word "Cowen" in its name when Cowen
ceases to act as the Fund's principal underwriter.
Redemptions
The right of redemption of shares of a Fund may be suspended or the date
of payment postponed (a) for and periods during which the NYSE is closed (other
than for customary weekend and holiday closings); (b) when trading in the
markets the Fund normally utilizes is restricted or an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of the Fund's
investments or determination of its net asset value not reasonably practicable;
or (c) for such other periods as the SEC by order may permit for protection of
the Fund's shareholders.
MANAGEMENT
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 Fund
James H. Carey, Director, age 64. Managing Director of Briarcliff
Financial Associates, Inc. (since June, 1991) and former Chief Executive
Officer, Director and Treasurer of National Capital Benefits Corporation (since
March, 1994). Mr. Carey is also a Director of Airborne Freight Corporation,
Jonathan Woodner Company, former Director of NCB Insurance Limited (Bermuda),
The Midland Company, The Murray & Isabella Rayburn Foundation, Nantucket
Industries, Inc. and Vice Chairman of 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 Road and Canterbury Road,
Manchester Center, VT 05255.
10
<PAGE> 39
*Joseph M. Cohen, Chairman and Chief Executive Officer of the Fund, age
59. Principal Executive Officer and since March 1991 Class I Limited Partner of
Cowen and Chairman and President of Cowen Incorporated, the sole general partner
of Cowen. Prior thereto he was the Managing General Partner of Cowen. Director,
Chairman and Chief Executive Officer of the Cowen Mutual Funds. Until December
15, 1992, he was also President of the Fund and the Cowen Mutual Funds.
Dr. Peter P. Gil, Director, age 74. Director, Arthur D. Little Management
Institute Board since 1991 and former Executive Board Member and currently
Acting Dean of the Institute; Trustee and Executive Committee Member, Plimoth
Plantation, (Plymouth, Mass.). From July 1988 to July 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 Trustee of BT Pyramid Mutual
Funds, Director of Japan Equity Fund, Inc., and the Taiwan Equity Fund, Inc.;
and a Trustee of BT Leadership Trust and the T.I.A.A. Board. His address is New
York University, 44 West 4th Street, New York, New York 10012.
Burton J. Weiss, Director, age 65. Self-employed consultant since March,
1988. His address is 103 Marin Drive, Chapel Hill, North Carolina 27516.
Officers of the Fund Not Noted Above
Rodd M. Baxter, Secretary. General Counsel of Cowen Asset Management and
Director of Cowen. His address is Financial Square, New York, New York 10005.
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.
11
<PAGE> 40
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 the Fund that has commenced investment operations, of $3,000 per
annum plus $500 per meeting attended and reimbursement for travel and
out-of-pocket expenses. For the fiscal year ended November 30, 1997, such fees
and expenses totaled $23,942. None of the Fund's director's or officers, whether
individually or as a group, beneficially owned more than 1% of the Fund's
outstanding stock as of the close of business on March 4, 1998. As of March 4,
1998, the following persons owned 5% or more of a class of the Fund's
securities: Class I-- Mac & Co. (25%), Post Office Box 3198, Pittsburgh,
Pennsylvania 15230-3198; Joint Commission Operating Fund (5%), 1 Renaissance
Blvd., Oakbrook Terrace, IL 60181; Charles Schwab & Co. (20%), 301 Pine St.,
San Francisco, CA 94104; Cowen & Co. 401K (18%), Financial Square, New York, NY
10005.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Aggregate Pension or Estimated Annual Total
Person Compensation Retirement Benefits Compensation
From Benefits Upon From
Registrant Accrued as Retirement Registrant
Part of Fund and Fund
Expenses Complex Paid
to Directors*
<S> <C> <C> <C> <C>
James H. Carey $5,750 -0- -0- $28,750
Peter Gil $5,750 -0- -0- $28,750
Martin J. Gruber $5,750 -0- -0- $28,750
Burton J. Weiss $5,750 -0- -0- $28,750
</TABLE>
*There are seven funds in the complex.
