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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997
FILE NO. 333-21993
811-08059
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 3 [x]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO.
-----------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
757 THIRD AVENUE, NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 832-3232
ROBERT H. STEERS
COHEN & STEERS SPECIAL EQUITY FUND, INC.
757 THIRD AVENUE, NEW YORK, NEW YORK 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)
-----------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485
[ ] ON (DATE) PURSUANT TO PARAGRAPH (b) OF RULE 485
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1) OF RULE 485
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(1) OF RULE 485
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2) OF RULE 485
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(2) OF RULE 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
------------------------
PURSUANT TO THE PROVISIONS OF RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940, REGISTRANT DECLARES THAT AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK ARE BEING REGISTERED UNDER THE SECURITIES ACT OF 1933 BY THIS REGISTRATION
STATEMENT.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
CROSS REFERENCE SHEET PURSUANT TO RULE 404A(a)
<TABLE>
<CAPTION>
FORM PROSPECTUS AND STATEMENT OF
N-1A ITEM FORM CAPTION ADDITIONAL INFORMATION CAPTION
- --------- ----------------------------------------------------------- ------------------------------------------
<S> <C> <C>
1 Cover Page................................................. Cover Page
2 Synopsis................................................... Fee Table
3 Condensed Financial Information............................ Not Included
4 General Description of Registrant.......................... Investment Objectives and Policies; Types
of Investments; Investment Techniques;
Risk Factors; Diversification and
Portfolio Turnover
5 Management of the Fund..................................... Management of the Fund; Custodian and
Transfer and Dividend Disbursing Agent
6 Capital Stock and Other Securities......................... Organization and Description of Capital
Stock; Dividends and Distribution;
Taxation
7 Purchase of Securities Being Offered....................... Purchase of Shares
8 Redemption or Repurchase................................... Redemption of Shares: Exchange Privilege
9 Legal Proceedings.......................................... Not Applicable
10 Cover Page................................................. Cover Page**
11 Table of Contents.......................................... Table of Contents**
12 General Information and History............................ Not Applicable
13 Investment Objectives and Policies......................... Additional Information about Investment
Restrictions and Policies; Additional
Information about Investment Techniques;
Portfolio Turnover
14 Management of the Registrant............................... Management of the Fund**
15 Control Persons and Principal Holders of Securities........ Management of the Fund**; Advisor and
Investment Advisory Agreement
16 Investment Advisory and Other.............................. Advisor and Investment Advisory Agreement;
Fund Administration; Custodian and
Transfer and Dividend Disbursing Agent**
17 Brokerage Allocation....................................... Diversification and Portfolio Turnover**;
Portfolio Transactions and Brokerage
18 Capital Stock and Other Securities......................... Organization and Description of Capital
Stock**
19 Purchase, Redemption, and Pricing of Securities Being
Offered.................................................. Redemption of Shares**
20 Tax Status................................................. Taxation
21 Underwriters............................................... Not Applicable
22 Calculation of Yield Quotations of Money Market Funds...... Performance Information*; Performance
Information**
23 Financial Statements....................................... Financial Statements; Report of
Independent Accountants
</TABLE>
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* Prospectus
** Statement of Additional Information
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[Cohen & Steers Logo]
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Cohen & Steers Special Equity Fund, Inc. is a non-diversified, open-end
management investment company that seeks maximum capital appreciation over the
long-term through investment primarily in real estate oriented companies. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in the equity securities of a limited number of companies which are engaged in
business in the real estate industry or related industries or in companies which
own significant real estate assets, and which are believed by the investment
adviser to have unrecognized intrinsic value. The Fund may also invest up to 35%
of its total assets in equity or debt securities of companies engaged in any
business, in money market instruments, and in options, financial futures, and
currency contracts. Investments are selected for long-term capital appreciation;
current income is incidental to the Fund's investment objective.
The Fund's investment objective is suitable for investors who are willing to
hold their shares through periods of market fluctuations and the accompanying
changes in share values. The Fund is not intended for investors seeking
short-term price appreciation or for 'market timers.' Cohen & Steers Capital
Management, Inc. serves as investment adviser to the Fund.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated April , 1997, containing additional and more detailed information about
the Fund, has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or calling the Fund at the address
and telephone number printed on the back cover of this prospectus.
The Board of Directors of the Fund believes that unrestrained growth in the
Fund's assets might impair investment flexibility and therefore would not be in
the best interests of the Fund's shareholders. The Fund will cease offering its
shares to new investors for a period of at least six months when total assets
reach $150 million. This limitation will not apply
to existing shareholders of record who will be permitted to continue to
authorize investment in the Fund and
to reinvest dividends or capital gains distributions. After the Fund has been
closed for at least six months, the
Fund will evaluate whether to re-open the Fund to new investors.
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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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------------------------------------------
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.
APRIL , 1997
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FEE TABLE
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Shareholder Transaction Expenses
<TABLE>
<S> <C>
Sales load imposed on purchases.................................... None
Sales load imposed on reinvested dividends......................... None
Deferred sales load................................................ None
Redemption charge (as a percent of redemption proceeds)............ 2.0%
during the
first year;
0% thereafter
</TABLE>
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees.................................................... 0.90%
Other expenses*.................................................... 0.45%
------
Total fund operating expenses...................................... 1.35%
</TABLE>
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* After reimbursement of expenses.
Example
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (cumulatively through the end of each time period):
<TABLE>
<S> <C>
1 year............................................................... $14
3 years.............................................................. $43
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES WHICH
MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The assumption in the Example of a 5% annual return is required by
regulations of the SEC applicable to all mutual funds. The assumed 5% annual
return is not a prediction of, and does not represent, the projected or actual
performance of the Fund's shares. 'Other Expenses' are based on estimated
amounts for the Fund's current fiscal year.
The investment adviser has voluntarily agreed to limit the total expenses of the
Fund (excluding interest, taxes, brokerage, and extraordinary expenses) to an
annual rate of 1.35% of the Fund's average net assets until December 31, 1997.
As long as this temporary expense limitation continues, it may lower the Fund's
expenses and increase its total return. After December 31, 1997, the expense
limitation may be terminated or revised at any time, at which time the Fund's
expenses may increase and its total return may be reduced depending on the total
assets of the Fund. Without the expense reimbursement, it is estimated that the
Fund's total operating expenses for the current fiscal year would have amounted
to 1.43% of the Fund's average net assets for the period.
2
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INVESTMENT OBJECTIVE AND POLICIES
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INVESTMENT OBJECTIVE
The fundamental investment objective of Cohen & Steers Special Equity Fund, Inc.
(the 'Fund') is to obtain maximum capital appreciation over the long-term
through investment primarily in real estate oriented companies. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in the
equity securities of a limited number of companies which are engaged in business
in the real estate industry or related industries or in companies which own
significant real estate assets, and which are believed by the investment adviser
to be undervalued. The Fund may also invest up to 35% of its total assets in
equity or debt securities of companies engaged in any business, in money market
instruments, and in options, financial futures, and currency contracts, as
described in more detail below. Investments are selected based upon the
potential for long-term capital appreciation; current income is incidental to
the Fund's investment objective.
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DEFINITION OF COMPANIES IN THE REAL ESTATE INDUSTRY
A company is considered to be in the real estate industry (residential,
commercial or industrial) or a related industry if it satisfies one of the
following tests:
1. Revenues and Net Profits. At least 50% of the company's gross revenues or net
profits are derived from construction, ownership, management, operation,
financing, sales, or development of real estate, or from the extraction of
timber or minerals from real estate owned or leased by the company either as a
lessor or as a lessee under a lease granting the designated development or
extraction rights, or from businesses which have a clear relationship to the
ownership, management, use, operation, or development of real estate or
appurtenances to real estate.
2. Valuation of Assets. At least 50% of the company's intrinsic value, as
determined by the investment adviser, is attributable to the value of real
estate owned or leased by the company either as lessor or as lessee, to the
value of timber or minerals on such real estate, or to the value of the stream
of fees or revenues to be derived from the management or operation of real
estate or to the rights to extract timber or minerals from real estate.
Under the above definitions, at least 65% of the Fund's assets will be invested
in companies such as real estate investment trusts; manufacturers and
distributors of construction materials, equipment and building supplies;
financial institutions which make or service mortgages on real estate; hotel and
hotel management companies; retail chains; railroads; and lumber, paper, forest
product, timber, mining and oil companies as well as other similar types of
companies which have a clear relationship to real estate or the real estate
industry. A company which is engaged in one or more businesses outside the real
estate industry will be considered to be in the real estate industry for
purposes of evaluating compliance with the Fund's investment objective if it
satisfies one of the above tests.
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POLICY ON INDUSTRY CONCENTRATION
In keeping with its investment objective, the Fund will concentrate more than
25% of its net assets in securities of issuers in real estate or related
industries. With regard to issuers not in the real estate or related industries,
the Fund will not invest as much as 25% of its net assets in securities of
issuers in any one industry. As described in the prior section, the Fund's
3
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investment in companies engaged in businesses outside the real estate industry
which possess significant real estate holdings will be deemed to be in the real
estate industry for purposes of its investment objective and its policy on
industry concentration. This concentration policy will not limit the Fund's
purchase of obligations issued by the U.S. Government and its agencies or
instrumentalities, or cash equivalents (which will not be used to concentrate
investments in a single industry other than real estate).
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TYPES OF INVESTMENTS
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EQUITY SECURITIES
Equity securities in which the Fund may invest
include common stock, preferred stock,
convertible preferred stock, convertible
bonds and warrants.
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REAL ESTATE INVESTMENT TRUSTS
The Fund is authorized to invest in the equity securities of real estate
investment trusts or 'REITs.' A REIT is a corporation or a business trust that
would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the 'Code'). The
Code permits a qualifying REIT to deduct dividends paid, thereby effectively
eliminating corporate level federal income tax and making the REIT a
pass-through vehicle for federal income tax purposes. To meet the definitional
requirements of the Code, a REIT must, among other things, invest substantially
all of its assets in interests in real estate (including mortgages and other
REITs) or cash and government securities; derive most of its income from rents
from real property or interest on loans secured by mortgages on real property;
and distribute to shareholders annually 95% or more of its otherwise taxable
income.
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FIXED INCOME SECURITIES
The Fund may invest a maximum of 25% of its net assets in investment grade and
non-investment grade debt securities of companies, including real estate
industry companies, and preferred stock of such companies. Securities rated
non-investment grade (lower than Baa by Moody's Investor Services Inc.
('Moody's') or lower than BBB by Standard and Poor's Corporation ('S&P')) are
sometimes referred to as 'high yield' or 'junk' bonds. Investors should consider
the following risks associated with high yield, high risk securities before
investing in the Fund.
High yield securities may be regarded as speculative with respect to the
issuer's continuing ability to make principal and interest payments. Analysis of
the creditworthiness of issuers of high yield securities may be more complex
than for issuers of higher quality debt securities, and the ability of a Fund to
achieve its investment objective may, to the extent of its investment in high
yield securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive to
adverse
4
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economic downturns or individual corporate developments. Yields on high yield
securities will fluctuate. If the issuer of high yield securities defaults, the
Fund may incur additional expenses to seek recovery.
The secondary markets in which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Fund
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the daily net asset value of the Fund's shares. Adverse
publicity and investor perceptions may decrease the values and liquidity of high
yield securities.
It is reasonable to expect that any adverse economic conditions could disrupt
the market for high yield securities, have an adverse impact on the value of
such securities, and adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon. New laws and proposed
new laws may adversely impact the market for high yield securities. See the
Appendix for additional information about the classifications of investment
grade and non-investment grade debt and preferred stocks.
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RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest a maximum of 15% of its net assets in restricted securities
(securities which are not registered or which are not deemed to be readily
marketable) and all other illiquid securities, including repurchase agreements
with maturities of more than seven days. Securities that may be resold without
registration pursuant to Rule 144A may be treated as liquid for these purposes,
subject to the supervision and oversight of, and in accordance with guidelines
established by, the Board of Directors to determine whether there is a readily
available market for such securities. Illiquid securities may include securities
issued by certain REITs or other real estate companies that are not listed on a
major stock exchange, options sold in the over-the-counter market, and forward
foreign currency contracts which are not exchange traded.
