<PAGE>
COHEN & STEERS
SPECIAL EQUITY FUND
QUARTERLY REPORT
MARCH 31, 2000
COHEN & STEERS
SPECIAL EQUITY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
April 17, 2000
To Our Shareholders:
We are pleased to submit to you the quarterly report for Cohen & Steers
Special Equity Fund for the quarter ended March 31, 2000. The net asset value
per share on that date was $25.10. Regular dividends are reviewed semi-
annually; therefore, no dividend was declared for the quarter. The Board of
Directors will review the next regular dividend in June.
INVESTMENT REVIEW
During the quarter ended March 31, 2000, Cohen & Steers Special Equity Fund
had a total return of - 6.2%. The Fund underperformed both the NAREIT Equity
REIT Index*, which had a total return of 2.4%, and the Standard & Poor's 500
Index, which had a total return of 2.3%.
Real estate securities posted solid, if unspectacular, performance in the
first quarter, a period characterized by financial market volatility and change.
Important to real estate fundamentals, the economy showed rapid acceleration,
surprising most economists. Fourth quarter U.S. GDP was measured at 7.3%, a
strong updraft versus the prior quarter's 5.7% growth. Upside economic
surprises, together with important, but less visible, warning signs on
inflation, have been met by continued monetary tightening by a hawkish Federal
Reserve. In turn, these events have created significant equity market volatility
and unique developments in the U.S. Treasury bond market, which is digesting the
ramifications of a shrinking national debt. Long-term Treasury bond yields
declined meaningfully in the first quarter, from 6.5% to 5.8% measured by the
30-year Treasury, indicating the market's belief that the Fed's actions will
indeed slow the economy.
Nearly all of the Fund's underperformance in the first quarter is
attributable to the Fund's top three holdings: FrontLine Capital Group ( - 29.5%
total return), Alexander's ( - 19.6%), and Ventas ( - 20.9%). Performance of
these holdings, plus positions in the Health Care and Real Estate -- Services &
Technology sectors, offset strong performance by the Fund's holdings in REITs
and other owners of income property. This quarterly Investment Review provides
fundamental updates on the Fund's top three holdings.
FRONTLINE CAPITAL GROUP
While FrontLine was an outstanding performer in 1999, its first
quarter stock performance reflected several short-term fundamental
concerns. In addition, FrontLine's share price decline likely
represented a reassessment of its valuation after the stock rose
thirteen-fold last year (we had been sellers of the stock
ourselves). The initial public offering of FrontLine's subsidiary
company OnSite Access, which provides broadband Internet services to
office building tenants, was delayed by litigation (which has
subsequently been resolved). OnSite's IPO will be an important
milestone for FrontLine in terms of demonstrating its value-creation
process and providing the capital necessary to 'wire' approximately
400 million square feet of office buildings. FrontLine's share price
was also pressured by its capital-raising activities, which totaled
$177 million.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
These issues overshadowed FrontLine's announcement of a very
powerful merger between its executive office suite subsidiary,
VANTAS, and HQ Global, thereby creating the largest company of its
kind. This merger gives FrontLine a strong cash flow business, whose
tenants are small businesses that, not coincidently, are the target
market for the company's other e-commerce initiatives such as OnSite
Access. We believe FrontLine's management is creating value and are
confident in the company's prospects considering the high secular
growth in e-commerce.
ALEXANDER'S
Alexander's share price decline perhaps can be explained by the
phrase 'no news is bad news'. Alexander's largest asset is a full
city block under development on the Upper East Side of Manhattan.
The market is anxiously awaiting the announcement of lead tenants
and the finalization of development plans for this mega-mixed use
office, retail, hotel, and residential project. The company, which
is managed by another Fund holding, Vornado Realty Trust, has
apparently made a smart decision by not signing tenants, considering
that rental rates and property values have 'spiked' in Manhattan for
the second time in this real estate cycle. While the company has
risked potentially delivering their project into a slower economy,
the asset value in Alexander's shares continues to rise and is well
in excess of the current share price, in our opinion.
VENTAS
Ventas' share price was pressured by concerns about the financial
restructuring of this nursing home REIT's only tenant, health care
operator Vencor. Health Care REIT share prices continue to be
plagued by the financial and operational woes of their tenants,
despite legislative relief that will increase Medicare reimbursement
to nursing homes in 2000. Specific to Ventas, the REIT has yet to
reach a definitive agreement to recast the rent it will receive
after Vencor emerges from bankruptcy. Despite the delays in these
proceedings, we believe that a successful restructuring will still
occur this year. We expect that the revised rental payment will
support a stabilized dividend rate approximating $1/share, which
would produce a 30% current return on Ventas' March 31, 2000 share
price.
