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COHEN & STEERS SPECIAL EQUITY FUND, INC.
February 3, 1998
To Our Shareholders:
We are pleased to submit to you the annual report for Cohen & Steers
Special Equity Fund, Inc. (the 'Fund') for the period ended December 31, 1997.
The net asset value per share on that date was $32.25. In addition, a
distribution of $2.85 per share (including a semi-annual distribution of $0.14
per share plus a capital gain distribution of $2.71 per share) was declared for
shareholders of record on December 22, 1997 and paid on December 23, 1997.
1997 REVIEW
1997 was a good year to launch the Fund - real estate securities generated
their seventh straight year of positive returns, the stock market performed
extremely well, and both real estate fundamentals and economic growth
accelerated. We are pleased to report that for the period May 8, 1997
(commencement of operations) through December 31, 1997 the Fund's total return
was 41.7%, which far exceeded that of REITs and the stock market during the same
period.
The Fund's substantial out-performance during its initial period of
operations was attributable, in part, to a strong operating environment for all
facets of the real estate industry. In addition, 1997 brought two developments
in the real estate securities market that have positive ramifications for the
Fund over the long term. First, a new breed of entrepreneurial management teams
is employing strategies to capitalize on untapped opportunities in real estate
securitization and related business opportunities. Second, a large portion of
the real estate industry's infrastructure is being recapitalized in the public
market. These factors, coupled with a strong U.S. economy, have resulted in
explosive earnings growth and rising valuations for companies with aggressive
growth strategies.
During the year it became apparent that nearly all property sectors and
markets had either recovered or were next in line to recover from the real
estate recession of the late 1980s. While the real estate recovery has been
ongoing for 5-6 years, the pace of improvement and return of capital accelerated
dramatically throughout 1997. In this environment, all participants in the real
estate industry -- from income property and land owners to developers and
service providers -- experience expanding profitability as property incomes
rise, tenants expand, development becomes feasible and properties trade hands at
higher prices.
Over the past year REITs earned recognition as the most dominant factor in
the real estate industry. Some of the most sophisticated transactions in the
history of the real estate industry were executed in 1997, which was a record
year for acquisitions, mergers, and equity and debt capital-raising. More
importantly, investors realized solid total returns -- 20.3% measured by the
NAREIT Equity REIT Index. The strength of the companies emerging in the public
market is no more clearly demonstrated than by Starwood Hotels & Resorts Trust's
successful bid to acquire ITT Corporation, which will create the world's largest
lodging company. Less well known, however, is that REITs are becoming as
dominant operationally as in the capital markets. REITs are building significant
market shares in many markets, which will ultimately result in higher financial
returns, lower risk and broader access to investment opportunities. By virtue of
their vast resources and entrepreneurial mind-sets, the dominant real estate
companies now have access to a wide variety of investment opportunities in
ancillary property businesses and operating companies with significant real
estate components.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
Just as the public market has become the focal point for property
ownership, it has also become the dominant operating platform for other real
estate industry participants. During 1997 there were initial public offerings
for leading service providers in all disciplines of the real estate industry
including property management, brokerage, investment advisory, facilities
management, and building maintenance. Mirroring the consolidation in property
ownership, the real estate services sector is likewise undergoing a significant
consolidation -- providing growth opportunities for public companies. The
restructuring of the real estate industry in the public market is creating a
broad range of investment choices for the Fund, which provides for greater
flexibility in investment strategies. Adding the market capitalization of
corporate property owners and service providers to that of REITs, the Fund's
available investment universe exceeds $220 billion.
INVESTMENT OUTLOOK
Looking forward, the economic environment should be conducive to an
investment strategy emphasizing companies with unique growth characteristics. We
expect that the economy will slow over the next year, principally due to the
economic and capital market dislocations occurring internationally. This cooling
mechanism, however, has reduced the risk that the Federal Reserve tightens
monetary policy to fight inflation pressures, which could precipitate a more
dramatic slowdown. In response to waning inflation expectations, the long-term
cost of borrowing has improved significantly and, in our opinion, should enable
companies with aggressive investment programs to report better-than-expected
earnings.