Restricted or non-registered securities may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 or pursuant to Rule 144
promulgated under such Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expense, and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If during such a period adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to sell. The
Adviser will monitor the liquidity of restricted securities in the Fund's
portfolio under the supervision of the Board of Directors. In reaching liquidity
decisions, the Adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
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FOREIGN SECURITIES
The Fund may invest up to 15% of total assets in securities of foreign issuers
which meet the same criteria for investment as domestic companies, or sponsored
and unsponsored depositary receipts for such securities. The Fund may be subject
to addi-
5
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tional investment risks for these securities that are different in some respects
from those incurred by investments in securities of domestic issuers. Such risks
include currency risks, future political and economic developments, the possible
imposition of foreign withholding taxes on interest income payable on the
securities, the possible establishment of exchange controls, the possible
seizure or nationalization of foreign deposits, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such securities. There can be no assurance that such laws may
not become applicable to certain of the Fund's investments. In addition, there
may be less publicly available information about a foreign issuer than about a
domestic issuer, and foreign issuers may not be subject to the same accounting,
auditing and financial recordkeeping standards and requirements as domestic
issuers.
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CASH RESERVES
The Fund's cash reserves, held to provide sufficient flexibility to take
advantage of new opportunities for investments and for other cash needs, will be
invested in money market instruments and generally will not exceed 15% of total
assets. If the investment adviser has difficulty finding an adequate number of
undervalued equity securities, all or any portion of the Fund's assets may also
be invested temporarily in money market instruments. Cash reserves in excess of
35% of total assets will be maintained for defensive purposes only.
Money market instruments in which the Fund may invest its cash reserves will
generally consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and such obligations which are subject to
repurchase agreements. A repurchase agreement is an instrument under which an
investor such as the Fund purchases a U.S. Government security from a vendor,
with an agreement by the vendor to repurchase the security at the same price,
plus interest at a specified rate. In such a case, the security is held by the
Fund, in effect, as collateral for the repurchase obligation. Repurchase
agreements may be entered into with member banks of the Federal Reserve System
or 'primary dealers' (as designated by the Federal Reserve Bank of New York) in
United States Government securities. Repurchase agreements usually have a short
duration, often less than one week. In entering into the repurchase agreement
for the Fund, the investment adviser will evaluate and monitor the
creditworthiness of the vendor. In the event that a vendor should default on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
the vendor becomes bankrupt, the Fund might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral.
Other acceptable money market instruments include commercial paper rated by any
nationally recognized rating agency, such as Moody's or Standard & Poor's,
certificates of deposit, bankers' acceptances issued by domestic banks having
total assets in excess of one billion dollars, and money market investment
companies (limited to a maximum of 5% of total assets).
6
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INVESTMENT TECHNIQUES
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The Fund is authorized to use the following investment techniques, subject to
the accompanying restrictions. Although these techniques or strategies are used
regularly by some investment companies, the investment adviser expects that the
Fund's use of these techniques will not be routine and will be limited to
special situations.
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BORROWING
The Fund may borrow up to 30% of the value its assets to increase its holdings
of portfolio securities. The Fund is required to maintain continuous asset
coverage of 300% with respect to such borrowings and to sell (within three days)
sufficient portfolio holdings to restore such coverage if it should decline to
less than 300% due to market fluctuations or otherwise, even if such
liquidations of the Fund's portfolio are disadvantageous from an investment
standpoint. Leveraging by means of borrowing, which is deemed to be a
speculative technique, may exaggerate the effect of any increase or decrease in
the value of portfolio securities on the Fund's net asset value. Money borrowed
also will be subject to interest and other costs (which may include commitment
fees and/or the cost of maintaining minimum average balances) which may or may
not exceed the income received from the securities purchased with borrowed
funds.
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OPTIONS ON SECURITIES AND STOCK INDICES
The Fund may write (i.e., sell) covered put and call options and purchase put
and call options on securities or stock indices that are listed on a national
securities or commodities exchange. An option on a security is a contract that
gives the purchaser of the option, in return for the premium paid, the right to
buy a specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a stock index gives
the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option.
The Fund may write a call or put option only if the option is 'covered.' This
means that so long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the call, or hold a call at the
same or lower exercise price, for the same exercise period, and on the same
securities as the written call. A put is covered if the Fund maintains
collateral consisting of cash or liquid portfolio securities with a value equal
to the exercise price in a segregated account, or holds a put on the same
underlying security at an equal or greater exercise price. The value of the
underlying securities on which options may be written at any one time will not
exceed 25% of the total assets of the Fund. The Fund will not purchase put or
call options if the aggregate premium paid for such options would exceed 5% of
its total assets at the time of purchase.
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FUTURES CONTRACTS
The Fund may buy and sell financial futures contracts, stock and bond index
futures contracts, foreign currency futures contracts and options on any of the
foregoing. A financial futures contract is an agreement between two parties to
buy or sell a specified debt security at a set price on a future date. An index
futures contract is an agreement to take or make
7
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delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period. A futures contract
on a foreign currency is an agreement to buy or sell a specified amount of a
currency for a set price on a future date.
The Fund may use financial futures contracts and related options for 'bona fide
hedging' purposes, as such term is defined in applicable regulations of the
Commodity Futures Trading Commission. The Fund will also be authorized to enter
into such contracts and options for nonhedging purposes, for example, to enhance
total return or provide market exposure pending the investment of cash balances,
but only to the extent that aggregate initial margin deposits plus premiums paid
by it for open futures options positions, less the amount by which any such
positions are 'in-the-money,' would not exceed 5% of the Fund's total assets.
The Fund may lose the expected benefit of the transactions if interest rates,
currency exchange rates or securities prices change in an unanticipated manner.
Such unanticipated changes in interest rates, currency exchange rates or
securities prices may also result in poorer overall performance of the Fund than
if the Fund had not entered into any futures transactions.
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FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency exchange contracts ('forward
contracts') to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers.
The Fund will enter into forward contracts under the following circumstances.
First, when the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to 'lock in' the U.S.
dollar price of the security in relation to another currency by entering into a
forward contract to buy the amount of foreign currency needed to settle the
transaction. Second, when it is believed that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell or buy the amount of the
former foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The second investment practice
is generally referred to as 'cross-hedging.' The Fund's forward transactions may
call for the delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its portfolio
securities are denominated.
The Fund will not enter into forward foreign currency contracts if, as a result,
the Fund will have more than 15% of the value of its net assets committed to the
consummation of such contracts. To the extent such contracts would be deemed to
be illiquid, they will be included in the maximum limitation of 15% of net
assets invested in restricted or illiquid securities.
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RISKS OF OPTIONS, FUTURES AND FOREIGN
CURRENCY CONTRACTS
Options, futures, and foreign currency contracts are forms of derivatives. The
use of options and futures as hedging techniques may not succeed where the price
movements of the securities underlying the options and futures do not follow the
price movements of the portfolio securities subject to the hedge. Gains on
investments in options and futures depend on the portfolio manager's ability to
predict correctly the direction of stock prices, interest rates, and other
economic factors. Where a liquid secondary market
8
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for options or futures does not exist, the Fund may not be able to close its
position and, in such an event would be unable to control its losses. The loss
from investing in futures contracts is potentially unlimited. The use of forward
foreign currency contracts may limit gains from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may cause poorer overall performance for the Fund
than if it had not engaged in such contracts.
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SHORT SALES
The Fund may enter into short sales, provided the dollar amount of short sales
at any one time would not exceed 25% of the net assets of the Fund, and the
value of securities of any one issuer in which the Fund is short would not
exceed the lesser of 2% of the value of the Fund's net assets or 2% of the
securities of any class of any issuer. The Fund must maintain collateral in a
segregated account consisting of cash or liquid portfolio securities with a
value equal to the current market value of the shorted securities, which is
marked to market daily. If the Fund owns an equal amount of such securities or
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issuer as, and equal in amount to, the
securities sold short (which sales are commonly referred to as 'short sales
against the box'), the above requirements are not applicable.
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RISK FACTORS
- --------------------------------------------------------------------------------
The risks related to the particular types of securities in which the Fund may
invest and the investment techniques which it may use are discussed in the
preceding sections describing those securities and techniques. In addition, the
following general investment risks should be considered.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in the equity securities of companies engaged in the real estate
industry or in businesses related to the real estate industry. Because the Fund
will be concentrated in this industry, the Fund may be subject to the risks
associated with the direct ownership of real estate. For example, real estate
values may fluctuate as a result of general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhood values, changes in the
appeal of properties to tenants and increase in interest rates. The value of
securities of companies which service the real estate business sector may also
be affected by such risks. Thus, the value of the Fund's shares may change at
different rates compared to the value of shares of a mutual fund with
investments in many different industries.
Because the Fund may invest a substantial portion of its assets in REITs, the
Fund may also be subject to certain risks associated with direct investments in
REITs. REITs may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants. Furthermore, REITs are
dependent upon specialized management skills, have limited diversification and
are, therefore, subject to risks inherent in financing a limited number of
projects. REITs depend generally on their ability to generate cash flow to make
distributions to shareholders, and certain REITs have self-liquidation
provisions by which mortgages held may be paid in full and distributions of
capital returns may be made at any time. In addition, the performance of a REIT
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may be affected by changes in the tax laws or by its failure to qualify for
tax-free pass-through of income.
Because prices of equity securities fluctuate from day to day, the value of the
Fund's portfolio and the Fund's price per share will vary based upon general
market conditions. There is no assurance that the investment objectives of the
Fund can be achieved, and the value of your investment as a shareholder upon
redemption may be more or less than the purchase price.
- --------------------------------------------------------------------------------
DIVERSIFICATION AND PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The Special Equity Fund is non-diversified under the federal securities laws. As
a non-diversified portfolio, there are no restrictions under the securities laws
limiting the percentage of assets that may be invested in the securities of any
one issuer. To the extent that the Fund is less diversified, it may be more
susceptible to adverse economic, political, or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified.
However, the Fund intends to qualify as a 'regulated investment company' under
Subchapter M of the Code. See 'Taxation.' To qualify as such, the Fund must,
among other things, satisfy certain asset diversification requirements.
The Fund may engage in portfolio trading when considered appropriate, but
short-term trading will not be used as the primary means of achieving its
investment objective. Although the Fund cannot accurately predict its portfolio
turnover rate, it is not expected to exceed 100% in normal circumstances.
However, there generally are no limits on the rate of portfolio turnover, and
investments may be sold without regard to length of time held when, in the
opinion of the investment adviser, investment considerations warrant such
action. Higher portfolio turnover rates, such as rates in excess of 100%, and
short-term trading involve correspondingly greater commission expenses and
transaction costs. As a regulated investment company, however, the Fund's
ability to dispose of certain assets held for less than three months will be
limited. See 'Taxation'.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to it,
including the Fund's agreements with its investment adviser, administrator, sub-
administrator, custodian and transfer agent. The management of the Fund's
day-to-day operations is delegated to its officers, to Cohen & Steers Capital
Management, Inc., the Fund's investment adviser (the 'Adviser' or 'Cohen &
Steers'), and to the Fund's administrator and sub-administrator, subject always
to the investment objective and policies of the Fund and to general supervision
by the Board of Directors. The Directors and officers of the Fund and their
principal occupations are set forth below.
Robert H. Steers, Chairman of the Board, is the Chairman and one of the
principals of the Adviser.
Martin Cohen, Director and President, is the President and one of the principals
of the Adviser.
Gregory C. Clark, Director, is the principal of Wellspring Management Group.
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George Grossman, Director, is an attorney at law in private practice.
Jeffrey H. Lynford, Director, is Chairman of Wellsford Group, Inc. and of
Wellsford Residential Property Trust.
Willard H. Smith Jr., Director, is a board member of several REIT companies.
Elizabeth O. Reagan, Vice President, is a Senior Vice President of the Adviser.
- --------------------------------------------------------------------------------
THE ADVISER
Cohen & Steers, with offices located at 757 Third Avenue, New York, New York
10017, has been retained to provide investment advice, and, in general, to
conduct the management and investment program of the Fund under the overall
supervision and control of the Directors of the Fund. Cohen & Steers, a
registered investment adviser, was formed in 1986 and is the leading U.S.
manager of portfolios dedicated to investments in real estate investment trusts
('REITs'). Its current clients include pension plans, endowment funds and mutual
funds, including Cohen & Steers Realty Income Fund, Inc. and Cohen & Steers
Total Return Realty Fund, Inc., both of which are closed-end investment
companies, and Cohen & Steers Realty Shares, Inc., which is an open-end
investment company. All of Cohen & Steers' client accounts are invested
principally in real estate securities. Its principal officers include Robert H.
