<PAGE>
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
July 20, 1999
To Our Shareholders:
We are pleased to submit to you the semi-annual report for Cohen & Steers
Special Equity Fund for the quarter and six months ended June 30, 1999. The net
asset value per share on that date was $23.06. In addition, a semi-annual
dividend of $0.07 per share was declared for shareholders of record June 23,
1999 and paid June 24, 1999.
INVESTMENT REVIEW
During the quarter ended June 30, 1999, Cohen & Steers Special Equity Fund
had a total return of 16.9%, which compares to the NAREIT Equity REIT Index
return of 10.1% and the Standard & Poor's 500 Index return of 7.1%. For the six
months ended June 30, 1999, the Fund had a total return of 10.8% versus 4.8% for
NAREIT and 12.4% for the S&P 500.
During the second quarter, the Fund's performance far exceeded that of its
real estate benchmark as well as the S&P 500 Index. The Fund benefited from a
rally in REIT shares, which produced the first positive return in six
consecutive quarters, and from strong performance in its hotel/gaming and
opportunistic real estate positions in particular. Three holdings had a dramatic
impact on second quarter results: Station Casinos (+59.8%), Crescent Operating
(+87.9%), and Reckson Services Industries (+236.1%). Station Casino's stock is
benefiting from a combination of accelerating operating fundamentals, high
returns on property expansions, and de-leveraging. Crescent Operating is
benefiting from earnings acceleration, and the market's recognition of the
company's true earnings power. In the case of Reckson Services, the market is
beginning to recognize the value in its OnSite Access division, which provides
broadband Internet connections to office property tenants.
After a fifteen-month bear market, real estate securities prices began to
recover in the April. The bear market, marked by a 28% decline in capital
values, simply appears to have run its course, after exceeding the magnitude and
duration of the average REIT bear market. Mirroring the magnitude of the bear
market, valuations on both an absolute and relative basis had reached extreme
levels. Importantly, the fact that REITs became cheaper than the value of their
real estate led to a number of 'going private' transactions designed to maximize
shareholder value.
Acceleration in the U.S. economy provided a catalyst for improving investor
sentiment toward cyclical stocks and real estate securities. Domestic GDP growth
of 4.3% in the first quarter erased the fears of recession that plagued real
estate securities in 1998. In addition, the economies that precipitated the
global economic and credit crises in 1998, Asia and Latin America, are now
turning into engines of growth for the global economy. Another factor that
contributed to the REIT bear market has reversed course: fears of deflation,
which had negative implications for hard asset values, have transitioned to
concerns of rising inflation. Illustrating the change in
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1
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
inflation sentiment, commodity prices were up 6.3% in the first six months of
1999, after declining 30.5% last year.
Real estate fundamentals are solid, a result of the strong economy. Markets
for which we had anticipated oversupply conditions have outperformed
expectations due to strong demand. Importantly, the capital market disruptions
of last year have resulted in lower construction starts for nearly every
property type. The bottom line regarding real estate fundamentals is that REITs
produced net operating income ('NOI') growth of 5.5% in the first quarter. For
perspective, over the long term real estate should produce NOI growth in line
with inflation, now running about 2%. These strong 'core' property results
translated to 11.3% earnings growth for REITs in the first reporting period,
which compares favorably to the 10% earnings growth expected for the S&P 500
companies in 1999.
The final point in the REIT recovery case is an improving regulatory
climate. Both the Senate and the House have proposed legislation that would
enable REITs to provide a greater range of services to tenants and to engage in
a greater level of third party service businesses. If passed, this legislation
would not only reverse regulatory trends for REITs to the positive, but it would
also improve the earnings growth potential for certain companies.
INVESTMENT OUTLOOK
We believe that the fundamental factors that caused REIT share prices to
recover are still in place. The U.S. economy continues to perform exceptionally
well, and global economic growth estimates continue to increase. Estimates for
global GDP growth have increased over the course of the year from 2.0% to 2.7%
for 1999, and growth should accelerate to 3.3% in the year 2000 -- about equal
to U.S. growth. One change at the margin is that the Federal Reserve tightened
monetary policy in July. While we believe that the Fed will not need to embark
on a sustained program of interest rate increases, such as the action taken
throughout 1994, continued tightening of monetary policy does represent one risk
to our investment outlook.
