-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J4UUxsk6Ct7k9e/Qm+gw85OtpZlDqVwh8ATsKHA1pC90EkPAIK7fXfMqztbZE4Yt qxr+0U+Z4hN31xlmC54jYA== 0000950117-97-000618.txt : 19970410 0000950117-97-000618.hdr.sgml : 19970410 ACCESSION NUMBER: 0000950117-97-000618 CONFORMED SUBMISSION TYPE: N-1A EL/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970409 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COHEN & STEERS SPECIAL EQUITY FUND CENTRAL INDEX KEY: 0001033969 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-1A EL/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-21993 FILM NUMBER: 97576771 FILING VALUES: FORM TYPE: N-1A EL/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-08059 FILM NUMBER: 97576772 BUSINESS ADDRESS: STREET 1: 757 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128323232 N-1A EL/A 1 COHEN & STEERS SPECIAL EQUITY FUND, INC. PRE-EFFECTIVE AMENDMENT NO. 1 As filed with the Securities and Exchange Commission on April 9, 1997 File No. 333-21993 811-08059 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. 1 [X] Post-Effective Amendment No. ____ [ ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. ___ COHEN & STEERS SPECIAL EQUITY FUND, INC. (Exact Name of Registrant as Specified in Charter) 757 Third Avenue, New York, New York 10017 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, including Area Code: (212) 832-3232 ------------------------------ Robert H. Steers Cohen & Steers Special Equity Fund, Inc. 757 Third Avenue, New York, New York 10017 (Name and address of agent for service of process) ------------------------------ Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this registration statement. It is proposed that this filing will become effective (check appropriate box) ___ immediately upon filing pursuant to paragraph (b) of Rule 485 ___ on (date) pursuant to paragraph (b) of Rule 485 ___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485 ___ on (date) pursuant to paragraph (a)(1) of Rule 485 ___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485 ___ on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: ___ This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of 1940, Registrant declares that an indefinite number of its shares of common stock are being registered under the Securities Act of 1933 by this registration statement. The Registrant hereby amends this Registration Statement under the Securities Act of 1933 on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. COHEN & STEERS SPECIAL EQUITY FUND, INC. Cross Reference Sheet pursuant to Rule 404A(a)
Prospectus and Statement Form of Additional Information N-1A ITEM Form Caption Caption - --------- --------------------------------- -------------------------- 1 Cover Page Cover Page 2 Synopsis Fee Table 3 Condensed Financial Information Not Included 4 General Description of Registrant Investment Objectives and Policies; Types of Investments; Investment Techniques; Risk Factors; Diversification and Portfolio Turnover 5 Management of the Fund Management of the Fund; Custodian and Transfer and Dividend Disbursing Agent 6 Capital Stock and Other Securities Organization and Description of Capital Stock; Dividends and Distribution; Taxation 7 Purchase of Securities Being Purchase of Shares Offered 8 Redemption or Repurchase Redemption of Shares: Exchange Privilege 9 Legal Proceedings Not Applicable 10 Cover Page Cover Page** 11 Table of Contents Table of Contents** 12 General Information and History Not Applicable 13 Investment Objectives and Policies Additional Information about Investment Restrictions and Policies; Additional Information about Investment Techniques; Portfolio Turnover 14 Management of the Registrant Management of the Fund** 15 Control Persons and Principal Management of the Fund**; Holders of Securities Advisor and Investment Advisory Agreement 16 Investment Advisory and Other Advisor and Investment Advisory Agreement; Fund Administration; Custodian and Transfer and Dividend Disbursing Agent** 17 Brokerage Allocation Diversification and Portfolio Turnover**; Portfolio Transactions and Brokerage
2 18 Capital Stock and Other Securities Organization and Description of Capital Stock** 19 Purchase, Redemption, and Pricing Redemption of Shares** of Securities Being Offered 20 Tax Status Taxation 21 Underwriters Not Applicable 22 Calculation of Yield Quotations Performance Information*; of Money Market Funds Performance Information** 23 Financial Statements Financial Statements; Report of Independent Accountants
* Prospectus ** Statement of Additional Information 3 COHEN & STEERS SPECIAL EQUITY FUND, INC. Cohen & Steers Special Equity Fund, Inc. is a non-diversified, open-end management investment company that seeks maximum capital appreciation over the long-term through investment primarily in real estate oriented companies. Under normal circumstances, at least 65% of the Fund's total assets will be invested in the equity securities of a limited number of companies which are engaged in business in the real estate industry or related industries or in companies which own significant real estate assets, and which are believed by the investment adviser to have unrecognized intrinsic value. The Fund may also invest up to 35% of its total assets in equity or debt securities of companies engaged in any business, in money market instruments, and in options, financial futures, and currency contracts. Investments are selected for long-term capital appreciation; current income is incidental to the Fund's investment objective. The Fund's investment objective is suitable for investors who are willing to hold their shares through periods of market fluctuations and the accompanying changes in share values. The Fund is not intended for investors seeking short-term price appreciation or for "market timers." Cohen & Steers Capital Management, Inc. serves as investment adviser to the Fund. This Prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. A Statement