Steers, Chairman; and Martin Cohen, President. Mr. Cohen and Mr. Steers are
responsible for the day-to-day management of the Fund's portfolio. Mr. Cohen and
Mr. Steers may be deemed 'controlling persons' of the Adviser on the basis of
their ownership of the Adviser's stock.
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AGREEMENT
Pursuant to an investment advisory agreement (the 'Advisory Agreement') the
Adviser furnishes a continuous investment program for the Fund's portfolio,
makes the day-to-day investment decisions for the Fund, and generally manages
the Fund's investments in accordance with the stated policies of the Fund,
subject to the general supervision of the Board of Directors of the Fund. The
Adviser also selects brokers and dealers to execute purchase and sale orders for
the portfolio transactions of the Fund. Consistent with the Conduct Rules of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Adviser may consider sales of shares of the Fund as a
factor in the selection of brokers and dealers to enter into portfolio
transactions with the Fund. The Adviser provides persons satisfactory to the
Directors of the Fund to serve as officers of the Fund. Such officers, as well
as certain other employees and Directors of the Fund, may be directors,
officers, or employees of the Adviser. Under the Advisory Agreement, the Fund
pays the Adviser a monthly management fee in an amount equal to 1/12th of .90%
of the average daily net assets of the Fund (approximately .90% on an annual
basis). This fee is higher than that incurred by most other investment
companies.
In addition to the payments to the Adviser under the Advisory Agreement
described above, the Fund pays certain other costs of its operations including
(a) custody, transfer and dividend disbursing expenses, (b) fees of Directors
who are not affiliated with the Adviser, (c) legal and auditing expenses, (d)
clerical, accounting and other office costs, (e) costs of printing the Fund's
prospectuses and shareholder reports, (f) costs of maintaining the Fund's
existence, (g) interest charges, taxes, brokerage fees and commissions, (h)
costs of stationery and supplies, (i) expenses and fees related to registration
and filing with the Securities and Exchange Commission and with state regulatory
authorities, and (j) upon the approval of the Board of Directors, costs of
personnel of the Adviser or its affiliates rendering clerical, accounting and
other office services.
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- --------------------------------------------------------------------------------
ADMINISTRATOR AND SUB-ADMINISTRATOR
The Adviser has entered into an administration agreement with the Fund (the
'Administration Agreement') under which the Adviser performs certain
administrative functions for the Fund, including (i) providing office space,
telephone, office equipment and supplies for the Fund; (ii) paying compensation
of the Fund's officers for services rendered as such; (iii) authorizing
expenditures and approving bills for payment on behalf of the Fund; (iv)
supervising preparation of the periodic updating of the Fund's registration
statement, including the prospectus and statement of additional information, for
the purpose of filings with the Securities and Exchange Commission and state
securities administrators and monitoring and maintaining the effectiveness of
such filings, as appropriate; (v) supervising preparation of quarterly reports
to the Fund's shareholders, notices of dividends, capital gains distributions
and tax credits, and attending to routine correspondence and other
communications with individual shareholders; (vi) supervising the daily pricing
of the Fund's investment portfolio and the publication of the net asset value of
the Fund's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to the Fund, including the
Custodian, Transfer Agent and printers; (viii) providing trading desk facilities
for the Fund; (ix) supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations thereunder, maintaining books
and records for the Fund (other than those maintained by the Custodian and
Transfer Agent) and preparing and filing of tax reports other than the Fund's
income tax returns; and (x) providing executive, clerical and secretarial help
needed to carry out these responsibilities. For its services under the
Administration Agreement, the Adviser receives a monthly fee from the Fund at
the annual rate of .02% of the Fund's average daily net assets.
In accordance with the terms of the Administration Agreement and with the
approval of the Fund's Board of Directors, the Adviser has caused the Fund to
retain The Chase Manhattan Bank ('Chase') as sub-administrator under a fund
accounting and administration agreement (the 'Sub-Administration Agreement').
Under the Sub-Administration Agreement, Chase has assumed responsibility for
performing certain of the foregoing administrative functions, including
determining the Fund's net asset value and preparing such figures for
publication, maintaining certain of the Fund's books and records that are not
maintained by the Adviser, custodian or transfer agent, preparing financial
information for the Fund's income tax returns, proxy statements, quarterly and
annual shareholders reports, and Commission filings, and responding to
shareholder inquiries. The Adviser remains responsible for monitoring and
overseeing the performance by Chase and Chase Global Funds Services Company of
their obligations to the Fund under their respective agreements with the Fund,
subject to the overall authority of the Fund's Board of Directors.
Under the terms of the Sub-Administration Agreement, the Fund pays Chase a
monthly administration fee at the annual rate of .08% on the first $500 million
of the Fund's average daily net assets and at lower rates on the Fund's average
daily net assets in excess of that amount. Chase Global Funds Services Company,
P.O. Box 2798, Boston, Massachusetts 02208, a wholly-owned subsidiary of Chase,
has been retained by Chase to provide to the Fund the administrative services
described above. Chase also serves as the Fund's custodian and transfer agent.
See 'Custodian and Transfer and Dividend Disbursing Agent,' below. Chase Global
Funds Services Company has been similarly retained by Chase to provide transfer
agency services to the Fund and is hereafter sometimes referred to as the
'Transfer Agent.'
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- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share will be determined on each day the New York Stock
Exchange is open for trading and on each other day on which there is a
sufficient degree of trading in the Fund's investments to affect the net asset
value, as of the close of trading on the New York Stock Exchange by adding the
market value of all securities in the Fund's portfolio and other assets,
subtracting liabilities, incurred or accrued, and dividing by the total number
of the Fund's shares then outstanding.
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Directors shall determine in good faith
to reflect its fair market value. Readily marketable securities not listed on
the New York Stock Exchange but listed on other domestic or foreign securities
exchanges or admitted to trading on the National Association of Securities
Dealers Automated Quotations, Inc. ('NASDAQ') National List are valued in a like
manner. Portfolio securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which such value is
being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Adviser to be over-
the-counter, but excluding securities admitted to trading on the NASDAQ National
List, are valued at the mean of the current bid and asked prices as reported by
NASDAQ or, in the case of securities not quoted by NASDAQ, the National
Quotation Bureau or such other comparable sources as the Directors deem
appropriate to reflect their fair market value. Where securities are traded on
more than one exchange and also over-the-counter, the securities will generally
be valued using the quotations the Board of Directors believes reflect most
closely the value of such securities.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be purchased through Cohen & Steers Securities, Inc., the
Fund's distributor and an affiliate of the Adviser, acting as agent for the
Fund. The minimum initial investment is $10,000 per investor. The Fund reserves
the right, in its sole discretion, to waive the minimum initial investment
amount for certain investors. The Fund reserves the right to reject any purchase
order. Shareholder accounts may be maintained through brokerage firms or other
financial institutions ('financial intermediaries'). Financial intermediaries
may impose their own minimum investment amounts and may make arrangements for
their customers to purchase and redeem Fund shares by telephone, in which event
a transaction fee may be charged by the intermediary (not by the Fund). The
minimum for initial investments through such institutions may be as low as
$2,000 per investor. Subsequent investments must be at least $500 except that
if, as a result of redemption, the value of the investor's account is less
13
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than $10,000, the minimum subsequent investment is the amount necessary to
increase the value of the investor's account to $10,000. Financial inter-
mediaries, however, may impose different minimums for subsequent investments.
During an initial offering period, which will end on April , 1997, shares of
the Fund are being offered to the public at their net asset value of $25.00 per
share. Shares subscribed for prior to April , 1997 will be issued by the Fund
on that date and any subscription monies received will be held in escrow by the
Fund's custodian until the shares are issued.
Following the initial offering period, orders for shares of the Fund will become
effective at the net asset value per share next determined after receipt by
Chase Global Funds Services Company, the Transfer Agent, of a check drawn on any
bank or domestic savings institution or after receipt by the Chase Manhattan
Bank, the Fund's custodian, of a bank wire or Federal Reserve Wire. Checks must
be payable in United States dollars and will be accepted subject to collection
at full face value. All funds will be invested in full and fractional shares.
By investing in the Fund, a shareholder appoints the Transfer Agent, as agent,
to establish an open account to which all shares purchased will be credited,
together with any dividends and capital gain distributions that are paid in
additional shares. See 'Dividends and Distributions.' Although most shareholders
elect not to receive stock certificates, certificates for full shares can be
obtained on specific written request to the Transfer Agent. No certificates are
issued for fractional shares. IT IS MORE COMPLICATED TO REDEEM SHARES HELD IN
CERTIFICATE FORM. See 'Redemption of Shares -- Redemption by Mail' below.
The Board of Directors of the Fund believes that unrestrained growth in the
Fund's assets might impair investment flexibility and therefore would not be in
the best interests of the Fund's shareholders. The Fund will cease offering its
shares to new investors for a period of at least six months when total assets
reach $150 million. This limitation will not apply to existing shareholders of
record who will be permitted to continue to authorize investment in the Fund and
to reinvest dividends or capital gains distributions. After the Fund has been
closed for at least six months, the Fund will evaluate whether to re-open the
Fund to new investors.
- --------------------------------------------------------------------------------
INITIAL PURCHASE BY WIRE
1. Telephone toll free from any continental state: (800) 437-9912 ((617)
557-8000 for Massachusetts residents). Give the name of the Fund, name(s) in
which shares are to be registered, address, social security or tax
identification number (where applicable), dividend payment election, amount to
be wired, name of the wiring bank and name and telephone number of the person to
be contacted in connection with the order. A wire reference control number will
be assigned.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($10,000 or more) to the Custodian):
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA # 021000021
Account: DDA # 910-2-733012
Attn: Cohen & Steers Special Equity Fund, Inc.
For further credit to: (Account name)
Account Number:
Wire Reference Control #:
3. Complete the Subscription Agreement included at the end of this Prospectus.
Mail the Subscription Agreement to the Transfer Agent:
Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
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- --------------------------------------------------------------------------------
ADDITIONAL PURCHASES BY WIRE
1. Telephone toll free from any continental state: (800) 437-9912 ((617)
557-8000 for Massachusetts residents). Give the name of the Fund, the account
number, the amount to be wired, name of the wiring bank and name and telephone
number of the person to be contacted in connection with the order. A wire
reference control number will be assigned.
2. Instruct the wiring bank to transmit the specified amount in federal funds to
the Custodian (minimum: $500 or, if greater, the amount necessary to increase
the value of the investor's account to $10,000):
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA # 021000021
Account: DDA # 910-2-733012
Attn: Cohen & Steers Special Equity Fund
For further credit to: (Account Name)
Account Number:
Wire Reference Control #:
- --------------------------------------------------------------------------------
INITIAL PURCHASE BY MAIL
1. Complete the Subscription Agreement included at the end of this Prospectus.
2. Mail the Subscription Agreement and a check for $10,000 or more, payable to
the Fund, to the Transfer Agent at the address set forth above.
- --------------------------------------------------------------------------------
ADDITIONAL PURCHASES BY MAIL
1. Make a check payable to the Fund (minimum: $500 or, if greater, the amount
necessary to increase the value of the investor's account to $10,000). Write the
shareholder's Fund account number on the check.
2. Mail the check and the detachable stub from the Statement of Account (or a
letter providing the account number) to the Transfer Agent at the address set
forth above.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange some or all of their Fund shares for shares of Cohen &
Steers Realty Shares, Inc. ('Realty Shares'). Realty Shares is a no-load
open-end investment company managed by the Adviser whose investment objective is
total return through investment in real estate securities. Realty Shares pursues
its objective of total return by seeking, with approximately equal emphasis,
capital appreciation (both realized and unrealized) and current income.
Exchanges are made at net asset value.
An exchange of shares pursuant to the exchange privilege may result in a
shareholder's realizing a taxable gain or loss for income tax purposes. The
exchange privilege is available to shareholders residing in any state in which
the shares of Realty Shares may be legally sold. A shareholder wishing to
utilize the exchange privilege should read the Realty Shares prospectus.
The Fund reserves the right to limit or terminate the exchange privilege as to
any shareholder who makes exchanges more than four times a year. THE FUND CAN
MODIFY OR REVOKE THE EXCHANGE PRIVILEGE FOR ALL SHAREHOLDERS UPON 60 DAYS' PRIOR
WRITTEN NOTICE. There is no charge for the exchange privilege. For additional
information concerning exchanges, or to effect exchanges, contact the Fund at
(800) 437-9912.