Investment Manager
Cowen, through Cowen Asset Management, its investment management division,
serves as investment manager to the Fund pursuant to an Investment Management
Agreement. Cowen, a limited partnership organized under the laws of New York, is
controlled by its general partner, Cowen Incorporated. Cowen Incorporated is
controlled by Mr. Joseph M. Cohen. The services provided by, and the fees
payable by the Fund to Cowen Asset Management under its Investment Management
Agreement is described in the Prospectus.
12
<PAGE> 41
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 converse, at the time such amounts are assumed or reimbursed, as the case
may be. For the fiscal years ended November 30, 1995, 1996 and 1997, no
reimbursement was necessary, and the Fund paid Cowen an investment management
fee of $509,283, $672,125 and $981,026, respectively. However, since May 4,
1994, Cowen voluntarily reimbursed the expenses of the Fund in an amount
equal to an annual rate of .22% through March 31, 1996 and of .13% through March
31, 1997 and .03% through March 31, 1998 of the average daily value of its
assets.
Shareholder Servicing and Distribution Plan (the "Plan")
Cowen is paid monthly fees by the Fund in connection with (1) the
servicing of shareholder accounts in Class A and Class B shares and (2)
providing distribution related services in respect of Class B shares. A monthly
service fee, authorized pursuant to the Plan adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), is calculated at the annual rate of .25% of the value of the average
daily net assets of the Fund attributable to each of Class A and Class B shares
and is used by Cowen to provide compensation for ongoing servicing and/or
maintenance of shareholder accounts with the Fund. Compensation is paid by Cowen
to persons, including Cowen employees, who respond to inquiries of shareholders
of the Fund regarding their ownership of shares of their accounts with the Fund
or who provide other similar services not otherwise required to be provided by
the Fund's investment adviser, transfer agent or other agent of the Fund.
In addition, pursuant to the Plan, the Fund pays to Cowen a monthly
distribution fee at the annual rate of .75% of the Funds average daily net
assets attributable to Class B shares. The distribution fee is used by Cowen to
provide (1) initial and ongoing sales compensation to its registered
representative or those of other broker-dealers that enter into selected dealer
agreements with Cowen in respect of sales of Class B shares; (2) costs of
printing and distributing the Fund's Prospectus, Statement of Additional
Information and sales literature to prospective investors in Class B shares; (3)
costs associated with any advertising relating to Class B shares; and (4)
payments to, and expenses of, persons who provide support services in connection
with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service and/or
distribution expenses actually incurred by Cowen, and the payments may exceed
expenses actually incurred by Cowen. The Board of Directors evaluates the
appropriateness of the Plan
13
<PAGE> 42
and its payment terms on a continuing basis and in doing so considers all
relevant factors, including expenses borne by Cowen and amounts it received
under the Plan.
For the fiscal years ended November 30, 1995, 1996 and 1997, Cowen
received $93,590, $99,793 and $125,629 respectively in servicing fees from Class
A shares and $52,019, $74,751 and $101,214 respectively in servicing and
distribution fees from Class B shares.
Custodian and Transfer and Dividend Agent
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas
City, Missouri 64105 is custodian of the Fund's assets pursuant to a Custody
Agreement. Under the Custody Agreement, the IFTC (i) maintains a separate
account or accounts in the name of the Fund, (ii) holds and transfers portfolio
securities on account of the Fund, (iii) receives and disburses money on behalf
of the Fund and (iv) collects and receives all income and other payments and
distributions on account of the Fund's portfolio securities.
DST Systems, Inc. ("DST"), 210 West 10th Street, Kansas City, Missouri
64105 serves as the Fund's transfer and dividend disbursing agent pursuant to a
Transfer Agency Agreement, under which DST (i) issues and redeems shares of
the Fund, (ii) addresses and mails all communications by the Fund to its
shareholders and (iii) maintains shareholder accounts.
Auditors and Counsel
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has been
selected as the Fund's independent auditor.
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, serves as counsel for Cowen Funds, Inc.