Responding to the expectation for slower economic growth, we are gradually
shifting the portfolio's exposure from companies with cyclical earnings to those
with more predictable earnings. If we were to become more bearish on the
economy, we would aggressively increase weightings in REITs that own properties
with long-term leases and stable tenant demand. The opportunistic strategy of
the Fund, in conjunction with its small size and concentration, affords maximum
flexibility to adapt to any market environment.
We are excited about the investment opportunities for the Fund in 1998. The
following themes, we believe, have strong growth drivers that should be
sustainable in a slower economy: a) high growth, small capitalization companies
'sponsored' by existing REITs; b) development companies that have irreplaceable
land positions and unique project pipelines; c) opportunistic companies that are
pursuing multiple-sector, corporate, and international business opportunities;
and d) property owners and service companies with dominant market positions in
consolidating or high growth sectors.
A new group of high growth corporations is being created by the leading
REITs to accommodate real estate activities that belong in a separate vehicle.
At least four corporate spin-offs are planned for the first quarter of this
year. Several will be from companies that have strong management teams and
exciting business plans. Some of the businesses in these new entities include
cold storage, student housing, office suites, and international nursing homes.
The investment characteristics of these companies will be dominated by the
operating business rather than real estate ownership and, therefore, may exhibit
more volatility.
Economic growth should create demand for space and, with most property
sectors at full occupancy, increasing development opportunities. Developers with
unique franchises and land positions can build properties at returns that exceed
the cost of debt by several percentage points, which should produce strong
profits. We will focus
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
solely on companies operating in markets with significant barriers to entry; in
these markets the value of developments and land positions should continue to
rise.
We expect the dominant companies, whether opportunistic or highly focused
on a single property type, to continue to execute complex and value-added
transactions. Many private real estate companies are seeking to merge with
public companies to gain access to capital for growth. Another area of
opportunity is corporate-owned real estate, which represents a vast pool of
assets. While many of the REITs known as consolidators will purchase corporate
real estate, the higher return play is to create value by separating real estate
from an operating business. The consolidation opportunity should last many years
in both the ownership and services sectors, in our opinion, due to the aging of
America and the need for estate planning and succession. Finally, in 1998 we
expect the opportunistic companies to make property investments in international
markets. The thesis: properties can be purchased at a fraction of replacement
value, similar to the opportunity in the U.S. in the early 1990s.
We are pleased with the initial results of the Fund. While the initial pace
of investment returns is likely not sustainable, the rapid growth in the Fund's
universe of companies will provide many attractive opportunities. In addition,
the Fund's assets have increased to a size where we can take advantage of
opportunities to provide financing to small, high growth companies; our goal is
to execute several direct equity placements in 1998. The progression of the real
estate cycle and the evolution of the public market for real estate will create
change and volatility -- the dynamics that create special situations for the
Fund. Consequently, we are confident in our ability to deliver satisfactory
investment returns.
Sincerely,
/s/ Martin Cohen /s/ Robert H. Steers
MARTIN COHEN ROBERT H. STEERS
President Chairman
/s/ Joseph M. Harvey
JOSEPH M. HARVEY
Director of Research
Cohen & Steers Capital Management, Inc.
Please be advised that pursuant to the Prospectus, the Fund will cease
offering its shares to new investors for a period of at least six months
when total net assets reach $150 million.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
PERFORMANCE REVIEW
The investment objective of Cohen & Steers Special Equity Fund, Inc. is
maximum capital appreciation over the long-term through investment in real
estate companies. The Fund pursues its investment objective by seeking
investments in a limited number of companies which are engaged in the real
estate industry or related industries, or in companies which own significant
real estate assets and are believed by the investment advisor to have
unrecognized intrinsic value. Investments are selected for long-term capital
appreciation; current income is incidental to the Fund's investment objective.
From May 8, 1997 (commencement of operations) through December 31, 1997,
the Fund's investment performance exceeded that of its benchmarks and the stock
market in general. Over the same time period real estate securities performed
well, in the Adviser's view, due to the acceleration of U.S. economic growth,
the continued improvement in real estate fundamentals, a favorable interest rate
environment, and an attractive acquisition environment for properties and real
estate companies. The Fund out-performed its benchmarks due to its focus on
rapidly growing companies, weightings in selected real estate service companies,
and its concentrated portfolio strategy.