While REIT valuations are approximately 8% higher than their lows in April,
REITs are still cheap relative to historical trading ranges and relative to
stocks and bonds. REITs are trading at a discount to net asset value ('NAV') and
at a historical low 8.7 times forward cash flow (which compares to 15.9 times
for the S&P 500). One factor that should provide multiple support is merger and
acquisition activity. For example, the Apartment sector (which, not
coincidentally, has been the best performing property sector this year) has
experienced significant corporate transaction activity to date in 1999,
including two 'going private' transactions, one public merger, one 'hostile'
acquisition proposal, and two companies currently offered for sale.
REIT earnings growth profiles in 1999 are making a transition to a 'steady
state', which reflects internal growth potential with reduced acquisition
activity. Acquisition activity is down significantly, the result of expensive
public equity capital and low property yields. At steady state, REITs should be
able to provide 8-10% earnings growth, comprised of core portfolio NOI growth,
financial leverage, reinvestment of retained earnings, and active portfolio
management (selling mature properties and reinvesting capital). Only a handful
of companies have the
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
external growth opportunities -- property acquisitions, developments, corporate
opportunities -- that can enhance earnings growth above 10%.
Due to the lack of equity capital, nearly all REITs are being forced to
adopt a business model that focuses on active portfolio management. Key factors
in this model are return on assets and asset turnover. To produce the capital
for higher return opportunities, management will be forced to sell assets where
value has been maximized. Some companies began adopting this model several years
ago, and they will soon be realizing the benefit of higher returns on equity.
Ironically, this Return-on-Equity ('ROE')-based business plan should result in a
higher level of sustainable growth, less risk, higher valuations and, therefore,
greater shareholder and management wealth. Valuations for these companies should
trend upward toward NAV, and in many cases should exceed NAV.
INVESTMENT STRATEGY
Specific to the Fund, our 'opportunity set' is less constrained than that
for the REIT universe. Because our investment universe includes businesses
related to the ownership of income propertys, we have the flexibility to invest
in businesses with higher growth opportunities. The chart below illustrates the
opportunities we see in some of the Fund's current holdings. In some cases the
companies have high return business opportunities; in other cases we believe the
stocks offer a discount to intrinsic value. Looking forward, we will focus on
the following investment themes: a) companies with unique franchises that have
sustainable growth rates; b) convergence of public and private real estate
values; c) restructuring/recovery in nursing home and assisted living sectors;
and d) special trading situations.
VALUE CREATION OPPORTUNITIES IN SELECTED FUND HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
COMPANY OPPORTUNITY
Reckson Services Wire office buildings for
Internet/telecommunications
Ventas Re-structure balance sheet of largest nursing
home tenant
Alexander's Develop/monetize Lexington Ave./59th Street site
in New York City
Brookfield Properties Buy affiliated real estate companies and CBD
offices; repurchase stock
HCR Manor Care Re-capitalize nursing home sector; repurchase
stock
LNR Property Buy high return, commercial mortgage-backed
securities (CMBS)
SL Green Acquire, redevelop Class B office property in
New York City
Station Casinos Expand existing, master-planned
gaming/entertainment properties
Vornado Realty Expand Office, Cold Storage, Merchandise Mart
divisions
Premier Parks Consolidate theme park industry
Omega Healthcare Buy real estate of nursing home and assisted
living operators
Apartment Investment Harvest 'captive' apartment pipeline through M&A
</TABLE>
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3
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
Just as the real estate markets are in a state of equilibrium, where supply
equals demand, so too is the market for REIT shares. New equity issuance has
declined substantially and is at very low levels -- in line with incremental
demand. No initial public offerings are occurring, which is reflective of the
competition by private real estate capital. While some may question the
viability of the public market for the operation of real estate, the changes
taking place in the public market -- such as corporate actions to maximize
shareholder value and ROE-based business plans -- give us even greater
conviction that the public market is a very attractive real estate investment
vehicle. And, we believe that we will continue to find capital appreciation
opportunities that meet the Fund's objective.
