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COHEN & STEERS SPECIAL EQUITY FUND, INC.
July 17, 1998
To Our Shareholders:
We are pleased to submit to you the semi-annual report for Cohen & Steers
Special Equity Fund, Inc. for the quarter and six months ended June 30, 1998.
The net asset value per share at that date was $28.92. In addition, a
semi-annual dividend of $0.27 per share was declared for shareholders of record
June 23, 1998 and paid on June 24, 1998.
INVESTMENT REVIEW
During the quarter ended June 30, 1998, Cohen & Steers Special Equity Fund
had a total return, based on income and changes in net asset value, of -5.4%. By
comparison, the NAREIT Equity REIT Index total return was -4.6% and the Standard
& Poor's 500 Index total return was 3.3%. On a trailing twelve-month basis the
Fund had a total return of 17.5% versus 8.1% for NAREIT.
The correction in real estate securities prices that began in the first
quarter accelerated in the second, amid continued concerns about the maturing of
the real estate cycle and the rising level of competition and capital in real
estate. The environment was characterized by a negative shift in sentiment,
voiced specifically by several Wall Street analysts who lowered their outlooks
for the sector. The under-performance by REITs in the first six months of 1998
represented the widest performance gap for any six-month period in the history
of the NAREIT Equity REIT Index, including two significant bear markets for real
estate in the early 1970s and early 1990s. If current performance were to
persist, 1998 would be the worst year of investment performance since 1990 when
REIT prices declined by 15.4%. In that year the real estate bear market began in
earnest with declining occupancies and rental rates, plummeting property prices,
a credit crunch and an economic recession.
Today, by contrast to 1990, the outlook for the economy is solid,
occupancies are full, property cash flows and values are rising, and liquidity
is increasing. The competitive issues weighing on the market with respect to
acquisition pricing and the level of new construction are, therefore, reflective
of strong fundamentals as well as the fact that real estate yields are still
attractive versus other assets. For perspective, today Class A properties yield
7-9% compared to a 5.4% ten-year Treasury bond yield. In prior cycles, yields on
property were typically lower than the cost of debt financing. Competition is
being fueled by increasing availability of debt capital, now the financing
vehicle of choice in the real estate industry. This has led to a proliferation
of commercial mortgage backed securities ('CMBS'): $43 billion in CMBS was
issued in the first half of 1998 compared to $44 billion in all of 1997. The
increased usage of debt financing has, however, raised the risk profile of the
real estate industry.
Real estate looks attractively valued as an asset class, but relative REIT
valuations are extraordinary. While the valuation of REITs approaches 1990
levels, the P/E multiple of the stock market has expanded by nearly 30% and
interest rates have declined by 33%. It seems ironic to us that investor concern
about the economic cycle and a widely anticipated slowing of earnings growth for
corporate America has resulted in record high valuations, while a more modest
slowing of prospective earnings growth for REITs has resulted in a near-record
low earnings
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
multiple. In the context of this historical perspective, the current sentiment
towards real estate securities understates the fundamentals in real estate and
the opportunities for REITs.
The Fund's performance in the second quarter partially reflects a change in
stock price leadership among real estate securities, away from companies with
high growth expectations and high valuations, to those with lower expectations,
lower valuations and above-average dividend yields. For example, for the first
half of 1998 the Office and Hotel sectors, which began the year with the highest
growth rates and multiples, were the worst performing sectors. Similarly,
companies with higher risk business plans, and those that are under-followed,
did not perform well in what was a volatile and uncertain market
environment -- one where well-known companies could be purchased at compelling
prices.
The decline in REIT share prices, juxtaposed against continued strong real
estate fundamentals, has made REIT valuations compelling. To put the recent
change in valuation into context, over the past twelve months REIT prices have
increased only 2.2% yet earnings have increased roughly 15%. Consequently,
valuations have improved 10% and REITs are now trading at 11.2 times funds from
operations ('FFO' -- the earnings measure for REITs). Over the same time period,
yields on ten-year Treasury bonds have declined 110 basis points and the P/E
multiple on the S&P 500 has expanded from 18.3x to 21.4x.
Looking at valuation another way, the combination of flat REIT prices in
the public market and rapidly rising property values in the private market has
resulted in a situation where many REITs are trading at or below the market
value of their real estate assets -- giving no 'going concern' value to
management. This assessment leads us to two conclusions. First, a shift in
portfolio strategy towards a value focus should produce above average results.
Second, the pullback in REIT share prices may have run its course and prices
should begin to track earnings growth, which would result in attractive returns.