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- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of the Fund will be redeemed at their next determined net asset value,
less any applicable redemption charge, as described below. See 'Determination of
Net Asset Value.' Shareholders redeeming shares within 12 months of purchase
will receive proceeds equal to 98% of the aggregate net asset value of the
shares redeemed. Shares acquired through the reinvestment of dividends and
distributions by the Fund will not be subject to any such redemption charge. For
purposes of determining whether this redemption charge applies, shares acquired
through the reinvestment of dividends and distributions will first be redeemed,
and thereafter shares will be redeemed in the order that they were purchased.
- --------------------------------------------------------------------------------
REDEMPTION BY TELEPHONE
You may submit redemption requests by telephone by calling Chase Global Funds
Services Company at (800) 437-9912 ((617) 557-8000 for Massachusetts residents)
and requesting that the proceeds be directed as indicated in the Subscription
Agreement. Requests for redemption made by telephone will be accepted if a
proper redemption request is received prior to 4:00 p.m., Eastern time. Shares
will be redeemed at the net asset value determined as of the closing of trading
on the New York Stock Exchange on that day, less any applicable redemption
charge, as described above. If a proper request is received after 4:00 p.m.
Eastern time, the shares will be redeemed as of the close of trading on the New
York Stock Exchange on the next business day. You may not make a redemption
request by telephone if the proceeds are to be wired or mailed to a bank account
number or address other than the one specified on the Subscription Agreement.
Such requests must be in writing accompanied by a signature guarantee. If you
would like to change your wiring instructions or the address to which your check
should be mailed, your written notification must be signed by all of the
account's registered shareholders, accompanied by a signature guarantee and sent
to Chase Global Funds Services Company, at the address listed above. The
guarantor of a signature must be a trust company or national bank, a member bank
of the Federal Reserve System, a member firm of a national securities exchange
or any other guarantor approved by Chase Global Funds Services Company.
Telephone redemption privileges may be modified or suspended without notice
during periods of drastic economic or market changes. TELEPHONE REDEMPTION
PRIVILEGES MAY BE MODIFIED OR TERMINATED AT ANY TIME BY THE FUND UPON 30 DAYS
NOTICE TO SHAREHOLDERS.
- --------------------------------------------------------------------------------
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for redemption to the
Transfer Agent:
Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02208
A written redemption request must (i) state the number of shares or dollar
amount to be redeemed, (ii) identify the shareholder account number and tax
identification number, and (iii) be signed by each registered owner exactly as
the shares are registered. If the shares to be redeemed were issued in
certificate form, the certificate must be endorsed for transfer (or be
accompanied by a duly executed stock power) and must be submitted to Chase
Global Funds Services Company together with a redemption request. When proceeds
of a redemption are to be paid to someone other than the shareholder, either by
wire or check,
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the signature(s) on the letter of instruction must be guaranteed regardless of
the amount of the redemption. The guarantor of a signature must be a trust
company or national bank, a member bank of the Federal Reserve System, a member
firm of a national securities exchange or any other guarantor approved by Chase
Global Funds Services Company. For redemptions made by corporations, executors,
administrators, guardians, Chase Global Funds Services Company may require
additional supporting documents evidencing the authority of the person making
the redemption (including evidence of appointment or incumbency). A redemption
request will not be deemed to be properly received until Chase Global Funds
Services Company receives all required documents in proper form.
- --------------------------------------------------------------------------------
OTHER REDEMPTION INFORMATION
Checks for redemption proceeds will normally be mailed within five business
days, but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been collected, which may take up to 21 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record. The Custodian
may benefit from the use of redemption proceeds until the check issued to a
redeeming shareholder for such proceeds has cleared.
The Fund may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that Exchange is closed, other
than customary weekend and holiday closings, (ii) the Securities and Exchange
Commission (the 'SEC') has by order permitted such suspension or (iii) an
emergency, as defined by rules of the SEC, exists making disposal of portfolio
securities or determination of the value of the net assets of the Fund not
reasonably practicable.
A redemption is a taxable event which may result in a gain or loss for federal
income tax purposes.
The Fund reserves the right to redeem upon not less than 30 days' written notice
the shares in an account that has a value of $2,000 or less as the result of
voluntary redemption. However, any shareholder affected by the exercise of this
right will be allowed to make additional investments prior to the date fixed for
redemption to avoid liquidation of the account.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends from the Fund's investment income will be declared and distributed
semi-annually. Additional distributions may be made to satisfy certain annual
distribution requirements. The Fund intends to distribute net realized capital
gains, if any, at least annually although the Board of Directors may in the
future determine to retain realized capital gains and not distribute them to
shareholders. For information concerning the tax treatment of the Fund's
distribution policies for the Fund and its shareholders, see 'Taxation.'
Distributions will automatically be paid in full and fractional shares of the
Fund based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have them paid in cash.
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- --------------------------------------------------------------------------------
TAXATION
- --------------------------------------------------------------------------------
The following discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions under applicable
state or local law.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
The Fund intends to elect and qualify annually to be treated as a regulated
investment company under the Code. To qualify, the Fund must meet certain
income, distribution and diversification requirements. In any year in which the
Fund qualifies as a regulated investment company and timely distributes all of
its taxable income, the Fund generally will not pay any U.S. federal income or
excise tax.
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income. Because a portion of the Fund's income may
consist of dividends paid by U.S. corporations, a portion of the dividends paid
by the Fund may be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, designated as capital gain
dividends are taxable as long-term capital gains, regardless of how long the
shareholder has held the Fund's shares. Dividends are taxable to shareholders in
the same manner whether received in cash or reinvested in additional Fund
shares.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Fund in October, November or December with a
record date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
Each year the Fund will notify shareholders of the tax status of dividends and
distributions.
Upon the sale or other disposition of shares of the Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares.
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
- --------------------------------------------------------------------------------
STATE AND LOCAL TAXES
Fund distributions also may be subject to state and local taxes. Shareholders
should consult their own tax advisers regarding the particular tax consequences
of an investment in the Fund.
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- --------------------------------------------------------------------------------
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The Fund was incorporated on February 14, 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of common stock, $.001 par value (the
'Common Stock'). The Fund's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but unissued shares of
the Fund's Common Stock. Each of the Fund's shares has equal dividend,
distribution, liquidation and voting rights. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares of the
Fund when duly issued will be fully paid and nonassessable. The rights of the
holders of shares of Common Stock may not be modified except by the vote of a
majority of the shares outstanding. The Fund is empowered to establish, without
shareholder approval, additional portfolios which may have different investment
objectives.
The Fund is not required to hold regular annual shareholders' meetings. A
shareholders' meeting shall, however, be called by the secretary upon the
written request of the holders of not less than 10% of the outstanding shares of
the Fund. The Fund will assist shareholders wishing to communicate with one
another for the purpose of requesting such a meeting.
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
Chase, which has its principal business address at One Chase Manhattan Plaza,
New York, New York 10081-1000, has been retained to act as Custodian of the
Fund's investments and to serve as the Fund's transfer and dividend disbursing
agent. Chase has retained its wholly-owned subsidiary, Chase Global Funds
Services Company, to provide transfer and dividend disbursing agency services to
the Fund. Neither Chase nor Chase Global Funds Services Company has any part in
deciding the Fund's investment policies or which securities are to be purchased
or sold for the Fund's portfolio.
- --------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The fiscal year of the Fund ends on December 31 of each year. The Fund sends to
its shareholders, at least semi-annually, reports showing the investments and
other information (including unaudited financial statements). An annual report,
containing financial statements audited by the Fund's independent accountants,
is sent to shareholders each year.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its 'average annual total return' over
various periods of time. This total return figure shows the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period to the ending date of the measuring period. The figure reflects
changes in the price of the Fund's shares and assumes that any income dividends
and/or capital gains distributions made by the Fund during the period are
reinvested in shares of the
19
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Fund. Figures will be given for recent one-, five- and ten-year periods (when
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering 'average' total return figures for periods longer than one year,
investors should note that the Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period. The Fund also may use 'aggregate' total return figures for various
periods, representing the cumulative change in value of an investment in the
Fund for the specific period (again reflecting changes in the Fund's share price
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 (that is, the change in
value of initial investment, income dividends and capital gains distributions).
It is important to note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information further describes the methods used to determine the
Fund's performance.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Any shareholder inquiries may be directed to the Fund at the address or
telephone number listed on the back cover of this Prospectus. This Prospectus,
including the Statement of Additional Information which has been incorporated by
reference herein, does not contain all the information set forth in the
Registration Statement filed by the Fund with the SEC under the Securities Act
of 1933. Copies of the Registration Statement may be obtained at a reasonable
charge from the SEC or may be examined, without charge, at the offices of the
SEC in Washington, D.C. (http://www.sec.gov).
20
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<TABLE>
<S> <C> <C> <C> <C> <C>
COHEN & STEERS SPECIAL EQUITY FUND, INC.
1 REGISTRATION OF SHARES (CHECK ONE BOX)
[ ] CORPORATION, PARTNERSHIP OR OTHER ENTITY
------------------------------------------------------------------ ---------------------------------------
Name of Entity Taxpayer I.D. Number
[ ] Corporation [ ] Partnership [ ] Foundation [ ] Endowment [ ] Other ()
[ ] Non-Profit [ ] Bank [ ] Insurance Co.
-------------------------------------------------------------------------------------------------------------
[ ] TRUST
------------------------------------------------------------------
Trustee's Name
------------------------------------------------------------------ ---------------------------------------
Name of Trust Agreement Date of Trust Agreement
------------------------------------------------------------------ ---------------------------------------
Beneficiary's Name Taxpayer I.D. Number
-------------------------------------------------------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT REGISTRATION
------------------------------------------------------------------ ---------------------------------------
Owner's Name (First, Initial, Last) Social Security Number
Citizen of U.S.? [ ] Yes [ ] No________________________________ 18 or older? [ ] Yes [ ] No
Country
------------------------------------------------------------------ ---------------------------------------
Joint Owner's Name (First, Initial, Last) Social Security Number
Joint accounts will be registered joint tenants with the right of survivorship unless otherwise indicated.
-------------------------------------------------------------------------------------------------------------
[ ] GIFT OR TRANSFER TO MINOR
_____________________________________________________________________ Under the _______________ (specify state)
Custodian's Name (First, Initial, Last) Uniform Gifts/Transfer to Minor's Act
------------------------------------------------------------------ ---------------------------------------
Minor's Name (First, Initial, Last) Minor's Social Security Number
2 MAILING ADDRESS OF REGISTERED OWNER(S)
( )
------------------------------------------------------------------ ---------------------------------------
Street or P.O. Box Number Telephone Number
( )
------------------------------------------------------------------ ---------------------------------------
City and State Zip Code FAX Number
3 EXCHANGE PRIVILEGES
Exchange privileges which permit exchanges into Cohen & Steers Realty Shares, Inc. will be provided
automatically unless you elect NOT TO by checking this box. [ ]
4 INVESTMENT INFORMATION
Amount being invested $_______________ ($10,000 minimum) Do not send cash. Investment will be paid for by
(please check one):
[ ] Check or draft made payable to 'Cohen & Steers Realty [ ] Wire through Federal Reserve System.*
Shares, Inc.'
--------------------------------------
Wire Reference Control Number
* Call (800) 437-9912 to notify the Fund of any investments by wire you wish to make and to obtain the
Fund's wire instructions and Wire Reference Control Number for making such investments.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
5 TELEPHONE REDEMPTION
Shares may be redeemed by calling (800) 437-9912 (See description in prospectus).
If no box is checked, the telephone redemption option will be declined.