of Additional Information dated May 1, 1997, containing additional and more detailed information about the Fund, has been filed with the Securities and Exchange Commission and is hereby incorporated by reference into this Prospectus. It is available without charge and can be obtained by writing or calling the Fund at the address and telephone number printed on the back cover of this prospectus. The Board of Directors of the Fund believes that unrestrained growth in the Fund's assets might impair investment flexibility and therefore would not be in the best interests of the Fund's shareholders. The Fund will cease offering its shares to new investors for a period of at least six months when total assets reach $150 million. This limitation will not apply to existing shareholders of record who will be permitted to continue to authorize investment in the Fund and to reinvest dividends or capital gains distributions. After the Fund has been closed for at least six months, the Fund will evaluate whether to re-open the Fund to new investors. ________________________________________________________________________________ INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE. ________________________________________________________________________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. MAY 1, 1997 ________________________________________________________________________________ 4 FEE TABLE Shareholder Transaction Expenses Sales load imposed on purchases...................................................None Sales load imposed on reinvested dividends........................................None Deferred sales load...............................................................None Redemption charge (as a percent of redemption proceeds)............................................................2.0% during the first year; 0% thereafter Annual Fund Operating Expenses (as a percentage of average net assets) Management fees..................................................................0.90% Other expenses*..................................................................0.45% ----- Total fund operating expenses ...................................................1.35%
* After reimbursement of expenses. Example You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (cumulatively through the end of each time period): 1 year...........................................................................$ 14 3 years..........................................................................$ 43
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in understanding the various costs and expenses that an investor in the Fund will bear directly or indirectly. The assumption in the Example of a 5% annual return is required by regulations of the SEC applicable to all mutual funds. The assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Fund's shares. "Other Expenses" are based on estimated amounts for the Fund's current fiscal year. The investment adviser has voluntarily agreed to limit the total expenses of the Fund (excluding interest, taxes, brokerage, and extraordinary expenses) to an annual rate of 1.35% of the Fund's average net assets until December 31, 1997. As long as this temporary expense limitation continues, it may lower the Fund's expenses and increase its total return. After December 31, 1997, the expense limitation may be terminated or revised at any time, at which time the Fund's expenses may increase and its total return may be reduced depending on the total assets of the Fund. Without the expense reimbursement, it is estimated that the Fund's total operating expenses for the current fiscal year would have amounted to 1.43% of the Fund's average net assets for the period. INVESTMENT OBJECTIVE AND POLICIES INVESTMENT OBJECTIVE. The fundamental investment objective of Cohen & Steers Special Equity Fund, Inc. (the "Fund") is to obtain maximum capital appreciation over the long-term through investment primarily in real estate oriented companies. Under normal circumstances, at least 65% of the Fund's total assets will be invested in the equity securities of a limited number of companies which are engaged in business in the real estate industry 5 or related industries or in companies which own significant real estate assets, and which are believed by the investment adviser to be undervalued. The Fund may also invest up to 35% of its total assets in equity or debt securities of companies engaged in any business, in money market instruments, and in options, financial futures, and currency contracts, as described in more detail below. Investments are selected based upon the potential for long-term capital appreciation; current income is incidental to the Fund's investment objective. DEFINITION OF COMPANIES IN THE REAL ESTATE INDUSTRY. A company is considered to be in the real estate industry (residential, commercial or industrial) or a related industry if it satisfies one of the following tests: 1. Revenues and Net Profits. At least 50% of the company's gross revenues or net profits are derived from construction, ownership, management, operation, financing, sales, or development of real estate, or from the extraction of timber or minerals from real estate owned or leased by the company either as a lessor or as a lessee under a lease granting the designated development or extraction rights, or from businesses which have a clear relationship to the ownership, management, use, operation, or development of real estate or appurtenances to real estate. 