Sincerely,
<TABLE>
<S> <C> <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, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE % OF
OF SHARES (NOTE 1) NET ASSETS
--------- ------------ ----------
<S> <C> <C> <C>
EQUITIES
*Reckson Services Industries........... 348,400 $ 5,269,550 11.78%
*Ventas................................ 917,000 4,928,875 11.02
*Alexander's........................... 62,200 4,595,025 10.27
**Brookfield Properties Corp........... 239,600 3,100,020 6.93
*HCR Manor Care........................ 107,400 2,597,737 5.81
*Crescent Operating.................... 355,700 2,423,206 5.42
Mack-Cali Realty Corp.................. 70,300 2,174,906 4.86
LNR Property Corp...................... 101,200 2,163,150 4.84
Starwood Hotels & Resorts Worldwide.... 70,700 2,160,769 4.83
SL Green Realty Corp................... 103,300 2,111,194 4.72
*Station Casinos....................... 101,500 2,068,063 4.62
Vornado Realty Trust................... 58,300 2,058,719 4.60
*Premier Parks......................... 50,800 1,866,900 4.17
Omega Healthcare Investors............. 59,400 1,533,263 3.43
Apartment Investment & Management
Co. -- Class A...................... 35,300 1,509,075 3.38
*Catellus Development Corp............. 94,000 1,457,000 3.26
Mission West Properties................ 150,500 1,241,625 2.78
Marriott International -- Class A...... 30,800 1,151,150 2.57
*Genesis Health Ventures............... 331,200 993,600 2.22
*'D'Assisted Living Concepts........... 413,200 929,700 2.08
Kimco Realty Corp...................... 12,800 500,800 1.12
*Alterra Healthcare Corp............... 35,700 490,875 1.10
------------ ------
TOTAL EQUITIES (Identified
cost -- $48,265,390).......... 47,325,202 105.81
------------ ------
</TABLE>
See accompanying notes to financial statements.
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5
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF
AMOUNT (NOTE 1) NET ASSETS
---------- ----------- ----------
<S> <C> <C> <C>
COMMERCIAL PAPER
ALCOA, 5.50%, due 7/1/99.............. $1,000,000 $ 1,000,000 2.24%
Carolina Power & Light Co., 5.50%, due
7/1/99............................. 1,133,000 1,133,000 2.53
----------- ------
TOTAL COMMERCIAL PAPER
(Identified
cost -- $2,133,000).......... 2,133,000 4.77
----------- ------
TOTAL INVESTMENTS (Identified
cost -- $50,398,390)..................... 49,458,202 110.58
LIABILITIES IN EXCESS OF OTHER ASSETS....... (4,732,316) (10.58)
----------- ------
NET ASSETS (Equivalent to $23.06 per share
based on 1,939,457 shares of capital
stock outstanding)....................... $44,725,886 100.00%
----------- ------
----------- ------
</TABLE>
- ------------------------
* Non-income producing security.
** Brookfield Properties Corp. is a Canadian company listed both on the Toronto
and New York Stock Exchanges. The Toronto Stock Exchange is deemed the
principal exchange for valuation purposes. The market value of the Fund's
position in Canadian dollars on June 30, 1999 was $4,588,340 based on an
exchange rate of 0.543 Canadian dollars to 1 U.S. dollar.
'D' All exchange trading for Assisted Living Concepts ('ALF') was halted on
April 15, 1999 for, among other reasons, their failure to file timely
reports with the Securities and Exchange Commission and the American Stock
Exchange. The Fund is valuing its ALF common shares at 80% of the last
American Stock Exchange listed trade of $2.8125 per share, or $2.25 per
share.
See accompanying notes to financial statements.
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6
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified
cost -- $50,398,390) (Note 1)........................ $ 49,458,202
Cash.................................................. 204
Receivable for investment securities sold............. 590,963
Dividends receivable.................................. 48,454
Unamortized organization costs and other assets....... 64,629
------------
Total Assets.................................... 50,162,452
------------
LIABILITIES:
Payable for outstanding borrowings (Note 6)........... 4,017,063
Payable for investment securities purchased........... 1,242,285
Payable for fund shares redeemed...................... 89,954
Payable to investment adviser......................... 33,415
Payable to administrator.............................. 12,543
Other liabilities..................................... 41,306
------------
Total Liabilities............................... 5,436,566
------------
NET ASSETS applicable to 1,939,457 shares of $0.001 par
value common stock
outstanding (Note 4).................................. $ 44,725,886
------------
------------
NET ASSET VALUE PER SHARE:
($44,725,886 [div] 1,939,457 shares outstanding)...... $ 23.06
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)....................... $ 76,995,857
Distributions in excess of net investment income...... (31,095)
Accumulated net realized loss on investments.......... (31,298,688)
Net unrealized depreciation on investments............ (940,188)
------------
$ 44,725,886
------------
------------
</TABLE>
See accompanying notes to financial statements.