INVESTMENT OUTLOOK
The Fund's performance will depend not only on the performance of REITs,
which should influence approximately 64% of the Fund's holdings, but also on the
performance of real estate-related companies whose shares are not correlated to
the REIT market. For example, while both Alexander's and Ventas have elected
REIT status, neither pays a current dividend and neither stock tends to move
with the REIT market. Instead, we expect their share prices to be influenced
more by specific key company fundamental developments.
In our opinion, investment performance for REITs so far in 2000 appears to
represent an important shift in investor sentiment and an improved supply/demand
picture for REIT shares. In addition to competitive returns in the latest
quarter, and perhaps more importantly, REITs have produced positive 12-month
returns for the first time since mid-1998. As shown in the chart below, it
appears that on a cyclical basis, the REIT bear market may be coming to an end.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
NAREIT EQUITY REIT INDEX 12 MONTH TOTAL RETURNS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
QUARTER ENDED
- -----------------------------------------------------------------------------------------------------------------
1Q92 1Q93 1Q94 1Q95 1Q96
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.3 13.3 16.3 14.6 38.5 31 34.1 19.7 1.7 6.6 -4.5 3.2 -0.4 3.6 10.7 15.3 18.1 16.5 18.5 35.3
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
- --------------------------------------------------------------------------
1Q97 1Q98 1Q99 1Q00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33.2 33.8 40.5 20.3 18.9 8 -13.5 -17.5 -21.1 -9 -6.5 -4.6 2.6
</TABLE>
Source: NAREIT
Perhaps predictably, a good number of Wall Street strategists have begun to
recommend that their clients reduce their overall equity exposure and add REITs
in their place. REITs are apparently again being viewed as both a safe haven for
capital as well as a good source of current income. In a world where growth has
been of foremost significance, and current income has simply been unimportant to
most investors, persistent efforts by the Federal Reserve to slow the economy by
raising interest rates may have finally convinced market participants that the
Fed will eventually prevail. Such a slowdown would probably favor
income-oriented securities, perhaps at the expense of the Fund's non-dividend
paying securities.
We believe that the best combination of fundamentals and valuation among
REITs can be found in the Office sector. Accordingly, over 25% of the portfolio
is invested in seven office companies, which are highly concentrated in
high-barrier markets such as the New York metropolitan area. Brookfield
Properties, our largest position, typifies the office strategy. Brookfield owns
Class-A office properties in the central business districts of New York,
Toronto, Boston, Minneapolis, and Denver. Office rent growth in these tight
markets has surprised on the upside, a result of supply constraints and rapid
absorption. Brookfield is also executing a plan to take advantage of new
technology initiatives applicable to office landlords. The company has formed a
new company, named 'e-ffinity Properties', which will provide a range of 'B2B'
services to office owners and tenants including telecommunications, a tenant
services portal, and real estate supply procurement, among others.
The Fund's performance will also be influenced by holdings that are not
correlated to REITs. A large component of these non-REIT holdings are in the
Real Estate -- Services & Technology sector. The real estate community is waking
up to the significant opportunity to apply Internet technology to its industry,
which is well suited to benefit from the Internet due to its size,
fragmentation, inefficiency, and lack of information. Many of the companies
pursuing these business plans are in the private, venture capital stage but a
sizable public market is developing. Business opportunities include
telecommunications, tenant services and goods purchasing, supply procurement,
listing and brokerage, hotel
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
reservations, and finance, to name a few. REITs themselves are in an
advantageous position to pursue these opportunities, by virtue of their
'platforms' that encompass significant square footage of real estate, tenants,
and property management capabilities.
We believe we have assembled an exciting portfolio of real estate companies
that combines some of the best REIT opportunities available, special situations
in under-followed stocks that require value-added research, and companies on the
cutting edge of the convergence of real estate and technology. We look forward
to reporting to you on the progress of these investments.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JOSEPH M. HARVEY
JOSEPH M. HARVEY
Portfolio Manager
</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.