[ ] Investor DECLINES the telephone redemption
[ ] Investor ELECTS the telephone redemption
Please specify below the bank to which redemption proceeds are to be wired, and enclose a voided check from
the bank you wish to use:
------------------------------------------------------------------ ---------------------------------------
Bank Name Bank Account Number
------------------------------------------------------------------ ---------------------------------------
Name in Which Account is Registered ABA Routing Number
( )
------------------------------------------------------------------ ---------------------------------------
Bank Address Bank Telephone Number
6 INCOME AND CAPITAL GAINS PAYMENT ELECTION
Check the applicable boxes (if none is checked, all distributions will be reinvested):
Dividends are to be: Capital Gains are to be:
[ ] Reinvested [ ] Reinvested
[ ] Paid in Cash by Check [ ] Paid in Cash by Check
[ ] Paid in Cash by Wire [ ] Paid in Cash by Wire
If you wish to have your distributions paid IN CASH BY WIRE, please specify the wire instructions below, and
enclose a voided check from the bank you wish to use:
------------------------------------------------------------------ ---------------------------------------
Bank Name Bank Account Number
------------------------------------------------------------------ ---------------------------------------
Name in Which Account is Registered ABA Routing Number
( )
------------------------------------------------------------------ ---------------------------------------
Bank Address Bank Telephone Number
7 CERTIFICATION AND SIGNATURE(S)
By signing this form, the Investor represents and warrants that: (a) the Investor has the full right, power
and authority to invest in the Fund; and (b) the Investor has received a current prospectus of the Fund and
agrees to be bound by its terms. Persons signing as representatives or fiduciaries of corporations,
partnerships, trusts or other organizations are required to furnish corporate resolutions or similar
documents providing evidence that they are authorized to effect securities transactions on behalf of the
Investor (alternatively, the secretary or designated officer of the organization may certify the authority
of the persons signing on the space provided below). In addition, signatures of representatives or
fiduciaries of corporations and other entities must be accompanied by a signature guarantee by a commercial
bank that is a member of the Federal Deposit Insurance Corporation, a trust company or a member of a
national securities exchange.
------------------------------------------------------------------------------------------------------------------
PLEASE CHECK ONE:
[ ] U.S. CITIZEN/TAXPAYER
UNDER THE PENALTIES OF PERJURY, THE UNDERSIGNED CERTIFIES THAT (1) THE TAXPAYER IDENTIFICATION NUMBER
PROVIDED IS CORRECT, AND (2) I/WE ARE NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) I/WE ARE EXEMPT FROM
BACKUP WITHHOLDING OR (B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE THAT I/WE ARE SUBJECT
TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. NOTE: IF YOU HAVE BEEN NOTIFIED BY IRS THAT
YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX
RETURN YOU MUST CROSS OUT ITEM 2 ABOVE.
[ ] NON U.S. CITIZEN/TAXPAYER
INDICATE COUNTRY OF RESIDENCE FOR TAX PURPOSES__________________________________
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT WE ARE NOT U.S. CITIZENS OR RESIDENTS AND I/WE ARE EXEMPT
FOREIGN PERSONS AS DEFINED BY INTERNAL REVENUE SERVICE.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
------------------------------------------------------------------------------------------------------------------
x
----------------------------------------------- ------------------ ---------------------------------------
Signature (Owner, Trustee, Etc.) Date Print Name Above
x
----------------------------------------------- ----------------- ---------------------------------------
Signature (Joint Owner, Co-Trustee) Date Print Name Above
01 MAIL TO: CHASE GLOBAL FUNDS SERVICES COMPANY, P.O. BOX 2798, BOSTON, MA 02208
</TABLE>
<PAGE>
<PAGE>
[Cohen & Steers Logo]
757 Third Avenue
New York, New York 10017
(212) 832-3232
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
APRIL , 1997
Cohen & Steers Special Equity Fund, Inc. (the 'Fund') is a
non-diversified, open-end management investment company that
seeks maximum capital appreciation over the long-term
through investment primarily in real estate oriented
companies. Cohen & Steers Capital Management, Inc.
serves as investment adviser (the 'Adviser'
or 'Cohen & Steers') to the Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS
DATED APRIL , 1997 (THE 'PROSPECTUS'). THIS STATEMENT OF ADDITIONAL
INFORMATION CONTAINS ADDITIONAL AND MORE DETAILED INFORMATION
THAN THAT SET FORTH IN THE PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS, ADDITIONAL
COPIES OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY WRITING OR CALLING THE
FUND AT THE ADDRESS AND
TELEPHONE NUMBER
GIVEN ABOVE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information About Investment Restrictions and Policies........................... 2
Additional Information About Investment Techniques.......................................... 3
Portfolio Turnover.......................................................................... 7
Management of the Fund...................................................................... 8
Compensation of Directors and Certain Officers........................................ 9
Adviser and Investment Advisory Agreement............................................. 9
Administrator and Sub-Administrator................................................... 10
Determination of Net Asset Value............................................................ 12
Redemption of Shares........................................................................ 12
Portfolio Transactions and Brokerage........................................................ 12
Taxation.................................................................................... 13
Taxation of the Fund.................................................................. 13
Distributions......................................................................... 14
Sale of Shares........................................................................ 15
Original Issue Discount Securities.................................................... 15
Market Discount Bonds................................................................. 15
Options and Hedging Transactions...................................................... 15
Currency Fluctuations -- Section 988 Gains or Losses.................................. 17
Investments in Real Estate Investment Trusts.......................................... 17
Passive Foreign Investment Companies.................................................. 18
Foreign Withholding Taxes............................................................. 18
Backup Withholding.................................................................... 18
Foreign Shareholders.................................................................. 19
Other Taxation........................................................................ 20
Organization and Description of Capital Stock............................................... 20
Distributor................................................................................. 20
Custodian and Transfer and Dividend Disbursing Agent........................................ 21
Performance Information..................................................................... 21
Legal Matters............................................................................... 23
Accountants................................................................................. 23
Financial Statements........................................................................ 24
Report of Independent Accountants........................................................... 26
</TABLE>
1
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- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT INVESTMENT RESTRICTIONS AND POLICIES
- --------------------------------------------------------------------------------
Cohen & Steers Special Equity Fund, Inc. (the 'Fund') is a registered open-end
management investment company. The fundamental investment objective and the
general investment policies and investment techniques are described in the
Prospectus. The Fund has also adopted certain investment restrictions limiting
the following activities except as specifically authorized:
The Fund may not:
(1) Borrow money, except that it may borrow from banks to increase its holdings
of portfolio securities in an amount not to exceed 30% of the value of its total
assets and may borrow for temporary or emergency purposes from banks and
entities other than banks in an amount not to exceed 5% of the value of its
total assets; provided that aggregate borrowing at any time may not exceed 30%
of the Fund's total assets;
(2) Issue any senior securities, except that collateral arrangements with
respect to transactions such as forward contracts, futures contracts, short
sales or options, including deposits of initial and variation margin, shall not
be considered to be the issuance of a senior security for purposes of this
restriction;
(3) Act as an underwriter of securities issued by other persons, except insofar
as the Fund may be deemed an underwriter in connection with the disposition of
securities;
(4) Purchase or sell real estate, except that the Fund may invest in securities
of companies that deal in real estate or are engaged in the real estate
business, including real estate investment trusts, and securities secured by
real estate or interests therein and the Fund may hold and sell real estate
acquired through default, liquidation, or other distributions of an interest in
real estate as a result of the Fund's ownership of such securities:
(5) Purchase or sell commodities or commodity futures contracts, except that the
Fund may invest in financial futures contracts, options thereon and similar
instruments;
(6) Make loans to other persons except through the lending of securities held by
it (but not to exceed a value of one-third of total assets), through the use of
repurchase agreements, and by the purchase of debt securities, all in accordance
with its investment policies;
(7) Purchase restricted or 'illiquid' securities, including repurchase
agreements maturing in more than seven days, if as a result, more than 15% of
the Fund's net assets would then be invested in such securities (excluding
securities which are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933);
(8) Acquire or retain securities of any investment company, except that the Fund
may (a) acquire securities of investment companies up to the limits permitted by
Sec. 12(d)(1) of the Investment Company Act of 1940, and (b) acquire securities
of any investment company as part of a merger, consolidation or similar
transaction;
(9) Make short sales whereby the dollar amount of short sales at any one time
would exceed 25% of the net assets of the Fund; provided the Fund maintains
collateral in a segregated account consisting of cash or liquid portfolio
securities with a value equal to the current market value of the shorted
securities, which is marked to market daily. If the Fund owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any
2
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<PAGE>
further consideration, securities of the same issuer as, and equal in amount to,
the securities sold short (which sales are commonly referred to as 'short sales
against the box'), such restrictions shall not apply;
(10) Invest in puts, calls, straddles, spreads or any combination thereof,
except that the Fund may (a) purchase put and call options on securities and
securities indexes, and (b) write covered put and call options on securities and
securities indexes, provided that (i) the securities underlying such options are
within the investment policies of the Fund; (ii) at the time of such investment,
the value of the aggregate premiums paid for such securities does not exceed 5%
of the Fund's total assets; and (iii) the value of the underlying securities on
which options may be written at any one time does not exceed 25% of total
assets;
(11) Invest in oil, gas or other mineral exploration programs, development
programs or leases, except that the Fund may purchase securities of companies
engaging in whole or in part in such activities;
(12) Pledge, mortgage or hypothecate its assets except in connection with
permitted borrowings; or
(13) Purchase securities on margin, except short-term credits as are necessary
for the purchase and sale of securities, provided that the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase on margin.
Fundamental Investment Restrictions. The Investment Objective and Policies set
forth in the Prospectus and the Investment Restrictions numbered 1 through 6 in
this Statement of Additional Information have been adopted as fundamental
policies of the Fund. Under the Investment Company Act of 1940, as amended (the
'1940 Act'), a fundamental policy may not be changed without the vote of a
majority of the outstanding voting securities of the Fund, as defined under the
1940 Act. 'Majority' means the lesser of (1) 67% or more of the shares present
at a meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (2) more
than 50% of the outstanding shares of the Fund. Investment restrictions numbered
7 through 13 above, are non-fundamental and may be changed at any time by vote
of a majority of the Board of Directors.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
The following sections provide expanded discussion of several of the types of
investments and investment techniques which may be used by the Fund.
Real Estate Investment Trusts. REITs are sometimes informally characterized as
equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily
in the fee ownership or leasehold ownership of land and buildings and derives
its income primarily from rental income. An equity REIT may also realize capital
gains (or losses) by selling real estate properties in its portfolio that have
appreciated (or depreciated) in value. A mortgage REIT invests primarily in
mortgages on real estate, which may secure construction, development or
long-term loans. A mortgage REIT generally derives its income primarily from
interest payments on the credit it has extended. A hybrid REIT combines the
characteristics of equity REITs and mortgage REITs, generally by holding both
ownership interests and mortgage interests in real estate. It is anticipated,
although not
3
<PAGE>
<PAGE>
required, that under normal circumstances a majority of the Fund's investments
in REITs will consist of equity REITs.
Futures Contracts. The Fund may purchase and sell financial futures contracts. A
futures contract is an agreement to buy or sell a specific security or financial
instrument at a particular price on a stipulated future date. Although some
financial futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the settlement
date. The closing of a contractual obligation is accomplished by purchasing or
selling an identical offsetting futures contract. Other financial futures
contracts by their terms call for cash settlements.
The Fund may also buy and sell index futures contracts with respect to any stock
or bond index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
At the time the Fund purchases a futures contract, an amount of cash or liquid
portfolio securities equal to the market value of the futures contract will be
deposited in a segregated account with the Fund's custodian. When writing a
futures contract, the Fund will maintain with its custodian similar liquid
assets that, when added to the amounts deposited with a futures commission
merchant or broker as margin, are equal to the market value of the instruments
underlying the contract. Alternatively, the Fund may 'cover' its position by
owning the instruments underlying the contract (or, in the case of an index
futures contract, a portfolio with a volatility substantially similar to that of
the index on which the futures contract is based), or holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
The Fund will be authorized to use financial futures contracts and related
options for 'bona fide hedging' purposes, as such term is defined in applicable
regulations of the Commodity Futures Trading Commission ('CFTC'). The Fund will
also be authorized to enter into such contracts and related options for
nonhedging purposes, for example to enhance total return or provide market
exposure pending the investment of cash balances, but only to the extent that
aggregate initial margin deposits plus premiums paid by it for open futures
options positions, less the amount by which any such positions are 'in-the-
money,' would not exceed 5% of the Fund's total assets. The Fund may lose the
expected benefit of the transactions if interest rates, currency exchange rates
or securities prices change in an unanticipated manner. Such unanticipated
changes in interest rates, currency exchange rates or securities prices may also
result in poorer overall performance than if the Fund had not entered into any
futures transactions.
Options on Securities and Stock-Indices. The Fund may write covered call and put
options and purchase call and put options on securities or stock indices that
are traded on United States exchanges.
An option on a security is a contract that gives the purchaser of the option, in
return for the premium paid, the right to buy a specified security (in the case
of a call option) or to sell a specified security (in the case of a put option)
from or to the writer of the option at a designated price during the term of the
option. An option on a securities index gives the purchaser of the option, in
return for the premium
4
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<PAGE>
paid, the right to receive from the seller cash equal to the difference between
the closing price of the index and the exercise price of the option.