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7
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income (net of $3,421 of foreign withholding
tax)................................................. $ 499,567
Interest income....................................... 40,447
------------
Total Income.................................... 540,014
------------
Expenses:
Investment advisory fees (Note 2)..................... 210,863
Interest expense (Note 6)............................. 112,942
Reports to shareholders............................... 31,965
Professional fees..................................... 24,244
Directors' fees and expenses (Note 2)................. 16,023
Registration and filing fees.......................... 14,976
Amortization of organization expenses (Note 1)........ 11,110
Administration and transfer agent fees (Note 2)....... 25,276
Miscellaneous......................................... 8,005
------------
Total Expenses.................................. 455,404
Reduction of Expenses (Note 5)........................ (20,586)
------------
Net Expenses.................................... 434,818
------------
Net Investment Income....................................... 105,196
------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized loss on investments...................... (10,040,082)
Net change in unrealized appreciation/(depreciation)
on investments....................................... 14,345,404
------------
Net realized and unrealized gain/(loss) on
investments.................................... 4,305,322
------------
Net Increase in Net Assets Resulting from Operations........ $ 4,410,518
------------
------------
</TABLE>
See accompanying notes to financial statements.
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8
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COHEN & STEERS SPECIAL EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
---------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income............. $ 105,196 $ 1,964,591
Net realized loss on
investments.................... (10,040,082) (22,083,208)
Net change in unrealized
appreciation/(depreciation) on
investments.................... 14,345,404 (29,250,377)
------------ ------------
Net increase/(decrease) in
net assets resulting from
operations............... 4,410,518 (49,368,994)
------------ ------------
Dividends and Distributions to Shareholders
from (Note 1):
Net investment income............. (136,291) (1,288,005)
Tax return of capital............. -- (618,421)
------------ ------------
Total dividends and
distributions to
shareholders............. (136,291) (1,906,426)
------------ ------------
Capital Stock Transactions (Note 4):
Decrease in net assets from Fund
share transactions............. (14,707,543) (29,499,782)
------------ ------------
Total decrease in net
assets................... (10,433,316) (80,775,202)
Net Assets:
Beginning of period............... 55,159,202 135,934,404
------------ ------------
End of period (including
distributions in excess of net
investment income of $31,095 at
June 30, 1999)................. $ 44,725,886 $ 55,159,202
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
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9
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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 FOR THE PERIOD
JUNE 30, 1999 YEAR ENDED MAY 8, 1997'D' THROUGH
PER SHARE OPERATING PERFORMANCE (UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------------------- ---------------- ----------------- ----------------------------
<S> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 20.88 $ 32.25 $ 25.00
------- ------- --------
Income from investment operations:
Net investment income........ 0.05 0.53 0.31
Net realized and unrealized
gain/(loss) on
investments............... 2.20 (11.39) 9.92
------- ------- --------
Total from investment
operations........... 2.25 (10.86) 10.23
------- ------- --------
Less dividends and distributions
to shareholders from:
Net investment income........ (0.07) (0.34) (0.27)
Net realized gain on
investments............... -- -- (2.59)
Tax return of capital........ -- (0.17) (0.12)
------- ------- --------
Total dividends and
distributions to
shareholders......... (0.07) (0.51) (2.98)
------- ------- --------
Net asset value, end of period.... $ 23.06 $ 20.88 $ 32.25
------- ------- --------
------- ------- --------
- -------------------------------------------------------------------------------------------------------
Total investment return........... 10.78%(1) - 33.83% 41.68%(1)
------- ------- --------
------- ------- --------
- -------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
<S> <C> <C> <C>
Net assets, end of period (in millions). 44.7 55.2 135.9
------- ------- --------
------- ------- --------
Ratios of expenses to average daily
net assets (before expense
reduction)................... 1.95%(2) 1.31% 1.35%(2)
------- ------- --------
------- ------- --------
Ratios of expenses to average daily
net assets (net of expense
reduction)................... 1.86%(2) 1.28% 1.35%(2)
------- ------- --------
------- ------- --------
Ratio of net investment income to
average daily net assets (before
expense reduction)........... 0.36%(2) 1.68% 1.73%(2)
------- ------- --------
------- ------- --------
Ratio of net investment income to
average daily net assets (net of
expense reduction)........... 0.45%(2) 1.71% 1.73%(2)
------- ------- --------
------- ------- --------
Portfolio turnover rate......... 68.01%(1) 112.32% 96.68%(1)
------- ------- --------
------- ------- --------
</TABLE>
- ------------------------
'D' Commencement of operations.