The performance of the Fund for the period May 8, 1997 (commencement of
operations) through December 31, 1997 has comfortably exceeded that of its
benchmarks and the stock market in general.
TOTAL RETURNS
FOR PERIODS ENDED DEC. 31, 1997
SINCE INCEPTION (5/8/97)
-------------------------------
FUND 41.68%
NAREIT All** 21.32%
Wilshire** 21.56%
S&P 500 20.37%
[GRAPH]
FUND NAREIT ALL WILSHIRE S&P 500
------- ---------- -------- -------
5/8/97 $10,000 $10,000 $10,000 $10,000
6/30/97 $10,917 $10,815 $10,809 $10,885
9/30/97 $13,627 $12,005 $12,174 $11,700
12/31/97 $14,168 $12,132 $12,156 $12,037
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate. When shares are redeemed, they may be worth
more or less than the original cost.
* Commencement of operations.
'D' The comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the Fund's performance. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
NAREIT Index of All REITs is comprised of 210 real estate investment trusts.
The Wilshire Real Estate Securities Index is comprised of 123 companies
operating in the real estate industry and includes REITs. This index does
not include REITs with investments in health care facilities. The Fund
invests in REITs with investments in health care facilities. The S&P 500
Index is an unmanaged list of common stocks that is frequently used as a
general measure of stock market performance. For more information, including
charges and expenses, please read the prospectus carefully before you
invest.
** The NAREIT All REIT Index and the Wilshire Real Estate Securities Index are
published monthly. Total returns and cumulative values of a $10,000
investment are calculated from April 30, 1997, the date nearest the Fund's
inception for which comparable performance data exist.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
% OF
NUMBER VALUE NET
OF SHARES (NOTE 1) ASSETS
----------- ------------ ------
<S> <C> <C> <C>
EQUITIES
LNR Property Corp. ............................................ 417,900 $ 9,872,888 7.26%
*Cendant Corp. ................................................. 227,101 7,806,595 5.74
Forest City Enterprises - Class A.............................. 126,400 7,347,000 5.40
Starwood Hotels & Resorts Trust................................ 126,700 7,332,763 5.39
*Security Capital Group - Class B............................... 224,100 7,283,250 5.36
*Catellus Development Corp...................................... 337,000 6,740,000 4.96
*Crescent Operating............................................. 264,000 6,468,000 4.76
Meditrust Corp. ............................................... 171,400 6,277,525 4.62
Apartment Investment & Management Co. - Class A................ 169,400 6,225,450 4.58
Vornado Realty Trust........................................... 129,800 6,092,487 4.48
*American Retirement Corp. ..................................... 299,800 5,996,000 4.41
SL Green Realty Corp. ......................................... 191,700 4,972,219 3.66
*Alternative Living Services.................................... 142,700 4,218,569 3.10
*Group Maintenance America Corp. ............................... 250,000 4,203,125 3.09
Lennar Corp. .................................................. 190,900 4,116,281 3.03
First Industrial Realty Trust.................................. 110,500 3,991,812 2.94
*Hospitality Worldwide Services................................. 301,300 3,954,562 2.91
*Hollywood Park................................................. 168,900 3,715,800 2.73
*Wellsford Real Properties...................................... 220,900 3,451,563 2.54
Public Storage................................................. 114,400 3,360,500 2.47
Alexander Haagen Properties.................................... 186,100 3,245,119 2.39
*ITT Corp. ..................................................... 32,000 2,652,000 1.95
Prime Group Realty Trust....................................... 109,500 2,217,375 1.63
*Alexander's.................................................... 23,300 2,115,931 1.56
*Trammell Crow Co............................................... 50,000 1,287,500 0.95
*Security Capital Group - Class B Warrants (expire 9/18/98)..... 144,300 757,575 0.56
------------ ------
TOTAL EQUITIES (Identified cost -- $111,737,104)......... 125,701,889 92.47
------------ ------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
% OF
PRINCIPAL VALUE NET
AMOUNT (NOTE 1) ASSETS
---------- ------------ ------
<S> <C> <C> <C>
COMMERCIAL PAPER
Agway Finance, 6.10%, 1/2/98................................... $3,008,000 $ 3,007,490 2.21%
Citizens Utilities, 6.10%, 1/2/98.............................. 3,000,000 2,999,492 2.21
Leggett & Platt, 6.10%, 1/2/98................................. 3,000,000 2,999,492 2.21
------------ ------
TOTAL COMMERCIAL PAPER (Identified cost -- $9,006,474)... 9,006,474 6.63
------------ ------
TOTAL INVESTMENTS (Identified cost -- $120,743,578).................. 134,708,363 99.10
OTHER ASSETS IN EXCESS OF LIABILITIES................................ 1,226,041 0.90
------------ ------
NET ASSETS (Equivalent to $32.25 per share based on 4,214,908 shares
of capital stock outstanding)..................................... $135,934,404 100.00%
------------ ------
------------ ------
</TABLE>
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* Non-income producing security.