14
<PAGE> 43
TAXES
Set forth below is a summary of certain general federal income tax
considerations which may affect the Funds and their shareholders. As the summary
is not intended as a substitute for individual tax planning, investors are urged
to consult their own tax advisers with specific reference to their particular
federal, state or local tax situations.
Tax Status of the Funds
The Fund will be treated as a separate taxpayer for federal income tax
purposes. Accordingly, the amounts of investment income and capital gains that
are subject to tax will be determined separately for the Fund and the Fund must
separately meet the diversification, income and distribution requirements for
qualification as a "regulated investment company" within the meaning of the
Internal Revenue Code of 1986.
A qualified Fund will not be liable for federal income tax on any
investment income or capital gains that it distributes to its shareholders, if
at least 90% of its investment income for the taxable year is so distributed.
(Amounts reinvested automatically in additional shares of a Fund will be treated
as distributed to its shareholders). In addition, in order to avoid a four
percent excise tax the Fund must distribute, or be treated as having
distributed, before January 1, at least an amount equal to the sum of 98 percent
of its ordinary income earned during the prior calendar year, 98 percent of the
net capital gains earned during the twelve months ending on the preceding
November 30 and any prior undistributed amounts.
The requirements for qualification as a regulated investment company
include two significant rules as to investment results. First, the Fund must
earn at least 90 percent of its gross income from dividends, interest, payments
with respect to securities loans, gains from the disposition of equity or debt
securities and income or gains from options on securities (the "90 percent
test"). Second, the Fund must earn less than 30 percent of its gross income from
the sale of securities held less than three months (the "30 percent test").
The 30 percent test will restrict the extent to which a Fund may: (i) sell
securities held for less than three months; (ii) write options that expire in
less than three months; (iii) close options that were written or purchased
within the preceding three months; and (iv) hold certain options during the
fourth quarter of its taxable year. Neither Fund expects the 90 percent test to
significantly affect its investment policy.
Taxation of Shareholders
Capital Gains. The portion of long-term capital gains distributed to
individual shareholders that is attributable to the sale of investments that
the Fund has held more than 18 months will be eligible for a 20% maximum rate.
If a shareholder who receives a distribution taxable as long-term capital gain
with respect to shares of a Fund redeems or exchanges the shares before holding
them (unhedged) for more than six months, loss on the redemption or exchange,
up to the amount of the distribution, will be treated as a long-term capital
loss.
15
<PAGE> 44
Dividends of investment income from a Fund may qualify for the federal
dividends-received deduction of corporate shareholders only to the extent of the
aggregate amount of dividends received by the Funds from U.S. corporations. A
Fund must hold stock for more than 45 days (90 days in the case of certain
preferred stock), without hedging its investment in the stock in certain ways,
for dividends paid on the stock to be eligible dividends.
If a Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income as of the later of (a) the date such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (b) the date the Fund acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, a Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
If a shareholder (a) incurs a sales charge in acquiring Fund shares, (b)
disposes of those shares within ninety days and (c) acquires shares in a mutual
fund for which the otherwise applicable sales charge is reduced by reason of
reinvestment right (i.e., an exchange privilege), the original sales charge
increases the shareholder's tax basis in the original shares only to the extent
that the otherwise applicable sales charge for the second acquisition is not
reduced. The portion of the original sales charge that does not increase the
shareholder's tax basis in the original shares would be treated as incurred with
respect to the second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired shares made within ninety
days of the second acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his investment in a family of
mutual funds.
Backup Withholding. In general, if a shareholder who is taxed as an
individual cannot certify that he has given his correct taxpayer identification
number to the Fund and that he is not subject to backup withholding, he will be
subject to a 31 percent federal backup withholding tax on Fund dividends and
distributions and the proceeds of redemptions or exchanges of Fund shares. (An
individual's taxpayer identification number is his social security number.) The
backup withholding tax is not an additional tax and may be credited against a
shareholder's regular federal income tax liability.