2. Valuation of Assets. At least 50% of the company's intrinsic value, as determined by the investment adviser, is attributable to the value of real estate owned or leased by the company either as lessor or as lessee, to the value of timber or minerals on such real estate, or to the value of the stream of fees or revenues to be derived from the management or operation of real estate or to the rights to extract timber or minerals from real estate. Under the above definitions, at least 65% of the Fund's assets will be invested in companies such as real estate investment trusts; manufacturers and distributors of construction materials, equipment and building supplies; financial institutions which make or service mortgages on real estate; hotel and hotel management companies; retail chains; railroads; and lumber, paper, forest product, timber, mining and oil companies as well as other similar types of companies which have a clear relationship to real estate or the real estate industry. A company which is engaged in one or more businesses outside the real estate industry will be considered to be in the real estate industry for purposes of evaluating compliance with the Fund's investment objective if it satisfies one of the above tests. POLICY ON INDUSTRY CONCENTRATION. In keeping with its investment objective, the Fund will concentrate more than 25% of its net assets in securities of issuers in real estate or related industries. With regard to issuers not in the real estate or related industries, the Fund will not invest as much as 25% of its net assets in securities of issuers in any one industry. As described in the prior section, the Fund's investment in companies engaged in businesses outside the real estate industry which possess significant real estate holdings will be deemed to be in the real estate industry for purposes of its investment objective and its policy on industry concentration. This concentration policy will not limit the Fund's purchase of obligations issued by the U.S. Government and its agencies or instrumentalities, or cash equivalents (which will not be used to concentrate investments in a single industry other than real estate). TYPES OF INVESTMENTS EQUITY SECURITIES. Equity securities in which the Fund may invest include common stock, preferred stock, convertible preferred stock, convertible bonds and warrants. REAL ESTATE INVESTMENT TRUSTS. The Fund is authorized to invest in the equity securities of real estate investment trusts or "REITs." A REIT is a corporation or a business trust that would otherwise be taxed as a corporation, which meets the definitional requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities; derive most of its income from rents from real property or interest on loans secured by mortgages on real property; and distribute to shareholders annually 95% or more of its otherwise taxable income. 6 FIXED INCOME SECURITIES. The Fund may invest a maximum of 25% of its net assets in investment grade and non-investment grade debt securities of companies, including real estate industry companies, and preferred stock of such companies. Securities rated non-investment grade (lower than Baa by Moody's Investor Services Inc. ("Moody's") or lower than BBB by Standard and Poor's Corporation ("S&P")) are sometimes referred to as "high yield" or "junk" bonds. Investors should consider the following risks associated with high yield, high risk securities before investing in the Fund. High yield securities may be regarded as speculative with respect to the issuer's continuing ability to make principal and interest payments. Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher quality debt securities, and the ability of a Fund to achieve its investment objective may, to the extent of its investment in high yield securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher quality securities. High yield securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade securities. The prices of high yield securities have been found to be less sensitive to interest-rate changes than more highly rated investments, but more sensitive to adverse economic downturns or individual corporate developments. Yields on high yield securities will fluctuate. If the issuer of high yield securities defaults, the Fund may incur additional expenses to seek recovery. The secondary markets in which high yield securities are traded may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading markets could adversely affect the price at which the Fund could sell a particular high yield security when necessary to meet liquidity needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the issuer, and could adversely affect and cause large fluctuations in the daily net asset value of the Fund's shares. Adverse publicity and investor perceptions may decrease the values and liquidity of high yield securities. It is reasonable to expect that any adverse economic conditions could disrupt the market for high yield securities, have an adverse impact on the value of such securities, and adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon. New laws and proposed new laws may adversely impact the market for high yield securities. See the Appendix for additional information about the classifications of investment grade and non-investment grade debt and preferred stocks. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest a maximum of 15% of its net assets in restricted securities (securities which are not registered or which are not deemed to be readily marketable) and all other illiquid securities, including repurchase agreements with maturities of more than seven days. Securities that may be resold without registration pursuant to Rule 144A may be treated as liquid for these purposes, subject to the supervision and oversight of, and in accordance with guidelines established by, the Board of Directors to determine whether there is a readily available market for such securities. Illiquid securities may include securities issued by certain REITs or other real estate companies that are not listed on a major stock exchange, options sold in the over-the-counter market, and forward foreign currency contracts which are not exchange traded. Restricted or non-registered securities may be sold only in privately negotiated transactions, in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 or pursuant to Rule 144 promulgated under such