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $120,743,578) (Note 1)............... $134,708,363
Cash......................................................................................... 615
Receivable for investment securities sold.................................................... 2,260,864
Receivable for fund shares sold.............................................................. 1,101,449
Dividends receivable......................................................................... 271,697
Other assets................................................................................. 124,666
------------
Total Assets........................................................................... 138,467,654
------------
LIABILITIES:
Payable for investment securities purchased.................................................. 2,227,990
Payable to investment adviser................................................................ 95,771
Payable for fund shares redeemed............................................................. 75,772
Payable to administrator..................................................................... 24,394
Payable for organization costs (Note 1)...................................................... 9,093
Other liabilities............................................................................ 100,230
------------
Total Liabilities...................................................................... 2,533,250
------------
NET ASSETS applicable to 4,214,908 shares of $0.001 par value common stock outstanding (Note 4).... $135,934,404
------------
------------
NET ASSET VALUE PER SHARE:
($135,934,404 [div] 4,214,908 shares outstanding)............................................ $ 32.25
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4).............................................................. $121,821,603
Undistributed net realized gains on investments.............................................. 148,016
Net unrealized appreciation on investments................................................... 13,964,785
------------
$135,934,404
------------
------------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 8, 1997'D' THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
Investment Income:
Dividend income............................................................................... $ 1,178,310
Interest income............................................................................... 480,617
-----------
Total Income............................................................................ 1,658,927
-----------
Expenses:
Investment advisory fees (Note 2)............................................................. 484,023
Administration and transfer agent fees (Note 2)............................................... 72,350
Registration and filing fees.................................................................. 42,824
Professional fees............................................................................. 36,582
Custodian fees and expenses................................................................... 24,310
Directors' fees and expenses (Note 2)......................................................... 23,200
Reports to shareholders....................................................................... 22,940
Amortization of organization expenses (Note 1)................................................ 15,794
Miscellaneous................................................................................. 3,799
-----------
Total Expenses.......................................................................... 725,822
-----------
Net Investment Income............................................................................... 933,105
-----------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments.............................................................. 9,814,004
Net change in unrealized appreciation on investments.......................................... 13,964,785
-----------
Net realized and unrealized gain on investments......................................... 23,778,789
-----------
Net Increase in Net Assets Resulting from Operations................................................ $24,711,894
-----------
-----------
</TABLE>
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'D' Commencement of operations.
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 8, 1997'D'
THROUGH
DECEMBER 31, 1997
-----------------
<S> <C>
Change in Net Assets:
From Operations:
Net investment income.......................................................... $ 933,105
Net realized gain on investments............................................... 9,814,004
Net change in unrealized appreciation on investments........................... 13,964,785
-----------------
Net increase in net assets resulting from operations..................... 24,711,894
-----------------
Dividends and Distributions to Shareholders from (Note 1):
Net investment income.......................................................... (734,589)
Net realized gain on investments............................................... (9,864,504)
Tax return of capital.......................................................... (429,791)
-----------------
Total dividends and distributions to shareholders........................ (11,028,884)
-----------------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund share transactions............................ 122,151,394
-----------------
Total increase in net assets............................................. 135,834,404
Net Assets:
Beginning of period............................................................ 100,000
-----------------
End of period.................................................................. $ 135,934,404
-----------------
-----------------
</TABLE>
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'D' Commencement of operations.