Taxation of Fund Investments
Capital Gains. When a Fund sells a security, the resulting gain or loss
will generally be capital gain or loss and will be long-term capital gain or
loss if the Fund has held the security for more than one year. If a Fund
acquires a debt security at a discount after April 30, 1995, the portion of any
gain upon its sale or redemption that reflects the accrued market discount will
be taxed as ordinary income, rather than capital gain.
16
<PAGE> 45
Options. The tax consequences of a Fund's options transactions
will vary depending on the nature of the underlying security.
When a Fund writes a call option on an equity or convertible debt
security, and either the option expires unexercised or the Fund enters into a
closing purchase transaction, the Funds will normally recognize a short-term
capital gain or loss (except that any losses on certain covered call stock
options will be treated as long-term capital losses). If the option is
exercised, the premium received will be treated as additional proceeds from the
sale of the underlying security.
In general, exchange-traded options on nonconvertible debt securities are
"section 1256 contracts". Gain or loss on a section 1256 contract is recognized
for tax purposes when actually realized (by a closing transaction, exercise or
expiration). In addition, any section 1256 contracts held at the end of a Fund's
taxable year will be treated as if sold at their year-end fair market value and
the resulting "mark-to-market" gain or loss will be taxable. Both realized and
mark-to-market gains or losses from section 1256 contracts will be treated as 60
percent long-term and 40 percent short-term capital gain or loss, regardless of
how long the Fund holds each contract. Until the Internal Revenue Service
formally rules that mark-to-market gain on contracts held for less than three
months at the close of a Fund's taxable year does not represent short-term gain
for purposes of the 30 percent test, the Funds may restrict their fourth-quarter
transactions in section 1256 contracts.
In general, when a taxpayer substantially reduces the risk of loss on an
investment position by entering into one or more other positions which "offset"
that position (because their values ordinarily vary inversely with its value),
the combination of positions creates a "straddle." Under an exception, certain
covered call stock options do not form straddles with the optioned stock, but
the Funds may enter into options transactions that do constitute straddles.
If two or more positions form a straddle, special tax rules may cause
losses realized by a Fund on a position to be eliminated or deferred or may
recharacterize short-term capital losses as long-term or long-term capital gains
as short-term. Furthermore, interest and other carrying charges allocable to a
position that is part of a straddle must be capitalized.
Foreign Taxes. Because the Fund will invest no more than 10% of its assets
in foreign securities and up to an additional 10 percent of its assets in
securities of Canadian issuers, shareholders will not receive credits against
their federal income tax due for foreign taxes paid by a Fund, if any.
17
<PAGE> 46
PERFORMANCE INFORMATION
From time to time, a Fund may quote its performance, in terms of the
Classes' total returns, in reports or other communications to shareholders or in
advertising material. 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. The period selected for a calculation of
total return will depend on the purpose of reporting the performance and may be
as short as seven days.
A Fund's "average annual total return" figures described and shown in the
Prospectuses are computed according to a formula prescribed by the Securities
and Exchange Commission. The formula can be 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 the 1, 5, or 10 year
periods (or fractional portion thereof), assuming reinvestment of all dividends
and distributions.
Class A Shares/Average Annual Total Return for the periods ended November 30,
1997:
1 year = 8.15%
5 year = 16.49%
* Inception = 15.37%
* March 31, 1988
Class B Shares/Average Annual Total Return for the periods ended November 30,
1997:
1 year = 7.72%
* Inception = 14.43%
* May 17, 1994
Class I Shares/Average Annual Total Return for the periods ended November 30,
1997:
1 year = 13.82%
* Inception = 15.84%
* May 9, 1994
18
<PAGE> 47
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 the
period.
A Fund's net assets change in response to fluctuations in interest rates,
price fluctuations in securities markets, and the expenses of the Fund.
Consequently, any given performance quotation should not be considered as
representative of the Fund's performance for any specified period in the future.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. A Fund's net investment income changes in response
to fluctuations in interest rates and the expenses of the Fund.
FINANCIAL STATEMENTS
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 Opportunity Fund for the
fiscal year ended November 30, 1997. Cowen Funds, Inc. will provide a copy of
the Cowen Opportunity 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 Opportunity 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.