- -------------------------------------------------------------------------------
* The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly-traded REITs that invest predominately in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER % OF
OF SHARES VALUE NET ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
EQUITIES
*FrontLine Capital Group.................. 127,100 $ 5,592,400 15.12%
*Alexander's.............................. 62,200 3,949,700 10.68
*Ventas................................... 1,012,400 3,353,575 9.06
Starwood Hotels & Resorts Worldwide...... 106,700 2,800,875 7.57
**Brookfield Properties Corp. ............. 192,000 2,215,181 5.99
Vornado Realty Trust..................... 55,800 1,869,300 5.05
*Manor Care............................... 121,900 1,645,650 4.45
Mack-Cali Realty Corp. .................. 61,600 1,570,800 4.24
AvalonBay Communities.................... 41,800 1,530,925 4.14
*CAIS Internet............................ 59,000 1,427,063 3.86
Crescent Real Estate Equities Co. ....... 80,600 1,410,500 3.81
Centex Corp. ............................ 53,000 1,262,063 3.41
Health Care Property Investors........... 49,100 1,248,981 3.38
SL Green Realty Corp. ................... 52,400 1,244,500 3.36
Equity Office Properties Trust Co. ...... 49,000 1,231,125 3.33
Kaufman & Broad Home Corp. .............. 51,900 1,112,606 3.01
Apartment Investment & Management
Co. -- Class A........................ 23,500 897,406 2.42
Mission West Properties.................. 98,100 839,981 2.27
*Cypress Communications................... 33,000 808,500 2.18
*Crescent Operating....................... 261,400 751,525 2.03
*Premier Parks............................ 31,300 657,300 1.78
Nationwide Health Properties............. 45,600 475,950 1.29
*Hotel Reservations Network............... 20,300 360,325 0.97
----------- ------
TOTAL EQUITIES (Identified
cost -- $40,600,039)............. 38,256,231 103.40
----------- ------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL % OF
AMOUNT VALUE NET ASSETS
---------- ----------- ----------
<S> <C> <C> <C>
COMMERCIAL PAPER
Haliburton Co., 6.15%, due 4/3/00....... $1,309,000 $ 1,308,553 3.54%
Trainer Wortham First Republic Co.,
6.15%, due 4/3/00.................... 1,309,000 1,308,553 3.54
----------- ------
TOTAL COMMERCIAL PAPER (Identified
cost -- $2,617,106)............. 2,617,106 7.08
----------- ------
TOTAL INVESTMENTS (Identified
cost -- $43,217,145)...................... 40,873,337 110.48
LIABILITIES IN EXCESS OF OTHER ASSETS....... (3,878,083) (10.48)
----------- ------
NET ASSETS (Equivalent to $25.10 per share
based on 1,474,061 shares of capital stock
outstanding).............................. $36,995,254 100.00%
----------- ------
----------- ------
</TABLE>
- -------------------
* Non-income producing security.
** Brookfield Properties Corp. is a Canadian company listed 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 March 31, 2000 was $3,216,000 based on an exchange rate
of 1 Canadian dollar to 0.689 U.S. dollars.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS SPECIAL EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS'D'
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
------------------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/99...................... $43,028,881 $26.76
Net investment income.......................... $ 56,603 $ 0.04
Net realized and unrealized loss on
investments.................................. (2,706,004) (1.70)
------
Capital stock transactions:
Sold....................................... 1,564,401
Redeemed................................... (4,948,627)
-----------
Net decrease in net asset value.................... (6,033,627) (1.66)
----------- ------
End of period: 3/31/00............................. $36,995,254 $25.10
----------- ------
----------- ------
</TABLE>
- -------------------
'D' Financial information included in this report has been taken from the
records of the Fund without examination by independent accountants.
AVERAGE ANNUAL TOTAL RETURNS
(PERIODS ENDED MARCH 31, 2000)
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION (5/8/97)
-------- ------------------------
<S> <C>
27.49% 4.38%
</TABLE>
- --------------------------------------------------------------------------------
7
<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.
Martin Cohen 757 Third Avenue
Director and President New York, NY 10017
(212) 832-3232
Gregory C. Clark
Director FUND SUB-ADMINISTRATOR AND TRANSFER
AGENT
George Grossman Chase Global Funds Services Co.
Director 73 Tremont Street
Boston, MA 02108
Jeffrey H. Lynford (800) 437-9912
Director
CUSTODIAN
Willard H. Smith, Jr. The Chase Manhattan Bank
Director One Chase Manhattan Plaza
New York, NY 10081
Elizabeth O. Reagan
Vice President LEGAL COUNSEL
Simpson Thacher & Bartlett
Adam Derechin 425 Lexington Avenue
Vice President and Assistant Treasurer New York, NY 10017
Lawrence B. Stoller DISTRIBUTOR
Assistant Secretary Cohen & Steers Securities, Inc.
757 Third 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.
</TABLE>
- --------------------------------------------------------------------------------
8
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as...................................'D'