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout the period and other performance information derived from the
Financial Statements. It should be read in conjunction with the Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 8, 1997'D'
THROUGH
PER SHARE OPERATING PERFORMANCE DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------ --------------------
<S> <C>
Net asset value, beginning of period...................................................... $ 25.00
----------
Income from investment operations:
Net investment income................................................................ 0.31
Net realized and unrealized gains on investments..................................... 9.92
----------
Total from investment operations............................................... 10.23
----------
Less dividends and distributions to shareholders from:
Net investment income................................................................ (0.27)
Realized gains on investments........................................................ (2.59)
Tax return of capital................................................................ (0.12)
----------
Total dividends and distributions.............................................. (2.98)
----------
Net asset value, end of period............................................................ $ 32.25
----------
----------
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Total investment return................................................................... 41.68%(1)
----------
----------
- ---------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions).............................................. $135.934
----------
----------
Ratio of expenses to average daily net assets........................................ 1.35%(2)
----------
----------
Ratio of net investment income to average daily net assets........................... 1.73%(2)
----------
----------
Portfolio turnover rate.............................................................. 96.68%(1)
----------
----------
Average commission rate(3)........................................................... $ 0.0588
----------
----------
</TABLE>
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'D' Commencement of operations.
(1) Not annualized.
(2) Annualized.
(3) Represents average commission rate per share charged to the Fund on
purchases and sales of investments subject to such commissions during the
period.
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
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, as amended, as an open-end,
non-diversified management investment company. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. 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 and the reported amounts of income and
expenses during the reported period. Actual results could differ from those
estimates.
Portfolio Valuation: Investment in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected 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
for the day.
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
Market System are valued in a similar manner. 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, the National Quotation Bureau or such other comparable
sources as the Board of Directors deems 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.
Short-term debt securities, which have a maturity value of 60 days or less,
are valued at amortized cost which approximates value.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.
Dividends and Distributions to Shareholders: Dividends from investment
company taxable income are declared and paid semi-annually. A portion of the
Fund's dividends may consist of amounts in excess of
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
investment company taxable income derived from non-taxable components of the
dividends from the Fund's portfolio investments. As a result, the Fund had a
return of capital of $429,791 ($0.12 per share), for the period ended December
31, 1997, which has been deducted from paid-in capital. Net realized capital
gains, unless offset by any available capital loss carryforward, are distributed
to shareholders annually. Distributions to shareholders are recorded on the
ex-dividend date.
Dividends will automatically be reinvested 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.
Dividends from net investment income and capital gain distributions are
determined in accordance with U.S. Federal income tax regulations which may
differ from generally accepted accounting principles. During the period ended
December 31, 1997, the Fund decreased undistributed net investment income by
$188,959 and increased undistributed net realized gain on investments sold by
$188,959. These differences are primarily due to return of capital distributions
received by the Fund on portfolio securities.
Organization Costs: All costs incurred in connection with organizing and
establishing the Fund are being amortized on the straight-line basis over a
period of five years from the date on which the Fund commenced operations. For
the period ended December 31, 1997, the Fund amortized $15,794 in organization
expenses.
Federal Income Taxes: It is the policy of the Fund to qualify as a
regulated investment company, if such qualification is in the best interest of
the shareholders, by complying with the requirements of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, and by
distributing substantially all of its taxable earnings to its shareholders.
Accordingly, no provision for federal income or excise tax is necessary.
NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
'Adviser') serves as the Fund's Investment Adviser pursuant to an investment
advisory agreement (the 'Advisory Agreement'). Under the terms of the Advisory
Agreement, the Adviser provides the Fund with the day-to-day investment
decisions and generally manages the Fund's investments in accordance with the
stated policies of the Fund, subject to the supervision of the Fund's Board of
Directors. For the services provided to the Fund, the Adviser receives a monthly
fee in an amount equal to 1/12th of 0.90% of the average daily net assets of the
Fund (approximately 0.90% on an annual basis). For the period May 8, 1997
(commencement of operations) to December 31, 1997, the Fund incurred $484,023 in
advisory fees.