The Fund may write a call or put option only if the option is 'covered.' A call
option on a security written by the Fund is covered if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on a security is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash or liquid portfolio securities
in a segregated account with its custodian. A put option on a security written
by the Fund is 'covered' if the Fund maintains similar liquid assets with a
value equal to the exercise price in a segregated account with its custodian, or
else holds a put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
The Fund will cover call options on stock indices by owning securities whose
price changes, in the opinion of the investment adviser are expected to be
similar to those of the index, or in such other manner as may be in accordance
with the rules of the exchange on which the option is traded and applicable laws
and regulations. Nevertheless, where the Fund covers a call option on a stock
index through ownership of securities, such securities may not match the
composition of the index. In that event, the Fund will not be fully covered and
could be subject to risk of loss in the event of adverse changes in the value of
the index. The Fund will cover put options on stock indices by segregating
assets equal to the option's exercise price, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which the
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however,
the Fund will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the Fund's stock investments. By
writing a put option, the Fund assumes the risk of a decline in the underlying
security or index. To the extent that the price changes of the portfolio
securities being hedged correlate with changes in the value of the underlying
security or index, writing covered put options on securities or indices will
increase the Fund's losses in the event of a market decline, although such
losses will be offset in part by the premium received for writing the option.
The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the
5
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<PAGE>
changes in value of the Fund's security holdings being hedged.
The Fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. Similarly, the Fund may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.
There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
Foreign Currency Contracts and Currency Hedging Transactions. In order to hedge
against foreign currency exchange rate risks, the Fund may enter into forward
foreign currency exchange contracts and foreign currency futures contracts, as
well as purchase put or call options on foreign currencies, as described below.
The Fund may also conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market.
The Fund may enter into forward foreign currency exchange contracts ('forward
contracts') to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to 'lock in' the U.S.
dollar price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell an amount of the
former foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as 'cross-hedging.' Because in connection with the
Fund's foreign currency forward transactions an amount of the Fund's assets
equal to the amount of the purchase will be held aside or segregated to be used
to pay for the commitment, the Fund will always have cash or other liquid assets
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked-to-market on a daily
basis. In addition, the Fund will not enter into such forward contracts if, as a
result, the Fund will have more than 15% of the value of its total assets
committed to such contracts. While these contracts are not presently regulated
by the CFTC, the CFTC may in the future assert authority to regulate forward
contracts. In such event, the Fund's ability to utilize forward contracts in the
manner set forth above may be restricted. Forward contracts may limit potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not engaged in such
contracts.
6
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<PAGE>
The Fund may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates although, in
the event of rate movements adverse to the Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs.
The Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ('foreign currency futures'). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of
currency futures will usually depend on the investment adviser's ability to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The Fund may engage in portfolio trading when considered appropriate, but
short-term trading will not be used as the primary means of achieving its
investment objective. Although the Fund cannot accurately predict its portfolio
turnover rate, it is not expected to exceed 100% in normal circumstances.
However, there generally are no limits on the rate of portfolio turnover, and
investments may be sold without regard to length of time held when, in the
opinion of the investment adviser, investment considerations warrant such
action. Higher portfolio turnover rates, such as rates in excess of 100%, and
short-term trading involve correspondingly greater commission expenses and
transaction costs. As a regulated investment company, however, the Fund's
ability to dispose of certain assets held for less than three months will be
limited. See 'Taxation.'
7
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- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The directors and officers of the Fund and their principal occupations during
the past five years are set forth below. Each such director and officer is also
a director or officer of Cohen & Steers Realty Income Fund, Inc. and Cohen &
Steers Total Return Realty Fund, Inc., both of which are closed-end investment
companies sponsored by the investment adviser, and Cohen & Steers Realty Shares,
Inc., which is an open-end investment company also sponsored by the investment
adviser.
<TABLE>
<CAPTION>
NAME AND ADDRESS AND AGE OFFICE PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS
- --------------------------------- ------------------- --------------------------------------------------------
<S> <C> <C>
*Robert H. Steers ............... Director, Chairman Chairman of Cohen & Steers Capital Management, Inc., the
757 Third Avenue Fund's investment adviser, Chairman and President of
New York, New York Cohen & Steers Securities, Inc.
Age: 44
*Martin Cohen ................... Director, President President of Cohen & Steers Capital Management, Inc.,
757 Third Avenue the Fund's investment adviser, Vice President of Cohen &
New York, New York Steers Securities, Inc.
Age: 48
Gregory C. Clark ................ Director Principal of Wellspring Management Group
P.O. Box 5697
Snowmass Village, Colorado
Age: 50
George Grossman ................. Director Attorney at law.
17 Elm Place
Rye, New York
Age: 43
Jeffrey H. Lynford .............. Director Chairman of Wellsford Group Inc. since 1986 and of
610 Fifth Avenue Wellsford Residential Property Trust since 1992. Mr.
New York, New York Lynford is also an Emeritus Trustee of the National
Age: 49 Trust for Historic Preservation.
Willard H. Smith Jr. ............ Director Board member Essex Property Trust, Inc., Highwoods
7 Slayton Drive Properties, Inc., Realty Income Corporation and
Short Hills, New Jersey Willis Lease Finance Corporation. Managing director
Age: 60 at Merrill Lynch & Co., Equity Capital Markets
Division from 1983 to 1995.
Elizabeth O. Reagan ............. Vice President Senior Vice President of Cohen & Steers Capital
757 Third Avenue Management, Inc., the Fund's investment adviser,
New York, New York since 1996 and prior to that Vice President of Cohen
Age: 34 & Steers Capital Management, Inc. Ms. Reagan is also
Vice President of Cohen & Steers Securities, Inc.
</TABLE>
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* Directors who are 'interested persons' of the Fund, as defined in the
Investment Company Act of 1940.
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The Directors of the Fund who are employees of the investment adviser or
officers or employees of any of its affiliates receive no remuneration from the
Fund. Each of the other Directors is paid an annual retainer of $5,500, and a
fee of $500 for each meeting attended and is reimbursed for the expenses of
attendance at such meetings.
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COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The following table sets forth information regarding estimated compensation of
Directors by the Fund and by the fund complex of which the Fund is a part for
the Fund's current fiscal year. Officers of the Fund or any other fund in the
fund complex which is a U.S. registered investment Company. In the Column headed
'Total Compensation From Registrant and Fund Complex Paid to Directors,' the
number in parentheses indicated the total number of boards in the fund complex
on which the Director serves.
<TABLE>
<CAPTION>
COMPENSATION TABLE
FISCAL YEAR ENDED DECEMBER 31, 1997
(ESTIMATED)
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL FROM REGISTRANT
COMPENSATION ACCRUED AS BENEFITS AND FUND
FROM PART OF FUND UPON COMPLEX PAID TO
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- --------------------------------------------------- ------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Gregory C. Clark*, Director........................ $6,125 N/A N/A $28,625(4)
Martin Cohen**, Director and President............. 0 N/A N/A 0(4)
George Grossman*, Director......................... 6,125 N/A N/A 28,625(4)
Jeffrey H. Lynford*, Director...................... 6,125 N/A N/A 28,625(4)
Willard H. Smith Jr................................ 6,125 N/A N/A 28,625(4)
Robert H. Steers*, Director and Chairman........... 0 N/A N/A 0(4)
</TABLE>
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* Member of the Audit Committee.
** 'Interested person,' as defined in the Investment Company Act of 1940, of the
Fund because of the affiliation with Cohen & Steers Capital Management, Inc.,
the Fund's investment adviser.
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ADVISER AND INVESTMENT ADVISORY AGREEMENT
Cohen & Steers Capital Management, Inc. (the 'Adviser' or 'Cohen & Steers'), a
registered investment adviser, was formed in 1986 and specializes in the
management of real estate securities portfolios. Its current clients include
pension plans of leading corporations, endowment funds and mutual funds,
including Cohen & Steers Realty Income Fund, Inc. and Cohen & Steers Total
Return Realty Fund, Inc., both of which are closed-end investment companies and
Cohen & Steers Realty Shares, Inc., an open-end investment company. Mr. Cohen
and Mr. Steers may be deemed 'controlling persons' of the Adviser on the basis
of their ownership of the Adviser's stock.
Certain other clients of the Adviser may have investment objectives and policies
similar to those of the Fund. The Adviser may, from time to time, make
recommendations which result in the purchase or sale of a particular security by
its other clients simultaneously with the Fund. If transactions on behalf of
more than one client during the same period increase the demand for securities
being sold there may be an adverse effect on price. It is the
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policy of the Adviser to allocate advisory recommendations and the placing of
orders in a manner which is deemed equitable by the Adviser to the accounts
involved, including the Fund. When two or more of the clients of the Adviser
(including the Fund) are purchasing or selling the same security on a given day
through the same broker-dealer, such transactions may be averaged as to price.
Pursuant to an investment advisory agreement (the 'Advisory Agreement'), the
Adviser furnishes a continuous investment program for the Fund's portfolio,
makes the day-to-day investment decisions for the Fund, executes the purchase
and sale orders for the portfolio transactions of the Fund and generally manages
the Fund's investments in accordance with the stated policies of the Fund,
subject to the general supervision of the Board of Directors of the Fund.
Under the Advisory Agreement, the Fund will pay the Adviser a monthly management
fee in an amount equal to 1/12th of .90% of the average daily value of the net
assets of the Fund (approximately .90% on an annual basis).
The Adviser also provides the Fund with such personnel as the Fund may from time
to time request for the performance of clerical, accounting and other office
services, such as coordinating matters with the administrator, the transfer
agent and the custodian, which the Adviser is not required to furnish under the
Advisory Agreement. The personnel rendering these services, who may act as
officers of the Fund, may be employees of the Adviser or its affiliates. The
cost to the Fund of these services must be agreed to by the Fund and is intended
to be no higher than the actual cost to the Adviser or its affiliates of
providing the services. The Fund does not pay for services performed by officers
of the Adviser or its affiliates. The Fund may from time to time hire its own
employees or contract to have services performed by third parties, and the
management of the Fund intends to do so whenever it appears advantageous to the
Fund.
The Advisory Agreement was approved on March 12, 1997 by the Fund's Directors,
including a majority of the Directors who are not interested persons as defined
in the Investment Company Act of 1940, as amended (the '1940 Act') of the Fund
or the Adviser.
The Advisory Agreement continues in effect from year to year, provided that its
continuance is specifically approved annually by the Directors or by a vote of
the shareholders, and in either case by a majority of the Directors who are not
parties to the Advisory Agreement or interested persons of any such party, by
vote cast in person at a meeting called for the purpose of voting on such
approval.
The Advisory Agreement is terminable without penalty by the Fund on sixty days'
written notice when authorized either by majority vote of its outstanding voting
securities or by a vote of a majority of its Directors, or by the Adviser on
sixty days' written notice, and will automatically terminate in the event of its
assignment. The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Adviser, or of
reckless disregard of its obligations thereunder, the Adviser shall not be
liable for any action or failure to act in accordance with its duties
thereunder.
- --------------------------------------------------------------------------------
ADMINISTRATOR AND SUB-ADMINISTRATOR
The Adviser has entered into an administration agreement with the Fund (the
'Administration Agreement') under which the Adviser performs certain
administrative functions for the Fund, including (i) providing office space,
telephone, office equipment and supplies for the Fund; (ii) paying compensation
of the Fund's officers for services rendered as such; (iii) authorizing
expenditures and approving bills for payment on behalf of the Fund; (iv)
supervising preparation of the periodic updating of the Fund's registration
statement, including the prospectus and
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statement of additional information, for the purpose of filings with the
Securities and Exchange Commission and state securities administrators and
monitoring and maintaining the effectiveness of such filings, as appropriate;
(v) supervising preparation of quarterly reports to the Fund's shareholders,
notices of dividends, capital gains distributions and tax credits, and attending
to routine correspondence and other communications with individual shareholders;
(vi) supervising the daily pricing of the Fund's investment portfolio and the
publication of the net asset value of the Fund's shares, earnings reports and
other financial data; (vii) monitoring relationships with organizations
providing services to the Fund, including the Custodian, Transfer Agent and
printers; (viii) providing trading desk facilities for the Fund; (ix)
supervising compliance by the Fund with recordkeeping requirements under the
1940 Act and regulations thereunder, maintaining books and records for the Fund
(other than those maintained by the Custodian and Transfer Agent) and preparing
and filing of tax reports other than the Fund's income tax returns; and (x)
providing executive, clerical and secretarial help needed to carry out these
responsibilities. For its services under the Administration Agreement, the
Adviser receives a monthly fee from the Fund at the annual rate of .02% of the
Fund's average daily net assets.