(1) Not annualized.
(2) Annualized.
See accompanying notes to financial statements.
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10
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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 Cohen & Steers
Capital Management, Inc. 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 market 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 dividend 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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11
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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. These differences are
primarily due to return of capital and capital gain distributions received by
the Fund on portfolio securities.
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. At
December 31, 1998, the Fund had, for federal income tax purposes, an unused
capital loss carryforward of $20,978,620 to be applied against future realized
gains, if any. If not applied, the capital loss carryforward will expire in
2006.
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, 1999, the Fund amortized $11,110 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. For the six months ended June 30, 1999, the Fund incurred $210,863 in
advisory fees.
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, 1999, the Fund paid the Adviser
$4,690 in fees under this administration agreement.
In addition, Cohen & Steers Special Equity Fund, Inc., Cohen & Steers
Realty Shares, Inc., Cohen & Steers Equity Income Fund, Inc. and Cohen & Steers
Realty Income Fund, Inc. (the 'Funds') have entered into a fund accounting,
transfer agency and sub-administration agreement with the Chase Manhattan Bank
('Chase') pursuant to which an affiliate of Chase performs administration
functions for the Funds. Chase receives a monthly
- --------------------------------------------------------------------------------
12
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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 Funds' average daily net assets and at lower rates on the Funds' 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, 1999, fees and related expenses
accrued for non-affiliated directors totaled $16,023.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the six months ended June 30, 1999 totaled $33,882,206 and $47,498,525,
respectively.
At June 30, 1999, 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.................................... $ 50,398,390
------------
Gross unrealized appreciation..................... $ 5,259,487
Gross unrealized depreciation..................... $ (6,199,675)
------------
Net unrealized depreciation....................... $ (940,188)
------------
------------
</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 SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 146,453 $ 3,218,933 1,527,210 $ 44,026,634
Issued as reinvestment of
dividends............... 4,246 97,099 62,196 1,534,584
Redeemed................... (853,552) (18,023,575) (3,162,004) (75,061,000)
-------- ------------ ---------- ------------
Net decrease............... (702,853) $(14,707,543) (1,572,598) $(29,499,782)
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
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, 1999, the
Fund's expenses were reduced by $20,586 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. At June 30, 1999, the Fund had loans
outstanding totaling $4,000,000. For the six months ended June 30, 1999, the
average daily balance of loans outstanding was $4,000,000 at a weighted average
interest rate of 5.62%. The maximum amount of loans outstanding at any time
during the six months ended was $4,000,000. The loan is collaterized by the
Fund's portfolio to the extent of the loan outstanding.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Willard H. Smith, Jr.
Director
Elizabeth O. Reagan
Vice President
Adam Derechin
Vice President and Assistant Treasurer
Lawrence B. Stoller
Assistant Secretary
KEY INFORMATION
Investment Adviser
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
FUND SUB-ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, MA 02108
(800) 437-9912
CUSTODIAN
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
NASDAQ Symbol: CSSPX
Website: www.cohenandsteers.com
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. Past
performance of course is no guarantee of future results
and your investment may be worth more or less at the
time you sell.
15
<PAGE>
COHEN & STEERS
- ------------------------
SPECIAL EQUITY FUND
SEMI-ANNUAL REPORT
JUNE 30, 1999
COHEN & STEERS
- ------------------------
SPECIAL EQUITY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as................ 'D'
The division sign shall be expressed as................ [div]