Act. Where registration is required, the Fund may be obligated to pay all or part of the registration expense, and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If during such a period adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. The Adviser will monitor the liquidity of restricted securities in the Fund's portfolio under the supervision of the Board of Directors. In reaching liquidity decisions, the Adviser will consider, inter alia, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer). FOREIGN SECURITIES. The Fund may invest up to 15% of total assets in securities of foreign issuers which meet the same criteria for investment as domestic companies, or sponsored and unsponsored depositary receipts for such securities. The Fund may be subject to additional investment risks for these securities that are different in some respects from those incurred by investments in securities of domestic issuers. Such risks include currency 7 risks, future political and economic developments, the possible imposition of foreign withholding taxes on interest income payable on the securities, the possible establishment of exchange controls, the possible seizure or nationalization of foreign deposits, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such securities. There can be no assurance that such laws may not become applicable to certain of the Fund's investments. In addition, there may be less publicly available information about a foreign issuer than about a domestic issuer, and foreign issuers may not be subject to the same accounting, auditing and financial recordkeeping standards and requirements as domestic issuers. CASH RESERVES. The Fund's cash reserves, held to provide sufficient flexibility to take advantage of new opportunities for investments and for other cash needs, will be invested in money market instruments and generally will not exceed 15% of total assets. If the investment adviser has difficulty finding an adequate number of undervalued equity securities, all or any portion of the Fund's assets may also be invested temporarily in money market instruments. Cash reserves in excess of 35% of total assets will be maintained for defensive purposes only. Money market instruments in which the Fund may invest its cash reserves will generally consist of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities and such obligations which are subject to repurchase agreements. A repurchase agreement is an instrument under which an investor such as the Fund purchases a U.S. Government security from a vendor, with an agreement by the vendor to repurchase the security at the same price, plus interest at a specified rate. In such a case, the security is held by the Fund, in effect, as collateral for the repurchase obligation. Repurchase agreements may be entered into with member banks of the Federal Reserve System or "primary dealers" (as designated by the Federal Reserve Bank of New York) in United States Government securities. Repurchase agreements usually have a short duration, often less than one week. In entering into the repurchase agreement for the Fund, the investment adviser will evaluate and monitor the creditworthiness of the vendor. In the event that a vendor should default on its repurchase obligation, the Fund might suffer a loss to the extent that the proceeds from the sale of the collateral were less than the repurchase price. If the vendor becomes bankrupt, the Fund might be delayed, or may incur costs or possible losses of principal and income, in selling the collateral. Other acceptable money market instruments include commercial paper rated by any nationally recognized rating agency, such as Moody's or Standard & Poor's, certificates of deposit, bankers' acceptances issued by domestic banks having total assets in excess of one billion dollars, and money market investment companies (limited to a maximum of 5% of total assets). INVESTMENT TECHNIQUES The Fund is authorized to use the following investment techniques, subject to the accompanying restrictions. Although these techniques or strategies are used regularly by some investment companies, the investment adviser expects that the Fund's use of these techniques will not be routine and will be limited to special situations. BORROWING. The Fund may borrow up to 30% of the value its assets to increase its holdings of portfolio securities. The Fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the Fund's portfolio are disadvantageous from an investment standpoint. Leveraging by means of borrowing, which is deemed to be a speculative technique, may exaggerate the effect of any increase or decrease in the value of portfolio securities on the Fund's net asset value. Money borrowed also will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. OPTIONS ON SECURITIES AND STOCK INDICES. The Fund may write (i.e., sell) covered put and call options and purchase put and call options on securities or stock indices that are listed on a national securities or commodities exchange. An option on a security is a contract that gives the purchaser of the option, in return for the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. An option on 8 a stock index gives the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund may write a call or put option only if the option is "covered." This means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the call, or hold a call at the same or lower exercise price, for the same exercise period, and on the same securities as the written call. A put is covered if the Fund maintains collateral consisting of cash or liquid portfolio securities with a value equal to the exercise price in a segregated account, or holds a put on the same underlying security at an equal or greater exercise price. The value of the underlying securities on which options may be written at any one time will not exceed 25% of the total assets of the Fund. The Fund will not purchase put or call options if