In accordance with the terms of the Administration Agreement and with the
approval of the Fund's Board of Directors, the Adviser has caused the Fund to
retain The Chase Manhattan Bank ('Chase') as sub-administrator under a fund
accounting and administration agreement (the 'Sub-Administration Agreement').
Under the Sub-Administration Agreement, Chase has assumed responsibility for
performing certain of the foregoing administrative functions, including
determining the Fund's net asset value and preparing such figures for
publication, maintaining certain of the Fund's books and records that are not
maintained by the Adviser, custodian or transfer agent, preparing financial
information for the Fund's income tax returns, proxy statements, quarterly and
annual shareholders reports, and Commission filings, and responding to
shareholder inquiries. The Adviser remains responsible for monitoring and
overseeing the performance by Chase and Chase Global Funds Services Company of
their obligations to the Fund under their respective agreements with the Fund,
subject to the overall authority of the Fund's Board of Directors.
Under the terms of the Sub-Administration Agreement, the Fund pays Chase a
monthly administration fee at the annual rate of .08% on the first $500 million
of the Fund's average daily net assets and at lower rates on the Fund's average
daily net assets in excess of that amount. Chase Global Funds Services Company,
P.O. Box 2798, Boston, Massachusetts 02208, a wholly-owned subsidiary of Chase,
has been retained by Chase to provide to the Fund the administrative services
described above. Chase also serves as the Fund's custodian and transfer agent.
See 'Custodian and Transfer and Dividend Disbursing Agent,' below. Chase Global
Funds Services Company has been similarly retained by Chase to provide transfer
agency services to the Fund and is hereafter sometimes referred to as the
'Transfer Agent.'
The Administration Agreement is terminable by either party on sixty days'
written notice to the other. The Administration Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Administrator, or of reckless disregard of its obligations thereunder, the
Adviser shall not be liable for any action or failure to act in accordance with
its duties thereunder.
11
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DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share is determined by the Fund on each day the New York
Stock Exchange is open for trading, and on any other day during which there is a
sufficient degree of trading in the investments of the Fund to affect materially
the Fund's net asset value. The New York Stock Exchange is closed on Saturdays,
Sundays, and on New Years' Day, Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day and Christmas Day
(collectively, the 'Holidays'). When any Holiday falls on a Saturday, the
Exchange is closed the preceding Friday, and when any holiday falls on a Sunday,
the Exchange is closed the following Monday. No redemptions will be made on
Martin Luther King Day (the third Monday in January), Columbus Day (the second
Monday in October) and Veteran's Day, nor on any of the Holidays.
For purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by a major bank which is a regular
participant in the institutional foreign exchange markets or on the basis of a
pricing service which takes into account the quotes provided by a number of such
major banks.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected in the discretion of the Board of Directors
of the Fund and taken at their value used in determining the Fund's net asset
value per share as described in the Prospectus under 'Determination of Net Asset
Value'), or partly in cash and partly in portfolio securities. However, payments
will be made wholly in cash unless the Board of Directors believes that economic
conditions exist which would make such a practice detrimental to the best
interests of the Fund. If payment for shares redeemed is made wholly or partly
in portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The Fund will not distribute in kind
portfolio securities that are not readily marketable.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund and negotiation of its brokerage commission rates are
made by the Adviser. Transactions on United States stock exchanges involve the
payment by the Fund of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In certain instances, the
12
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Fund may make purchases of underwritten issues at prices which include
underwriting fees.
In selecting a broker to execute each particular transaction, the Adviser will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker; the size and
difficulty in executing the order; and the value of the expected contribution of
the broker to the investment performance of the Fund on a continuing basis.
Accordingly, the cost of the brokerage commissions to the Fund in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, the Adviser shall not be deemed to have acted unlawfully or to have
breached any duty solely by reason of its having caused the Fund to pay a broker
that provides research services to the Adviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the Adviser's
ongoing responsibilities with respect to the Fund. Research and investment
information is provided by these and other brokers at no cost to the Adviser and
is available for the benefit of other accounts advised by the Adviser and its
affiliates, and not all of the information will be used in connection with the
Fund. While this information may be useful in varying degrees and may tend to
reduce the Adviser's expenses, it is not possible to estimate its value and in
the opinion of the Adviser it does not reduce the Adviser's expenses in a
determinable amount. The extent to which the Adviser makes use of statistical,
research and other services furnished by brokers is considered by the Adviser in
the allocation of brokerage business but there is no formula by which such
business is allocated. The Adviser does so in accordance with its judgment of
the best interests of the Fund and its shareholders. The Adviser may also take
into account payments made by brokers effecting transactions for the Fund to
other persons on behalf of the Fund for services provided to it for which it
would be obligated to pay (such as custodial and professional fees). In
addition, consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
brokers and dealers to enter into portfolio transactions with the Fund.
- --------------------------------------------------------------------------------
TAXATION
- --------------------------------------------------------------------------------
TAXATION OF THE FUND
The Fund intends to qualify annually and to elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
'Code').
To qualify as a regulated investment company, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets (namely, (i) stock or securities, (ii) options,
futures, and forward contracts
13
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(other than those on foreign currencies), and (iii) foreign currencies
(including options, futures, and forward contracts on such currencies) not
directly related to the Fund's principal business of investing in stock or
securities (or options and futures with respect to stocks or securities)) held
less than 3 months; (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) each taxable
year.
As a regulated investment company, the Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the one-year period ending on October 31 of the calendar year, and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because a portion of the
Fund's income may consist of dividends paid by U.S. corporations, a portion of
the dividends paid by the Fund may be eligible for the corporate dividends-
received deduction. Distributions of net capital gains, if any, designated as
capital gain dividends are taxable as long-term capital gains, regardless of how
long the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date.
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Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of
additional shares will receive a report as to the net asset value of those
shares.
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SALE OF SHARES
Upon the sale or other disposition of shares of the Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
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ORIGINAL ISSUE DISCOUNT SECURITIES
Investments by the Fund in zero coupon or other discount securities will result
in income to the Fund equal to a portion of the excess of the face value of the
securities over their issue price (the 'original issue discount') each year that
the securities are held, even though the Fund receives no cash interest
payments. This income is included in determining the amount of income which the
Fund must distribute to maintain its status as a regulated investment company
and to avoid the payment of federal income tax and the 4% excise tax. In
addition, if the Fund invests in certain high yield original issue discount
securities issued by corporations, a portion of the original issue discount
accruing on any such obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from the Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Fund in a written notice to shareholders.
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MARKET DISCOUNT BONDS
Gain derived by the Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price) held by the Fund will be taxed as ordinary
income to the extent of the accrued market discount of the bonds, unless the
Fund elects to include the market discount in income as it accrues.
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OPTIONS AND HEDGING TRANSACTIONS
The taxation of equity options and over-the-counter options on debt securities
is governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
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short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Certain options, futures contracts and forward contracts in which the Fund may
invest are 'Section 1256 contracts.' Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses ('60/40'); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by the Fund at the end of each taxable
year (and, generally, for purposes of the 4% excise tax, on October 31 of each
year) are 'marked-to-market' (that is, treated as sold at fair market value),
resulting in unrealized gains or losses being treated as through they were
realized.
Generally, the hedging transactions undertaken by the Fund may result in
'straddles' for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to shareholders, and
which will be taxed to them as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such hedging
transactions.
The 30% limitation described above and the diversification requirements
applicable to the Fund's assets may limit the extent to which the Fund will be
able to engage in transactions in options, futures contracts and forward
contracts.
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CURRENCY FLUCTUATIONS -- 'SECTION 988' GAINS OR LOSSES
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain options, futures and foreign
currency contracts, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as 'section 988' gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary Income.
A Fund will not realize gain or loss on a short sale of a security until it
closes the transaction by delivering the borrowed security to the lender. All or
a portion or any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
which is substantially indentical to that which is sold short may be reduced or
eliminated as a result of the short sale. A recent budget proposal, if enacted,
would in many cases require the Fund to recognize gain (but not loss) upon
entering into a short sale with respect to an appreciated security that the Fund
owns, as though the Fund constructively sold the security at the time of
entering into the short sale.
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INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in real estate investment trusts ('REITs') that hold
residual interests in real estate mortgage investment conduits ('REMICs'). Under
Treasury regulations that have not yet been issued, but may apply retroactively,
a portion of the Fund's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an 'excess inclusion')
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as the Fund, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC
residual interest directly. In general, excess inclusion income allocated to
shareholders (i) cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions), (ii) will constitute unrelated
business taxable income to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt
entity) subject to tax on unrelated business income, thereby potentially
requiring such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a tax return and
pay tax on such income, and (iii) in the case of a foreign shareholder, will not
qualify for any reduction in U.S. federal withholding tax. In addition, if at
any time during any taxable year a 'disqualified organization' (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. The Adviser does not intend on behalf of the Fund to
invest in REITs, a substantial portion of the assets of which consists of
residual interests in REMICs.
17
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund invests in stock of certain foreign investment companies, the Fund
may be subject to U.S. federal income taxation on a portion of any 'excess
distribution' with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income tax rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may be able to make an election, in lieu of being taxable in the manner
described above, to include annually in income its pro rata share of the
ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the Fund
as ordinary or capital gain dividends, as the case may be, would not be taxable
to the Fund. In order to make this election, the Fund would be required to
obtain certain annual information from the foreign investment companies in which
it invests, which in many cases may be difficult to obtain. Alternatively, the
Fund may be eligible to elect to mark to market its foreign investment company
stock, resulting in the stock being treated as sold at fair market value on the
last business day of each taxable year. Any resulting gain would be reported as
ordinary income, and any resulting loss would not be recognized. If this
election were made, the special rules described above with respect to excess
distributions and dispositions would still apply.
- --------------------------------------------------------------------------------
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources
within foreign countries may be subject to
withholding and other taxes imposed by
such countries.
- --------------------------------------------------------------------------------
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
18
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
FOREIGN SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ('foreign shareholder') depends on whether the income of the Fund is
'effectively connected' with a U.S. trade or business carried on by the
shareholder.
Income Not Effectively Connected. If the income from the Fund is not
'effectively connected' with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. tax of 30% (or lower treaty rate, except in the case of any excess
inclusion income allocated to the shareholder (see 'Taxation -- Investments in
Real Estate Investment Trusts,' above)), which tax is generally withheld from
such distributions.
Distributions of capital gain dividends and any amounts retained by the Fund
which are designated as undistributed capital gains will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a nonresident alien individual and is physically present in the United States
for more than 182 days during the taxable year and meets certain other
requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182-day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a foreign shareholder who is a nonresident alien individual, the
Fund may be required to withhold U.S. income tax at a rate of 31% of
distributions of net capital gains unless the foreign shareholder certifies his
or her non-U.S. status under penalties of perjury or otherwise establishes an
exemption. See 'Taxation -- Backup Withholding,' above. If a foreign shareholder
is a nonresident alien individual, any gain such shareholder realizes upon the
sale or exchange of such shareholder's shares of the Fund in the United States
will ordinarily be exempt from U.S. tax unless (i) the gain is U.S. source
income and such shareholder is physically present in the United States for more
than 182 days during the taxable year and meets certain other requirements, or
is otherwise considered to be a resident alien of the United States, or (ii) at
any time during the shorter of the period during which the foreign shareholder
held shares of the Fund and the five year period ending on the date of the
disposition of those shares, the Fund was a 'U.S. real property holding
corporation' and the foreign shareholder held more than 5% of the shares of the
Fund, in which event the gain would be taxed in the same manner as for a U.S.
shareholder as discussed above and a 10% U.S. withholding tax would be imposed
on the amount realized on the disposition of such shares to be credited against
the foreign shareholder's U.S. income tax liability on such disposition. A
corporation is a 'U.S. real property holding corporation' if the fair market
value of its U.S. real property interests equals or exceeds 50% of the fair
market value of such interests plus its interests in real property located
outside the United States plus any other assets used or held for use in a
business. In the case of the Fund, U.S. real property interests include
interests in stock in U.S. real property holding corporations (other than stock
of a REIT controlled by U.S. persons and holdings of 5% or less in the stock of
publicly traded U.S. real property holding corporations) and certain
participating debt securities.