19
<PAGE> 48
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements included in Registration Statement:
(i) "Financial Highlights" included in Part A of Cowen Opportunity
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, 1997; Statement of Operations for the
Year ended November 30, 1997; Statement of Changes in Net Assets for
the years ended November 30, 1996 and 1997; Notes to Financial
Statements; and the Report of Ernst & Young, LLP, Independent Auditors,
dated January 9, 1998.
(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, 1997; Statement of Operations for the
Year Ended November 30, 1997; Statement of Changes in Net Assets for
the Years Ended November 30, 1996 and 1997; Notes to Financial
Statements; and the Report of Ernst & Young LLP, Independent Auditors,
dated January 9, 1998.
(b) Exhibits:
Exhibit No. Description of Exhibits
1 (i) Articles of Incorporation of Registrant(a)
(ii) Articles of Amendment, dated November 11, 1987(a)
(iii) Articles of Revival of Registrant(a)
(iv) Articles of Amendment, dated April 28, 1994(a)
(v) Articles of Amendment, dated July 8, 1994(a)
2 (i) By-Laws(a)
(ii) Amendment to the By-Laws, dated February 8, 1988(a)
(iii) Amendment to the By-Laws, dated December 15, 1992(a)
3 Not applicable
4 Not applicable
C-1
<PAGE> 49
5 (i) Investment Management Agreement, Cowen Opportunity Fund(a)
(ii) Investment Management Agreement, Cowen Intermediate Fixed Income
Fund(a)
(iii) Investment Management Agreement, Cowen Government
Securities Fund(a)
6 Distribution Agreement, dated as of October 13, 1992(a)
7 Not applicable
8 Custody Agreement(a)
9 Transfer Agency Agreement(a)
10 (i) Opinion and consent of Willkie Farr & Gallagher, dated February
16, 1988(a)
(ii) Opinion and consent of Venable Baetjer & Howard, dated February
16, 1988(a)
(iii) Opinion and consent of Venable Baetjer & Howard, dated
May 12, 1994(a)
11 Consent of Independent Auditors
13 Subscription Agreement(a)
15 (i) Shareholder Servicing and Distribution Plan, Cowen Opportunity
Fund(a)
(ii) Shareholder Servicing and Distribution Plan, Cowen Intermediate
Fixed Income Fund(a)
(iii) Shareholder Servicing and Distribution Plan, Cowen
Government Securities Fund(a)
(iv) Shareholder Servicing Agreement, Cowen Opportunity Fund(a)
(v) Shareholder Servicing Agreement, Cowen Intermediate Fixed Income
Fund(a)
(vi) Shareholder Servicing Agreement, Cowen Government Securities
Fund(a)
(vii) Distribution Related Services Agreement, Cowen
Opportunity Fund(a)
(viii) Distribution Related Services Agreement, Cowen
Intermediate Fixed Income Fund(a)
(ix) Distribution Related Services Agreement, Cowen Government
Securities Fund(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 20, 1998, there were 3,883 record holders of Cowen Opportunity
Fund, 647 record holders of Cowen Intermediate Fixed Income Fund and 155 record
holders of Cowen Government Securities Fund.
C-2
<PAGE> 50
Item 27. Indemnification
Incorporated by reference to Item 27 of Part C of Registrant's
Registration Statement filed on November 13, 1987.
Items 28
and 29. Business and Other Connections of Investment
Manager; and Principal Underwriter
Cowen & Company ("Cowen"), through Cowen Asset Management, serves as
Investment Manager to Registrant and is the principal underwriter and
distributor of the Registrant's shares. Cowen is also the Investment Manager,
principal underwriter and distributor of shares of Cowen Income + Growth Fund,
Inc. ("CI+G"), Cowen Standby Reserve Fund, Inc. ("CSRF") and Cowen Standby
Tax-Exempt Reserve Fund, Inc. ("CSTXF") and Cowen Series Fund, Inc. ("CSF").
Listed on the following pages are the names of all of Partners of Cowen as of
March 5, 1998, their positions and the 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").