INVESTMENT OUTLOOK
The macro-factors that influence real estate securities continue to be
favorable. The U.S. economy, now in its eighth year of expansion, continues to
enjoy low inflation, low unemployment with continuing job growth, high consumer
confidence and rising personal income. The economic dislocations in the
Asia-Pacific region have cooled the expansion, preempting what may have been a
traditional late cycle tightening of monetary policy by the Federal Reserve.
While the macro-environment is positive for REIT fundamentals today, the
environments for the economy, real estate and the stock market can be
characterized more accurately as 'late' rather than 'early' cycle. In this
environment we expect that the appeal of real estate and REIT investment
attributes, such as high and secure current yield, low volatility and good
defense in uncertain market conditions, will become more widely appreciated by
the investment community. We are compensating for the risk attendant to the late
stage nature of the macro-environment by adopting more value characteristics
into our portfolio strategy. Clearly, the primary measure of value for a real
estate company is the market value of its income-producing properties, and we
will rely more heavily on this valuation approach. In addition, companies
without the pricing support of asset value, such as real estate service
companies, will require higher return potential to justify inclusion in the
portfolio.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
During the quarter, positions were initiated in Mack-Cali, TrizecHahn, Mark
Centers Trust and Station Casinos. Both TrizecHahn and Mack-Cali are extremely
well managed companies in the Office sector, which offers the most significant
consolidation opportunity of all real estate sectors, and were purchased at a
discount to net asset value. Mark Centers, a shopping center owner, was also
purchased below asset value and is undergoing a management change by virtue of a
merger with a private company. Our purchase of Station was designed as a lower
cost way to increase our position in Crescent Real Estate Equities, which has
agreed to acquire Station to consolidate the 'locals' gaming market in Las
Vegas.
The change in sentiment toward real estate securities, combined with the
decline in valuations, should slow the transfer of real estate from private to
public hands in the short-to-intermediate term. Currently, the initial public
offering market for REITs is closed and, with valuations depressed, companies
are less willing to fund growth through the issuance of common stock. While the
higher cost of equity will slow earnings growth for some companies, we see
several benefits from this situation. First, the slowdown in supply of
newly-issued REIT shares will firm the supply/demand picture for the securities,
which should improve price performance. Second, because the real estate markets
are now so closely linked to the capital markets, yields on income properties
should rise, creating better investment opportunities for the premiere companies
with access to capital.
In an environment where equity capital has become much more expensive, we
believe that companies such as Vornado, Crescent and Mack-Cali will benefit
disproportionately -- especially for large and complex transactions. These
companies, with strong balance sheets and creative management teams, will lead
the securitization process through what should be only a cyclical slowdown. For
example, Crescent has teamed up with another REIT to take private Tower Realty,
a NYSE-listed REIT that owns office properties. Tower's core New York City
properties will be used as the platform from which the new venture will acquire
a private operator and subsequently pursue a consolidation strategy in New York.
We are confident that the secular shift in real estate ownership to the public
market is still in the early stages and will result in substantial investment
opportunities for the companies in our investment universe.
The rising cost of equity capital should precipitate more mergers between
public companies. A structural benefit of investing in real estate through
public real estate companies is that management teams are highly motivated to
maximize shareholder value. This dynamic will serve to reconcile the arbitrage
between rising private market values and declining public market valuations.
Apartment Management & Investment Company ('AIMCO'), by example of a portfolio
holding, is taking advantage of this opportunity as one of the leading
consolidators in the Apartment sector. During the second quarter AIMCO closed or
announced acquisitions of two public companies for total consideration of $1.6
billion.
The activity of selling properties has become an area of opportunity for
public companies. In our view, the potential for value creation through property
sales and capital re-deployment (into new opportunities, stock repurchases or
debt retirement) is not fully reflected in the share prices for many public
companies. Particularly in the Office and Regional Mall sectors, where
capitalization rates can be quite low and assets are large, the prospects for a
company can change dramatically with several key property sales. The Fund's top
three holdings -- Forest
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
City, Starwood Hotels, and LNR Property -- are well positioned to create value
through asset sales. LNR Property, in particular, is an active seller of assets
and has a wide array of value creation opportunities in its core business lines:
acquisition/rehabilitation, development, CMBS investment and servicing,
affordable housing development and Japanese distressed loan investment.