the aggregate premium paid for such options would exceed 5% of its total assets at the time of purchase. FUTURES CONTRACTS. The Fund may buy and sell financial futures contracts, stock and bond index futures contracts, foreign currency futures contracts and options on any of the foregoing. A financial futures contract is an agreement between two parties to buy or sell a specified debt security at a set price on a future date. An index futures contract is an agreement to take or make delivery of an amount of cash based on the difference between the value of the index at the beginning and at the end of the contract period. A futures contract on a foreign currency is an agreement to buy or sell a specified amount of a currency for a set price on a future date. The Fund may use financial futures contracts and related options for "bona fide hedging" purposes, as such term is defined in applicable regulations of the Commodity Futures Trading Commission. The Fund will also be authorized to enter into such contracts and options for nonhedging purposes, for example, to enhance total return or provide market exposure pending the investment of cash balances, but only to the extent that aggregate initial margin deposits plus premiums paid by it for open futures options positions, less the amount by which any such positions are "in-the-money," would not exceed 5% of the Fund's total assets. The Fund may lose the expected benefit of the transactions if interest rates, currency exchange rates or securities prices change in an unanticipated manner. Such unanticipated changes in interest rates, currency exchange rates or securities prices may also result in poorer overall performance of the Fund than if the Fund had not entered into any futures transactions. FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund will enter into forward contracts under the following circumstances. First, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security in relation to another currency by entering into a forward contract to buy the amount of foreign currency needed to settle the transaction. Second, when it is believed that the currency of a particular foreign country may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell or buy the amount of the former foreign currency (or another currency which acts as a proxy for that currency) approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. The second investment practice is generally referred to as "cross-hedging." The Fund's forward transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are denominated. The Fund will not enter into forward foreign currency contracts if, as a result, the Fund will have more than 15% of the value of its net assets committed to the consummation of such contracts. To the extent such contracts would be deemed to be illiquid, they will be included in the maximum limitation of 15% of net assets invested in restricted or illiquid securities. RISKS OF OPTIONS, FUTURES AND FOREIGN CURRENCY CONTRACTS. Options, futures, and foreign currency contracts are forms of derivatives. The use of options and futures as hedging techniques may not succeed where the price movements of the securities underlying the options and futures do not follow the price movements of the 9 portfolio securities subject to the hedge. Gains on investments in options and futures depend on the portfolio manager's ability to predict correctly the direction of stock prices, interest rates, and other economic factors. Where a liquid secondary market for options or futures does not exist, the Fund may not be able to close its position and, in such an event would be unable to control its losses. The loss from investing in futures contracts is potentially unlimited. The use of forward foreign currency contracts may limit gains from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may cause poorer overall performance for the Fund than if it had not engaged in such contracts. SHORT SALES. The Fund may enter into short sales, provided the dollar amount of short sales at any one time would not exceed 25% of the net assets of the Fund, and the value of securities of any one issuer in which the Fund is short would not exceed the lesser of 2% of the value of the Fund's net assets or 2% of the securities of any class of any issuer. The Fund must maintain collateral in a segregated account consisting of cash or liquid portfolio securities with a value equal to the current market value of the shorted securities, which is marked to market daily. If the Fund owns an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issuer as, and equal in amount to, the securities sold short (which sales are commonly referred to as "short sales against the box"), the above requirements are not applicable. RISK FACTORS The risks related to the particular types of securities in which the Fund may invest and the investment techniques which it may use are discussed in the preceding sections describing those securities and techniques. In addition, the following general investment risks should be considered. Under normal circumstances, at least 65% of the Fund's total assets will be invested in the equity securities of companies engaged in the real estate industry or in businesses related to the real estate industry. Because the Fund will be concentrated in this industry, the Fund may be subject to the risks associated with the direct ownership of real estate. For example, real estate values may fluctuate as a result of general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhood values, changes in the appeal of properties to tenants and increase in interest rates. The value of securities of companies which service the real estate business sector may also be affected by such risks. Thus, the value of the Fund's shares may change at different rates compared to the value of shares of a mutual fund with investments in many different industries. Because the Fund may invest a substantial portion of its assets in REITs, the Fund may also be subject to certain risks associated with direct investments in REITs. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in financing a limited number of projects. REITs depend generally on their ability to generate cash flow to make distributions to shareholders, and certain REITs have self-liquidation provisions by which mortgages held may be paid in full and distributions of capital returns may be made at any time. In addition, the performance of a REIT may be affected by changes in the tax laws or by its failure to qualify for tax-free pass-through of income. Because prices of equity securities fluctuate from day to day, the value of the Fund's portfolio and the Fund's price per share will vary based upon general market conditions. There is no assurance that the investment objectives of the Fund can be achieved, and the value of your investment as a shareholder upon redemption may be more or less than the purchase price. DIVERSIFICATION AND PORTFOLIO TURNOVER The Special Equity Fund is non-diversified under the federal securities laws. As a non-diversified portfolio, there are no restrictions under the securities laws limiting the percentage of assets that may be invested in the securities of any one issuer. To the extent that the Fund is less diversified, it may be more susceptible to adverse economic, political, or regulatory developments affecting a single issuer than would be the case if it were more broadly diversified. However, the Fund intends to qualify as a "regulated investment company" under Subchapter M of the Code. See "Taxation." To qualify as such, the Fund must, among other things, satisfy 10 certain asset diversification requirements. The Fund may engage in portfolio trading when considered appropriate, but short-term trading will not be used as the primary means of achieving its investment objective. Although the Fund cannot accurately predict its portfolio turnover rate, it is not expected to exceed 100% in normal circumstances. However, there generally are no limits on the rate of portfolio turnover, and investments may be sold without regard to length of time held when, in the opinion of the investment adviser, investment considerations warrant such action. Higher portfolio turnover rates, such as rates in excess of 100%, and short-term trading involve correspondingly greater commission expenses and transaction costs. As a regulated investment company, however, the Fund's ability to dispose of certain assets held for less than three months will be limited. See "Taxation". MANAGEMENT OF THE FUND BOARD OF DIRECTORS The overall management of the business and affairs of the Fund is vested with the Board of Directors. The Board of Directors approves all significant agreements between the Fund and persons or companies furnishing services to it, including the Fund's agreements with its investment adviser, administrator, sub-administrator, custodian and transfer agent. The management of the Fund's day-to-day operations is delegated to its officers, to Cohen & Steers Capital Management, Inc., the Fund's investment adviser (the "Adviser" or "Cohen & Steers"), and to the Fund's administrator and sub-administrator, subject always to the investment objective and policies of the Fund and to general supervision by the Board of Directors. The Directors and officers of the Fund and their principal occupations are set forth below. Robert H. Steers, Chairman of the Board, is the Chairman and one of the principals of the Adviser. Martin Cohen, Director and President, is the President and one of the principals of the Adviser. Gregory C. Clark, Director, is the principal of Wellspring Management Group. George Grossman, Director, is an attorney at law in private practice. Jeffrey H. Lynford, Director, is Chairman of Wellsford Group, Inc. and of Wellsford Residential Property Trust. Willard H. Smith Jr., Director, is a board member of several REIT companies. Elizabeth O. Reagan, Vice President, is a Senior Vice President of the Adviser. THE ADVISER Cohen & Steers, with offices located at 757 Third Avenue, New York, New York 10017, has been retained to provide investment advice, and, in general, to conduct the management and investment program of the Fund under the overall supervision and control of the Directors of the Fund. Cohen & Steers, a registered investment adviser, was formed in 1986 and is the leading U.S. manager of portfolios dedicated to investments in real estate investment trusts ("REITs"). Its current clients include pension plans, endowment funds and mutual funds, including Cohen & Steers Realty Income Fund, Inc. and Cohen & Steers Total Return Realty Fund, Inc., both of which are closed-end investment companies, and Cohen & Steers Realty Shares, Inc., which is an open-end investment company. All of Cohen & Steers' client accounts are invested principally in real estate securities. Its principal officers include Robert H. Steers, Chairman; and Martin Cohen, President. Mr. Cohen and Mr. Steers are responsible for the day-to-day management of the Fund's portfolio. Mr. Cohen and Mr. Steers may be deemed "controlling persons" of the Adviser on the basis of their ownership of the Adviser's stock. 11 INVESTMENT ADVISORY AGREEMENT Pursuant to an investment advisory agreement (the "Advisory Agreement") the Adviser furnishes a continuous investment program for the Fund's portfolio, makes the day-to-day investment decisions for the Fund, and generally manages the Fund's investments in accordance with the stated policies of the Fund, subject to the general supervision of the Board of Directors of the Fund. The Adviser also selects brokers and dealers to execute purchase and sale orders for the portfolio transactions of the Fund. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, the Adviser may consider sales of shares of the Fund as a factor in the selection of brokers and dealers to enter into portfolio transactions with the Fund. The Adviser provides persons satisfactory to the Directors of the Fund to serve as officers of the Fund. Such officers, as well as certain other employees and Directors of the Fund, may be directors, officers, or employees of the Adviser. Under the Advisory Agreement, the Fund pays the Adviser a monthly management fee in an amount equal to 1/12th of .90% of the average daily net assets of the Fund (approximately .90% on an annual basis). This fee is higher than that incurred by most other investment companies. In addition to the payments to the Adviser under the Advisory Agreement described above, the Fund pays certain other costs of its operations including (a) custody, transfer and dividend disbursing expenses, (b) fees of Directors who are not affiliated with the Adviser, (c) legal and auditing expenses, (d) clerical, accounting and other office costs, (e) costs of printing the Fund's prospectuses and shareholder reports, (f) costs of maintaining the Fund's existence, (g) interest charges, taxes, brokerage fees and commissions, (h) costs of stationery and supplies, (i) expenses and fees related to registration and filing with the Securities and Exchange Commission and with state regulatory authorities, and (j) upon the approval of the Board of Directors, costs of personnel of the Adviser or its affiliates rendering clerical, accounting and other office services. ADMINISTRATOR AND SUB-ADMINISTRATOR The Adviser has entered into an administration agreement with the Fund (the "Administration Agreement") under which the Adviser performs certain administrative functions for the Fund, including (i) providing office space, telephone, office equipment and supplies for the Fund; (ii) paying compensation of the Fund's officers for services rendered as such; (iii) authorizing expenditures and approving bills for payment on behalf of the Fund; (iv) supervising preparation of the periodic updating of the Fund's registration statement, including the prospectus and statement of additional information, for the purpose of filings with the Securities and Exchange Commission and state securities administrators and monitoring and maintaining the effectiveness of such filings, as appropriate; (v) supervising preparation of quarterly reports to the Fund's shareholders, notices of dividends, capital gains distributions and tax credits, and attending to routine correspondence and other communications with individual shareholders; (vi) supervising the daily pricing of the Fund's investment portfolio and the publication of the net asset value of the Fund's shares, earnings reports and other financial data; (vii) monitoring relationships with organizations providing services to the Fund, including the Custodian, Transfer Agent and printers; (viii) providing trading desk facilities for the Fund; (ix) supervising compliance by the Fund with recordkeeping requirements under the 1940 Act and regulations thereunder, maintaining books and records for the Fund (other than those maintained by the Custodian and Transfer Agent) and preparing and filing of tax reports other than the Fund's income tax returns; and (x) providing executive, clerical and secretarial help needed to carry out these responsibilities. For its services under the Administration Agreement, the Adviser receives a monthly fee from the Fund at the annual rate of .02% of the Fund's average daily net assets. In accordance with the terms of the Administration Agreement and with the approval of the Fund's Board of Directors, the Adviser has caused the Fund to retain The Chase Manhattan Bank ("Chase") as sub-administrator under a fund accounting and administration agreement (the "Sub-Administration Agreement"). Under the Sub-Administration Agreement, Chase has assumed responsibility for performing certain of the foregoing administrative functions, including determining the Fund's net asset value and preparing such figures for publication, maintaining certain of the Fund's books and records that are not maintained by the Adviser, custodian or transfer agent, preparing financial information for the Fund's income tax returns, proxy statements, quarterly and annual shareholders reports, and Commission filings, and responding to shareholder inquiries. The Adviser remains responsible for monitoring and overseeing the performance by Chase and Chase Global Funds Services Company of their obligations to the Fund under their respective agreements with the Fund, subject to the overall authority of the Fund's Board of Directors. Under the terms of the Sub-Administration Agreement, the Fund pays Chase a monthly administration fee at the annual rate of .08% on the first $500 million of the Fund's average daily net assets and at lower rates on the Fund's average daily net assets in excess of that amount. Chase Global Funds Services Company, P.O. Box 2798, Boston, Massachusetts 02208, 12 a wholly-owned subsidiary of Chase, has been retained by Chase to provide to the Fund the administrative services described above. Chase also serves as the Fund's custodian and transfer agent. See "Custodian and Transfer and Dividend Disbursing Agent," below. Chase Global Funds Services Company has been similarly retained by Chase to provide transfer agency services to the Fund and is hereafter sometimes referred to as the "Transfer Agent." DETERMINATION OF NET ASSET VALUE Net asset value per share will be determined on each day the New York Stock Exchange is open for trading and on each other day on which there is a sufficient degree of trading in the Fund's investments to affect the net asset value, as of the close of trading on the New York Stock Exchange by adding the market value of all securities in the Fund's portfolio and other assets, subtracting liabilities, incurred or accrued, and dividing by the total number of the Fund's shares then outstanding. For purposes of determining the Fund's net asset value per share, readily marketable portfolio securities listed on the New York Stock