C-3
<PAGE> 51
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL ------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ------- ------ ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
GENERAL PARTNER
Cowen Incorporated (1)
CLASS I LIMITED PARTNERS
Anthony J. Aliberti (1)...... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Domingo Alonso (1)........... Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Richard A. Altschuler (3).... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Joseph Augustine (1)......... Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Alice C. Avanian (3)......... Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Michael H. Bassett (1)....... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
William A. Belfiore (1)...... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Anthony R. Bergamaschi (1)... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
Christopher A. Beyer (1)...... Since 3/30/94 -- Cowen Incorporated
(1) -- MD
Andrew C. Brosseau (3)....... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Kennedy M. Buckley (1)....... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
Richard S. Chu (3)........... Since 3/30/91 -- Cowen Incorporated
(1) -- MD
William R. Church (1)....... V,SI V,SI V,SI Since 3/30/91 -- Cowen Incorporated
(1) -- MD
Jarrod M. Cohen (1).......... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
Jon M. Cohen (1)............. Since 1/1/97 -- Cowen Incorporated
(1) -- MD
Joseph M. Cohen (1).......... C, D C, D C, D C, D C Since 3/30/91 -- Cowen Incorporated
(1) -- P,D
Peter E. Cohen (1)............ Since 3/30/93 -- Cowen Incorporated
(1) -- MD
Terrence R. Connelly (1)..... Since 1/1/96 -- Cowen Incorporated
(1) -- MD
Philip A. Conti (1).......... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
Arthur Cowen, III (1)........ ETC Enterprises, Inc. (8); Since
3/30/91 Cowen Incorporated
(1) -- MD
Nancy M. Crowell (6)......... Since 3/30/92 -- Cowen Incorporated
(1) -- MD
</TABLE>
C-4
<PAGE> 52
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Howard Dingley (7)............ Since 1/1/97--Cowen Incorporated (1)-
-MD
Kenneth Dowd (1).............. Since 1/1/97--Cowen Incorporated (1)-
-MD
John P. Dunphy (1)............ Since 3/30/92--Cowen Incorporated
(1)--MD
Alec D. Green (7)............. Since 1/1/96--Cowen Incorporated
(1)--MD
Jeremiah Harrington (1)....... Since 1/1/97--Cowen Incorporated
(1)--MD
Guy E. Heald (3).............. Since 1/1/97--Cowen Incorporated
(1)--MD
William F. Herbert (3)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Edward I. Herbst (1).......... Since 3/30/91--Cowen Incorporated
(1)--MD
James M. Hesburgh (1)......... Since 1/1/97--Cowen Incorporated
(1)--MD
Thomas L. Hgyde (1)........... Since 3/30/93--Cowen Incorporated
(1)--MD
Cornelius Howe (1)............ Since 1/1/97--Cowen Incorporated
(1)--MD
Gerald P. Kaminsky ........... D,SI D,SI Since 3/30/91--Cowen Incorporated
(1)--MD
Kurt B. Karmin (2)............ Since 1/1/97--Cowen Incorporated
(1)--MD
James C. Kedersha (3)......... Since 1/1/97--Cowen Incorporated
(1)--MD
Jamie Kiggen (3).............. Since 1/1/97--Cowen Incorporated
(1)--MD
Jeffrey B. Kiley (1).......... Since 1/1/97--Cowen Incorporated
(1)--MD
Christopher D. Kirby (6)...... Since 1/1/97--Cowen Incorporated
(1)--MD
Albert F. Laub (3)............ Since 3/30/91--Cowen Incorporated
(1)--MD
Daniel T. Lamaitre (3)........ Since 3/30/92--Cowen Incorporated
(1)--MD
Maria F. Lewis-Kussmaul (3)... Since 3/30/93--Cowen Incorporated