Income Effectively Connected. If the income from the Fund is 'effectively
connected' with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by
19
<PAGE>
<PAGE>
the Fund which are designated as undistributed capital gains and any gains
realized upon the sale or exchange of shares of the Fund will be subject to U.S.
income tax at the graduated rates applicable to U.S. citizens, residents and
domestic corporations. Foreign corporate shareholders may also be subject to the
branch profits tax imposed by the Code.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
- --------------------------------------------------------------------------------
OTHER TAXATION
Fund shareholders may be subject to state, local and foreign taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
- --------------------------------------------------------------------------------
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The Fund was incorporated on February 14, 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of Common Stock, $.001 par value. The
Fund's shares have no preemptive, conversion, exchange or redemption rights.
Each share has equal voting, dividend, distribution and liquidation rights. All
shares of the Fund, when duly issued, will be fully paid and nonassessable.
Shareholders are entitled to one vote per share. All voting rights for the
election of directors are noncumulative, which means that the holders of more
than 50% of the shares can elect 100% of the Directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in the Fund's Articles of
Incorporation and By-Laws.
The Board of Directors is authorized to reclassify and issue any unissued shares
of the Fund without shareholder approval. Accordingly, in the future, the
Directors may create additional series of shares with different investment
objectives, policies or restrictions. Any issuance of shares of another class
would he governed by the 1940 Act and Maryland law.
- --------------------------------------------------------------------------------
DISTRIBUTOR
- --------------------------------------------------------------------------------
Cohen & Steers Securities, Inc., an affiliate of the Adviser, serves without
charge as the Distributor of shares of the Fund. Cohen & Steers Securities, Inc.
is not obligated to sell any specific amount of shares and will sell shares, as
agent for the Fund, on a continuous basis only against orders to purchase
shares.
20
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
Chase, which has its principal business at 770 Broadway, New York, New York
10003 has been retained to act as Custodian of the Fund's investments and as the
Fund's transfer and dividend disbursing agent. Chase Global Funds Services Co.,
a wholly-owned subsidiary of Chase, has been retained by Chase to provide the
Fund's transfer and dividend disbursing agency services and serves as the Fund's
Transfer and Dividend Disbursing Agent. Chase Global Funds Services Co. has its
principal business at 73 Tremont Street, Boston, Massachusetts 02108-3913.
Neither Chase nor Chase Global Funds Services Co. determines the investment
policies of the Fund or decides which securities the Fund will buy or sell.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may quote the Fund's total return in advertisements
or in reports and other communications to shareholders. The Fund's performance
will vary from time to time depending upon market conditions, the composition of
its portfolio and its operating expenses. Consequently, any given performance
quotation should not be considered representative of the Fund's performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in the Fund
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Fund's performance with that of
other mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
The Fund's 'average annual total return' figures described in the Prospectus are
computed according to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1 + T)'pp'n = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-,
or 10-year period at the end of a 1-, 5-, or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
21
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN
The Fund's aggregate total return figures described in the Prospectus represent
the cumulative change in the value of an investment in the Fund for the
specified period and are computed by the following formula:
AGGREGATE TOTAL RETURN = ERV - P
P
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of the 1-, 5-
or 10-year period at the end of the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
- --------------------------------------------------------------------------------
YIELD
Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ('net investment income') and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
<TABLE>
<S> <C> <C>
a - b
2[( cd + 1)'pp'6 - 1]
</TABLE>
<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that were entitled to receive
dividends, and
d = the maximum offering price per share on the last day of the period.
</TABLE>
In reports or other communications to shareholders of the Fund or in advertising
materials, the Fund may compare its performance with that of (i) other mutual
funds listed in the rankings prepared by Lipper Analytical Services, Inc.,
publications such as Barrons, Business Week, Forbes, Fortune, Institutional
Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values,
The New York Times, The Wall Street Journal and USA Today or other industry or
financial publications or (ii) the Standard and Poor's Index of 500 Stocks, the
Dow Jones Industrial Average and other relevant indices and industry
publications. The Fund may also compare the historical volatility of its
portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole -- the beta -- or in absolute terms -- the standard
deviation.)
22
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
LEGAL MATTERS
- --------------------------------------------------------------------------------
Legal matters in connection with the issuance of the shares of the Fund offered
hereby will be passed upon by Dechert Price & Rhoads, 30 Rockefeller Plaza, New
York, New York 10112.
- --------------------------------------------------------------------------------
ACCOUNTANTS
- --------------------------------------------------------------------------------
Coopers & Lybrand L.L.P., 1301 Avenue of
the Americas, New York, New York 10019
have been appointed as independent
accountants for the Fund.
23
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 1, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash.................................................................. $100,000
Deferred organization expenses........................................ 123,000
--------
Total Assets.................................................... 223,000
--------
LIABILITIES
Accrued payables...................................................... 123,000
--------
Total Liabilities............................................... 123,000
--------
Net Assets applicable to 4,000 shares of $.001 par value common stock
outstanding.............................................................. $100,000
--------
--------
Net Asset Value and offering price per share* ($100,000 4,000 shares
outstanding)............................................................. $ 25.00
--------
--------
</TABLE>
- ------------
* Redemption price varies based on period shares are held.
NOTE 1: ORGANIZATION
Cohen & Steers Special Equity Fund Inc., (the 'Fund') was incorporated under the
laws of the State of Maryland on February 14, 1997 and is registered under the
Investment Company Act of 1940 (the 'Act'), as amended, as an open-ended
non-diversified management investment company. The Fund has been inactive since
that date except for matters relating to the Funds' establishment, designation,
registration of the Fund's shares of common stock ('Shares') under the
Securities Act of 1933, and the sale of 4,000 Fund shares ('Initial Shares') for
$100,000 to Cohen & Steers Capital Management, Inc. (the 'Adviser'). The
proceeds of such initial Shares in the Fund were invested in cash. There are
50,000,000 shares of $0.001 par value common stock authorized.
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements. Actual results could differ from these
estimates.
NOTE 2: AGREEMENT
The Fund has entered into an Investment Advisory Agreement with the Adviser,
under which the Adviser will provide general investment advisory and
administrative services for the Fund. For providing, these
24
<PAGE>
<PAGE>
services, facilities and for bearing the related expenses, the Advisers will
receive a fee for the Fund, accrued daily and paid monthly, at an annual rate
equal to 0.90% of the average daily net assets.
NOTE 3: ORGANIZATION COSTS
All costs incurred in connection with organizing and establishing the Fund will
be amortized on the straight-line basis over a period of five years from the
date on which the Fund commences operations. In the event that any of the
Initial Shares of the Fund are redeemed during the amortization period, the
redemption proceeds will be reduced by any unamortized organization and
registration expenses in the same proportion as the number of shares being
redeemed bears to the number of Initial Shares outstanding at the time of such
redemption.
25
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of Cohen & Steers Special Equity
Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Cohen &
Steers Special Equity Fund, Inc. (the 'Fund') as of April 1, 1997. This
statement of assets and liabilities is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this statement of
assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Cohen &
Steers Special Equity Fund, Inc. as of April 1, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
April 4, 1997
26
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Included in Part A of the Registration Statement:
None.
Included in Part B of the Registration Statement:
Report of Independent Certified Accountants
Statement of Assets and Liabilities
Notes to Financial Statements
Included in Part C of the Registration Statement:
None.
(b) Exhibits
1. Articles of Incorporation*
2. By-Laws*
3. Not Applicable
4. Specimen certificate for common stock, par value $.001 per share**
5. Form of Investment Advisory Agreement*
6. Distribution Agreement**
7. Not Applicable
8. Form of Domestic Custody Agreement**
9. (A) Administration Agreement*
(B) Mutual Fund Services (Sub-Administration) Agreement**
10. Opinion and Consent of Dechert Price & Rhoads**
11. Consent of Independent Certified Public Accountants**
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Powers of Attorney**
- ------------
* Filed with initial registration statement on February 19, 1997.
** Filed with Pre-Effective Amendment No. 1 dated April 9, 1997.
C-1
<PAGE>
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
One shareholder as of the effective date of this Registration Statement.
ITEM 27. INDEMNIFICATION
It is the Registrant's policy to indemnify its directors and officers,
employees and other agents to the maximum extent permitted by Section 2-418 of
the General Corporation Law of the State of Maryland and as set forth in Article
SEVENTH, Section 7.4 of Registrant's Articles of Incorporation, filed as Exhibit
1, and Article VIII of the Registrant's By-laws filed as Exhibit 2, all set
forth below. The liability of the Registrant's directors and officers is dealt
with in Article SEVENTH, Section 7.4 of Registrant's Articles of Incorporation
and Article VIII, Section 1 through Section 6, of the Registrant's By-laws, as
set forth below. The liability of Cohen & Steers Capital Management, Inc., the
Registrant's investment adviser (the 'Adviser'), for any loss suffered by the
Registrant or its shareholders is set forth in Section of the Investment
Advisory Agreement filed as Exhibit 5 to this Registration Statement. The
liability of Cohen & Steers Capital Management, Inc., the Registrant's
administrator (the 'Administrator'), for any loss suffered by the Registrant or
its shareholders is set forth in Section of the Administration Agreement filed
as Exhibit 9 to this Registration Statement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The descriptions of the Adviser under the caption 'Management of the Fund'
in the Prospectus and in the Statement of Additional Information constituting
Parts A and B, respectively, of this Registration Statement are incorporated by
reference herein. Mr. Robert H. Steers, Director and Chairman of the Adviser,
and Mr. Martin Cohen, Director and President of the Adviser, have had no other
business connections of a substantial nature during the past two fiscal years.
Cohen & Steers Capital Management, Inc. acts as investment adviser to, in
addition to the Registrant, the following investment companies:
Cohen & Steers Realty Shares, Inc.
Cohen & Steers Realty Income Fund, Inc.
Cohen & Steers Total Return Realty Fund, Inc.
Frank Russell Investment Management Company Real Estate Securities
Fund
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Cohen & Steers Securities, Inc. is the principal underwriter for the
Registrant.
(b) The following are directors and officers of Cohen & Steers Securities,
Inc. the principal address of these persons is 757 Third Avenue, New York, New
York 10017.
<TABLE>
<CAPTION>
POSITION AND POSITIONS AND
NAME OFFICES WITH DISTRIBUTOR OFFICES WITH REGISTRANT
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Robert H. Steers.............. President and Chairman of the Chairman, Director
Board
Martin Cohen.................. Senior Vice President President, Director
Elizabeth Reagan.............. Vice President Vice President
</TABLE>
(c) Not applicable
C-2
<PAGE>
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained as follows:
Journals, ledgers, securities records and other original records will
be maintained principally at the offices of the Registrant's
Sub-Administrator and Custodian, The Chase Manhattan Bank, One Chase
Manhattan Plaza, New York, New York 10081-1000. All other records so
required to be maintained will be maintained at the offices of Cohen &
Steers Capital Management, Inc., 757 Third Avenue, New York, New York
10017.
ITEM 31.
Not Applicable
ITEM 32.
The Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the question of removal of a director, if requested to do so by
the holders of at least 10% of the Fund's outstanding shares, and that it will
assist communication with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of this post-effective amendment to the Registrant's 1933 Act
Registration Statement.
C-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant has duly caused this
Pre-Effective Amendment No. 3 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 16th day of April, 1997.
COHEN & STEERS SPECIAL EQUITY FUND,
INC.
By /s/ MARTIN COHEN
...................................
MARTIN COHEN
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 3 has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ MARTIN COHEN Director, President and Treasurer April 16, 1997
.........................................
(MARTIN COHEN)
/s/ ROBERT H. STEERS Director, Chairman and Secretary April 16, 1997
.........................................
(ROBERT H. STEERS)
* Director April 16, 1997
.........................................
(GREGORY C. CLARK)
* Director April 16, 1997
.........................................
(GEORGE GROSSMAN)
* Director April 16, 1997
.........................................
(JEFFREY H. LYNFORD)
* Director April 16, 1997
.........................................
(WILLARD H. SMITH JR.)
* By: /s/ MARTIN COHEN
.........................................
ATTORNEY-IN-FACT
</TABLE>
C-4
STATEMENT OF DIFFERENCES
Characters normally expressed as superscript shall be preceded by ...... 'pp'
<PAGE>