Despite the Fund's under-performance through mid-year 1998 we believe that
the companies in the portfolio are among the best positioned to create value in
an increasingly competitive real estate environment. Each of the Fund's top five
holdings, which collectively comprise 44% of the Fund's assets, has unique value
creation capabilities, is not dependent on growth through acquisition, and is
not dependent on raising new equity to achieve its business plan. In summary,
the absolute and relative valuations of the companies in the portfolio, combined
with continued strong fundamentals, should ultimately lead to attractive
returns.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JOSEPH M. HARVEY
JOSEPH M. HARVEY
Director of Research
Cohen & Steers Capital Management, Inc.
</TABLE>
COHEN & STEERS IS NOW ONLINE AT WWW.COHENANDSTEERS.COM. VISIT OUR WEBSITE
FOR DAILY NAVS, PORTFOLIO INFORMATION, PERFORMANCE INFORMATION, RECENT
NEWS ARTICLES, LITERATURE AND INSIGHTS ON THE REIT MARKET.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
% OF
NUMBER VALUE NET
OF SHARES (NOTE 1) ASSETS
--------- ------------ ----------
<S> <C> <C> <C>
EQUITIES
Forest City Enterprises -- Class A .......................... 235,900 $ 13,962,331 10.52%
Starwood Hotels & Resorts Trust ............................. 277,800 13,421,213 10.11
LNR Property Corp. .......................................... 480,800 12,320,500 9.28
Vornado Realty Trust ........................................ 269,200 10,683,875 8.05
*Omega Worldwide ............................................. 1,064,831 8,052,784 6.06
*Crescent Operating .......................................... 385,000 6,545,000 4.93
Apartment Investment & Management Co. -- Class A ............ 162,500 6,418,750 4.83
Mack-Cali Realty Corp. ...................................... 185,200 6,366,250 4.79
*American Retirement Corp. .................................. 313,400 5,562,850 4.19
SL Green Realty Corp. ....................................... 246,700 5,550,750 4.18
*Station Casinos ............................................. 332,300 4,880,656 3.68
*Hospitality Worldwide Services............................... 476,300 4,286,700 3.23
St. Joe Co. ................................................. 156,200 4,275,975 3.22
Prime Group Realty Trust .................................... 231,500 3,964,438 2.99
First Industrial Realty Trust ............................... 110,500 3,515,281 2.65
Meditrust Corp. ............................................. 124,400 3,475,425 2.62
Crescent Real Estate Equities Co. ........................... 100,400 3,375,950 2.54
*Wellsford Real Properties ................................... 220,900 3,120,213 2.35
*Alexander's ................................................. 23,300 2,073,700 1.56
TrizecHahn Corp. ............................................ 80,900 1,734,294 1.31
*Mark Centers Trust .......................................... 178,800 1,329,825 1.00
*Security Capital Group -- Class B Warrants (expire
9/18/98).................................................. 208,300 71,603 0.05
------------ ----------
TOTAL EQUITIES (Identified cost -- $128,416,704)....... 124,988,363 94.14
------------ ----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
% OF
PRINCIPAL VALUE NET
AMOUNT (NOTE 1) ASSETS
---------- ------------ ------
<S> <C> <C> <C>
COMMERCIAL PAPER
International Lease Finance, 5.75%, 7/1/98..................... $2,616,000 $ 2,616,000 1.97
Pacific Mutual Life, 5.75%, 7/1/98............................. 2,600,000 2,600,000 1.96
------------ ------
TOTAL COMMERCIAL PAPER (Identified cost -- $5,216,000)... 5,216,000 3.93
------------ ------
TOTAL INVESTMENTS (Identified cost -- $133,632,704).................. 130,204,363 98.07
OTHER ASSETS IN EXCESS OF LIABILITIES................................ 2,568,936 1.93
------------ ------
NET ASSETS (Equivalent to $28.92 per share based on 4,591,733 shares
of capital stock outstanding)..................................... $132,773,299 100.00%
------------ ------
------------ ------
</TABLE>
- ------------------------
* 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
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $133,632,704) (Note 1)............... $130,204,363
Cash......................................................................................... 611
Receivable for investment securities sold.................................................... 3,697,689
Dividends receivable......................................................................... 223,041
Receivable for fund shares sold.............................................................. 57,882
Other assets................................................................................. 131,852
------------
Total Assets........................................................................... 134,315,438
------------
LIABILITIES:
Payable for investment securities purchased.................................................. 1,178,284
Payable for fund shares redeemed............................................................. 182,995
Payable to investment adviser................................................................ 99,862
Payable to administrator..................................................................... 31,538
Payable to directors......................................................................... 796
Other liabilities............................................................................ 48,664
------------
Total Liabilities...................................................................... 1,542,139
------------
NET ASSETS applicable to 4,591,733 shares of $0.001 par value common
stock outstanding (Note 4)................................................................... $132,773,299
------------
------------
NET ASSET VALUE PER SHARE:
($132,773,299 [div] 4,591,733 shares outstanding)............................................ $ 28.92
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4).............................................................. $133,938,639
Distributions in excess of net investment income............................................. (37,780)
Accumulated net realized gain on investments sold............................................ 2,300,781
Net unrealized depreciation on investments................................................... (3,428,341)
------------
$132,773,299
------------