(1)--MD
Stuart S. Lovejoy (1)......... Since 1/1/96--Cowen Incorporated
(1)--MD
Arthur S. Lutzke (1).......... Since 3/30/93--Cowen Incorporated
(1)--MD
David E. Mack (1)............. Since 3/30/91--Cowen Incorporated
(1)--MD
Joseph A. Majike, Jr. (3)..... Since 1/1/97--Cowen Incorporated
(1)--MD
</TABLE>
C-5
<PAGE> 53
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL ------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Malfitano (1).... Since 3/30/94--Cowen Incorporated
(1)--MD
Joseph M. Marinaro (1)... Since 3/30/96--Cowen Incorporated
(1)--MD
Paul Marsh (1)........... Since 1/1/97--Cowen Incorporated
(1)--MD
William O. Matthews(1)... Since 3/30/931--Cowen Incorporated
(1)--D
William K. McCormick (5). Since 3/30/91--Cowen Incorporated
(1)--MD
Malcolm G. McDonald (3).. Since 1/1/97--Cowen Incorporated
(1)--MD
Kelly McGowen (1)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Carl A. Mertz (1)........ Since 3/30/92--Cowen Incorporated
(1)--MD
Kathleen Miner (3)....... Since 1/1/97--Cowen Incorporated
(1)--MD
George G. Montgomery (6). Since 1/1/97--Cowen Incorporated
(1)--MD
Raymond K. Moran (3)..... Since 3/30/91--Cowen Incorporated
(1)--Cowen Incorporated MD
Adele M. Morrissette (1). Since 1/1/97--Cowen Incorporated
(1)--MD
Michael G. Mullen (3).... Since 1/1/97--Cowen Incorporated
(1)--MD
Jerrold B. Newman (6).... Since 3/30/92--Cowen Incorporated
(1)--MD
Donald F. Novell (1)..... Since 3/30/93--Cowen Incorporated
(1)--MD
Gary S. Pardo (1)........ Since 3/30/96--Cowen Incorporated
(1)--MD
Susan M. Passoni (3)..... Since 1/1/97--Cowen Incorporated
(1)--MD
Elizabeth T. Pawel (1)... Since 3/30/96--Cowen Incorporated
(1)--MD
Drew Peck................ Since 3/30/96--Cowen Incorporated
(1)--MD
Creighton H. Peet (1).... D,T D,T V,SI,T V,SI,T T Since 3/30/91--Cowen Incorporated
(1)--MD
Antonio G. Pinto (1)..... Since 3/30/91--Cowen Incorporated
(1)--MD
Edward M. Posner (1)..... Since 3/30/92--Cowen Incorporated
(1)--MD
Peter J. Power (1)....... Since 3/30/92-Cowen Incorporated
(1)--MD
Charles J. Pradilla (1).. Since 1/1/97--Cowen Incorporated
(1)--MD
</TABLE>
C-6
<PAGE> 54
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
William Rechter (1)........ SI SI Since 3/30/92--Cowen Incorporated
(1)--MD
Stephen E. Reilly (3)...... Since 3/30/93--Cowen Incorporated
(1)--MD
Todd B. Robbins (1)........ Since 3/30/93--Cowen Incorporated
(1)--MD
Richard Lrugani (1 and 3).. Since 3/30/92--Cowen Incorporated
(1)--MD
David R. Sarns (1)......... P P P P P Since 3/30/93--Cowen Incorporated
(1)--MD
Stephen M. Scala (3)....... Since 1/1/97--Cowen Incorporated
(1)--MD
Thomas R. Schwartz (1)..... Since 1/1/97--Cowen Incorporated
(1)--MD
Kenneth Sheinberg (1)...... Since 1/1/97--Cowen Incorporated
(1)--MD
Hugh T. Shytle (3)......... Since 1/1/97--Cowen Incorporated
(1)--MD
Arthur J. Stavaridis
(1 and 3).................. Since 3/30/92--Cowen Incorporated
(1)--MD
David K. Stone (3)......... Since 3/30/93--Cowen Incorporated
(1)-MD
Robert W. Stone (3)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Alan Streeter (1).......... Since 1/1/97--Cowen Incorporated
(1)--MD
Richard S. Striefler (1)... Since 3/30/93--Cowen Incorporated
(1)--MD
Franklyn Theis (3)......... Since 3/30/92--Cowen Incorporated
(1)--MD
Robert Valdez (6).......... Since 3/30/94--Cowen Incorporated
(1)--MD
Cai Von Rumohr (3)......... Since 3/30/91--Cowen Incorporated
(1)--MD
Hans C. Vitzthum (3)........ Since 1/1/97--Cowen Incorporated
(1)--MD