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 expense cap 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.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the period May 8, 1997 (commencement of operations) through December 31,
1997, the Fund's actual expense ratio did not exceed 1.35% and the expense
limitation was not needed.
Administration Fees: The Fund has entered into an administrative agreement
with the Adviser under which the Adviser performs certain administrative
functions for the Fund and receives a fee of 0.02% of the Fund's average daily
net assets. The Fund has paid the Adviser $10,756 in fees under this
administrative agreement.
Directors' Fees: Certain directors of the Fund are also directors, officers
and/or employees of the Adviser. None of the directors so affiliated received
compensation for their services as directors of the Fund. Fees and related
expenses accrued for non-affiliated directors totaled $23,200 for the period May
8, 1997 (commencement of operations) to December 31, 1997.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the period May 8, 1997 (commencement of operations) through December 31, 1997
totaled $179,619,006 and $77,695,906, respectively.
At December 31, 1997, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a federal income
tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost............................................................. $120,595,562
------------
Gross unrealized appreciation.............................................. $ 15,569,531
Gross unrealized depreciation.............................................. $ (1,456,730)
------------
Net unrealized appreciation................................................ $ 14,112,801
------------
------------
</TABLE>
NOTE 4. CAPITAL STOCK
The Fund is authorized to issue 50 million shares of capital stock, par
value $0.001 per share. The Board of Directors of the Fund may increase or
decrease the aggregate number of shares of common stock that the Fund has
authority to issue. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
MAY 8, 1997'D'
THROUGH
DECEMBER 31, 1997
------------------------
SHARES AMOUNT
--------- ------------
<S> <C> <C>
Sold.......................................................... 4,119,793 $119,603,412
Issued as reinvestment of dividends........................... 346,987 10,609,778
Redeemed...................................................... (255,872) (8,061,796)
--------- ------------
Net increase.................................................. 4,210,908 $122,151,394
--------- ------------
--------- ------------
</TABLE>
- ------------------------
'D' Commencement of operations.
- --------------------------------------------------------------------------------
13
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
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,
including the schedule of investments, of Cohen & Steers Special Equity Fund,
Inc. as of December 31, 1997, and the related statement of operations, the
statement of changes in net assets, and the financial highlights for the period
May 8, 1997 (commencement of operations) through December 31, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also 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 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Cohen & Steers Special Equity Fund, Inc. as of December 31, 1997, the results of
its operations, the changes in its net assets, and the financial highlights for
the period May 8, 1997 (commencement of operations) through December 31, 1997,
in conformity with generally accepted accounting principles.
New York, New York /s/ Coopers & Lybrand L.L.P.
February 3, 1998
- --------------------------------------------------------------------------------
14
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark FUND ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
73 Tremont Street
George Grossman Boston, MA 02108
Director (800) 437-9912
Jeffrey H. Lynford CUSTODIAN
Director The Chase Manhattan Bank, N.A.
3 Chase MetroTech Center
Willard H. Smith, Jr. Brooklyn, NY 11245
Director
LEGAL COUNSEL
Elizabeth O. Reagan Dechert Price & Rhoads
Vice President 30 Rockefeller Plaza
New York, NY 10112
Adam Derechin
Vice President and NASDAQ Symbol: CSSPX
Assistant Treasurer
Net asset value (NAV) can be found in the daily mutual
fund listings in the financial section of most major
newspapers under Cohen & Steers.
This report is authorized for delivery to other than
shareholders of Cohen & Steers Special Equity Fund, Inc.
only when accompanied or preceded by the delivery of a
currently effective prospectus setting forth details of
the Fund.
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
<PAGE>
[Graphic of an open door in a field with
buildings visible through door.]
COHEN & STEERS
SPECIAL EQUITY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
COHEN & STEERS
SPECIAL EQUITY FUND
ANNUAL REPORT
DECEMBER 31, 1997
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as................................... 'D'
The division symbol shall be expressed as................................. [div]