------------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income.............................................................................. $ 1,397,653
Interest income.............................................................................. 651,006
------------
Total Income........................................................................... 2,048,659
------------
Expenses:
Investment advisory fees (Note 2)............................................................ 639,469
Administration and transfer agent fees (Note 2).............................................. 79,321
Custodian fees and expenses.................................................................. 26,843
Professional fees............................................................................ 25,412
Registration and filing fees................................................................. 24,819
Reports to shareholders...................................................................... 22,692
Directors' fees and expenses (Note 2)........................................................ 15,904
Amortization of organization expenses (Note 1)............................................... 9,925
Miscellaneous................................................................................ 6,636
------------
Total Expenses......................................................................... 851,021
------------
Reduction of expenses (Note 5)............................................................... (10,281)
------------
Net Expenses........................................................................... 840,740
------------
Net Investment Income.............................................................................. 1,207,919
------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments............................................................. 2,152,765
Net change in unrealized appreciation (depreciation) on investments.......................... (17,393,126)
------------
Net realized and unrealized gain (loss) on investments................................. (15,240,361)
------------
Net Decrease in Net Assets Resulting from Operations............................................... $(14,032,442)
------------
------------
</TABLE>
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 FOR THE PERIOD
SIX MONTHS ENDED MAY 8, 1997'D'
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................... $ 1,207,919 $ 933,105
Net realized gain on investments......................... 2,152,765 9,814,004
Net change in unrealized appreciation (depreciation) on
investments........................................... (17,393,126) 13,964,785
---------------- -----------------
Net increase (decrease) in net assets resulting
from operations................................. (14,032,442) 24,711,894
---------------- -----------------
Dividends and Distributions to Shareholders from (Note 1):
Net investment income.................................... (1,245,699) (734,589)
Net realized gains on investments........................ -- (9,864,504)
Tax return of capital.................................... -- (429,791)
---------------- -----------------
Total dividends and distributions to shareholders.. (1,245,699) (11,028,884)
---------------- -----------------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund share transactions............ 12,117,036 122,151,394
---------------- -----------------
Total increase (decrease) in net assets............ (3,161,105) 135,834,404
Net Assets:
Beginning of period............................................ 135,934,404 100,000
---------------- -----------------
End of period (including distributions in excess of net
investment income of $37,780 at June 30, 1998).............. $132,773,299 $ 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 each 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
SIX MONTHS ENDED FOR THE PERIOD
JUNE 30, 1998 MAY 8, 1997'D' THROUGH
PER SHARE OPERATING PERFORMANCE (UNAUDITED) DECEMBER 31, 1997
- -------------------------------------------------------------- ---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period.......................... $ 32.25 $ 25.00
---------------- ----------
Income from investment operations:
Net investment income.................................... 0.26 0.31
Net realized and unrealized gain (loss) on investments... (3.32) 9.92
---------------- ----------
Total from investment operations................... (3.06) 10.23
---------------- ----------
Less dividends and distributions to shareholders from:
Net investment income.................................... (0.27) (0.27)
Net realized gain on investments......................... -- (2.59)
Tax return of capital.................................... -- (0.12)
---------------- ----------
Total dividends and distributions to
shareholders..................................... (0.27) (2.98)
---------------- ----------
Net asset value, end of period................................ $ 28.92 $ 32.25
---------------- ----------
---------------- ----------
-------------------------------------------------------------------------------------------------------------
Total investment return....................................... (9.47)%(1) 41.68%(1)
---------------- ----------
---------------- ----------
-------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions).................. $132.773 $135.934
---------------- ----------
---------------- ----------
Ratios of expenses to average daily net assets (before
expense reduction).................................... 1.20%(2) 1.35%(2)
---------------- ----------
---------------- ----------
Ratios of expenses to average daily net assets (net of
expense reduction).................................... 1.18%(2) 1.35%(2)
---------------- ----------
---------------- ----------
Ratio of net investment income to average daily net
assets (before expense reduction)..................... 1.68%(2) 1.73%(2)
---------------- ----------
---------------- ----------
Ratios of net investment income to average daily net
assets (net of expense reduction)..................... 1.70%(2) 1.73%(2)
---------------- ----------
---------------- ----------
Portfolio turnover rate.................................. 52.41%(1) 96.68%(1)
---------------- ----------
---------------- ----------
</TABLE>
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'D' Commencement of operations.