Harold Vogen (1)........... Since 1/1/96--Cowen Incorporated
(1)--MD
Robert S. Walterman (4).... Since 1/1/97--Cowen Incorporated
(1)--MD
Stephen R. Weber (3)....... Since 3/30/91--Cowen Incorporated
(1)--MD
Miriam C. Willard (1)...... Since 1/1/96--Cowen Incorporated
(1)--MD
Jonathan H. Zauderer (1)... Since 1/1/96--Cowen Incorporated
(1)--MD
Michael Zolezzi (6)........ Since 3/30/94--Cowen Incorporated
(1)--MD
</TABLE>
C-7
<PAGE> 55
<TABLE>
<CAPTION>
OTHER BUSINESS
NAME, CLASS OF PARTNERS POSITION IF WITH FUNDS LISTED BELOW ACTIVITIES AND
AND PRINCIPAL --------------------------------------------------- PRINCIPAL BUSINESS
BUSINESS ADDRESS CSRF CSTXRF CI+G CFI CSF ADDRESS
- ------------------------- -------- --------- ---------- --------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
LIMITED PARTNERS
George N. Cowen (4)...... None
Richard B. Frackman (1).. None
John B. Greene (5)....... None
Joseph V. Perri (1)...... None
Charles L. Wood (2)...... None
</TABLE>
- -------------------------
(1) Financial Square, New York, New York 10005
(2) Texaco Heritage Plaza, 111 Bagby St., #2350, Houston, Texas
(3) Two International Place, Boston, Massachusetts 02110
(4) West Building, 31st Floor, 280 Park Avenue, New York, New York 10017
(5) Courthouse Plaza Northeast, Dayton, Ohio 45402
(6) Four Embarcadero Center, Suite 1200, San Francisco, California 9411
(7) One Angel Court, London, England ECZR, 7HJ
(8) 30 West 75th Street, New York, New York 10023
P-- President
C-- Chairman of the Board
D-- Director
V-- Vice President
T-- Treasurer
S-- Secretary
SI-- Senior Investment Officer
AS-- Assistant Secretary
MD-- Managing Director
C-8
<PAGE> 56
Item 29(c).
Not Applicable
Item 30. Location of Accounts and Records
(1) Cowen Standby Reserve Fund, Inc.
Financial Square
New York, New York 10005
(2) Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
(3) DST Systems, Inc.
210 West 10th Street
Kansas City, Missouri 64105
Item 31. Management Service
Not applicable.
Item 32. Undertakings
Not applicable.
C-9
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of New York, and State of New York, on the 30th day of March, 1998.
COWEN FUNDS, INC.
/s/ Joseph M. Cohen
by: Rodd M. Baxter,
Attorney-in-Fact
Joseph M. Cohen, Chairman
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933, and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, and State of New York, on the
30th day of March, 1998.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Joseph M. Cohen Chairman (Chief March 30, 1998
by Rodd M. Baxter, Executive Officer)
Attorney-in-Fact and Director
Joseph M. Cohen
/s/ James H. Carey Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
James H. Carey
/s/ Peter P. Gil Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
Peter P. Gil
/s/ Martin J. Gruber Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
Martin J. Gruber
/s/ Creighton H. Peet Treasurer (Chief, March 30, 1998
by Rodd M. Baxter, Financial Officer)
Attorney-in-Fact
Creighton H. Peet
/s/ Burton J. Weiss Director March 30, 1998
by Rodd M. Baxter,
Attorney-in-Fact
Burton J. Weiss
</TABLE>
C-10
<PAGE> 58
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
11 Consent of Independent Auditors
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus, "Auditors and Counsel" and "Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference of our report dated January 9, 1998 on Cowen Funds, Inc. in this
Registration Statement (Form N-1A No. 33-18505).
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
March 27, 1998