(1) Not annualized.
(2) Annualized.
See accompanying notes to financial statements.
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 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: Investments 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 net investment
income are declared and paid semi-annually. A portion of the Fund's dividends
may consist of amounts in excess of net investment income derived from
non-taxable components of the dividends from the Fund's portfolio investments.
Net realized capital
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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
ex-dividend 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.
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.
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 six months ended June 30, 1998, the Fund amortized $9,925 in organization
expenses.
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 six months ended June 30,
1998, the Fund incurred $639,469 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,
1998. As long as this expense cap continues, it may lower the Fund's expenses
and increase its total return. After December 31, 1998, 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. For the six months ended June 30, 1998, 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. For the six months ended June 30, 1998, the Fund paid the Adviser
$14,191 in fees under this administrative agreement.
In addition, the Fund has entered into a fund accounting and
sub-administration agreement with the Chase Manhattan Bank ('Chase') for
performing administration functions for the Fund. Chase receives a monthly
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
sub-administration fee at the annual rate of 0.08% 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.
Directors' Fees: Certain directors and officers of the Fund are also
directors, officers and/or employees of the Adviser. None of the directors and
officers so affiliated received compensation for their services as directors of
the Fund. For the six months ended June 30, 1998, fees and related expenses
accrued for non-affiliated directors totaled $15,904.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the six months ended June 30, 1998 totaled $84,695,605 and $70,168,771,
respectively.
At June 30, 1998, the cost and unrealized appreciation or depreciation in
value of the investments owned by the Fund, are as follows:
<TABLE>
<S> <C>
Aggregate cost............................................................. $133,632,704
------------
Gross unrealized appreciation.............................................. $ 3,629,765
Gross unrealized depreciation.............................................. $ (7,058,106)
------------
Net unrealized depreciation................................................ $ (3,428,341)
------------
------------
</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>
FOR THE MAY 8, 1997'D'
SIX MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold.............................. 1,152,852 $ 35,771,678 4,119,793 $119,603,412
Issued as reinvestment of
dividends...................... 37,170 1,046,339 346,987 10,609,778
Redeemed.......................... (813,197) (24,700,981) (255,872) (8,061,796)
--------- ------------ --------- ------------
Net increase...................... 376,825 $ 12,117,036 4,210,908 $122,151,394
--------- ------------ --------- ------------
--------- ------------ --------- ------------
</TABLE>
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'D' Commencement of operations.
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13
<PAGE>
<PAGE>
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 5. DIRECTED BROKERAGE ARRANGEMENTS
The Adviser has directed certain portfolio trades to brokers who paid a
portion of the Fund's expenses. For the six months ended June 30, 1998, the
Fund's expenses were reduced by $10,281 under this arrangement.
NOTE 6. BORROWINGS
The Fund, in conjunction with Cohen & Steers Realty Shares, Inc. and Cohen
& Steers Equity Income Fund, Inc., has entered into a Line of Credit Agreement
with Chase Manhattan Bank for $250,000,000. During the six months ended June 30,
1998, the Fund did not have any loans outstanding. The loan, if used, will be
collateralized by the Fund's portfolio.
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14
<PAGE>
<PAGE>
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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 SUB-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
One Chase Manhattan Plaza
Willard H. Smith, Jr. New York, NY 10081
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
Website: www.cohenandsteers.com
William Goodwin
Assistant Secretary 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 only to
shareholders of Cohen & Steers Special Equity Fund, Inc.
unless accompanied or preceded by the delivery of a
currently effective prospectus setting forth details of
the Fund.
</TABLE>
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15
<PAGE>
<PAGE>
[LOGO]
COHEN & STEERS
SPECIALTY EQUITY FUND
SEMI-ANNUAL REPORT
JUNE 30, 1998
COHEN & STEERS
SPECIALTY EQUITY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
- ----------------
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
- ----------------
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as............................... 'D'
The double dagger symbol shall be expressed as........................ 'DD'
The division sign shall be expressed as................................ [div]