Exchange are valued, except as indicated below, at the last sale price reflected on the consolidated tape at the close of the New York Stock Exchange on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. If no bid or asked prices are quoted on such day, then the security is valued by such method as the Directors shall determine in good faith to reflect its fair market value. Readily marketable securities not listed on the New York Stock Exchange but listed on other domestic or foreign securities exchanges or admitted to trading on the National Association of Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List are valued in a like manner. Portfolio securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined as reflected on the tape at the close of the exchange representing the principal market for such securities. Readily marketable securities traded in the over-the-counter market, including listed securities whose primary market is believed by the Adviser to be over-the-counter, but excluding securities admitted to trading on the NASDAQ National List, are valued at the mean of the current bid and asked prices as reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the National Quotation Bureau or such other comparable sources as the Directors deem appropriate to reflect their fair market value. Where securities are traded on more than one exchange and also over-the-counter, the securities will generally be valued using the quotations the Board of Directors believes reflect most closely the value of such securities. PURCHASE OF SHARES Shares of the Fund may be purchased through Cohen & Steers Securities, Inc., the Fund's distributor and an affiliate of the Adviser, acting as agent for the Fund. The minimum initial investment is $10,000 per investor. The Fund reserves the right, in its sole discretion, to waive the minimum initial investment amount for certain investors. The Fund reserves the right to reject any purchase order. Shareholder accounts may be maintained through brokerage firms or other financial institutions ("financial intermediaries"). Financial intermediaries may impose their own minimum investment amounts and may make arrangements for their customers to purchase and redeem Fund shares by telephone, in which event a transaction fee may be charged by the intermediary (not by the Fund). The minimum for initial investments through such institutions may be as low as $2,000 per investor. Subsequent investments must be at least $500 and will not be permitted if, as a result of redemption, the value of the investor's account is less than $10,000 (after giving effect to the proposed purchase). Financial intermediaries, however, may impose different minimums for subsequent investments. Orders for shares of the Fund will become effective at the net asset value per share next determined after receipt by Chase Global Funds Services Company, the Transfer Agent, of a check drawn on any bank or domestic 13 savings institution or after receipt by the Chase Manhattan Bank, the Fund's custodian, of a bank wire or Federal Reserve Wire. Checks must be payable in United States dollars and will be accepted subject to collection at full face value. All funds will be invested in full and fractional shares. By investing in the Fund, a shareholder appoints the Transfer Agent, as agent, to establish an open account to which all shares purchased will be credited, together with any dividends and capital gain distributions that are paid in additional shares. See "Dividends and Distributions." Although most shareholders elect not to receive stock certificates, certificates for full shares can be obtained on specific written request to the Transfer Agent. No certificates are issued for fractional shares. IT IS MORE COMPLICATED TO REDEEM SHARES HELD IN CERTIFICATE FORM. See "Redemption of Shares -- Redemption by Mail" below. The Board of Directors of the Fund believes that unrestrained growth in the Fund's assets might impair investment flexibility and therefore would not be in the best interests of the Fund's shareholders. The Fund will cease offering its shares to new investors for a period of at least six months when total assets reach $150 million. This limitation will not apply to existing shareholders of record who will be permitted to continue to authorize investment in the Fund and to reinvest dividends or capital gains distributions. After the Fund has been closed for at least six months, the Fund will evaluate whether to re-open the Fund to new investors. INITIAL PURCHASE BY WIRE 1. Telephone toll free from any continental state: (800) 437-9912 ((617) 557-8000 for Massachusetts residents). Give the name of the Fund, name(s) in which shares are to be registered, address, social security or tax identification number (where applicable), dividend payment election, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. A wire reference control number will be assigned. 2. Instruct the wiring bank to transmit the specified amount in federal funds ($10,000 or more) to the Custodian): The Chase Manhattan Bank One Chase Manhattan Plaza New York, NY 10081-1000 ABA # 021000021 Account: DDA # 910-2-733012 Attn: Cohen & Steers Special Equity Fund, Inc. For further credit to: (Account name) Account Number: Wire Reference Control #: 3. Complete the Subscription Agreement included at the end of this Prospectus. Mail the Subscription Agreement to the Transfer Agent: Chase Global Funds Services Company P.O. Box 2798 Boston, MA 02208 ADDITIONAL PURCHASES BY WIRE 1. Telephone toll free from any continental state: (800) 437-9912 ((617) 557-8000 for Massachusetts residents). Give the name of the Fund, the account number, the amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. A wire reference control number will be assigned. 2. Instruct the wiring bank to transmit the specified amount in federal funds to the Custodian (minimum: $500 or, if greater, the amount necessary to increase the value of the investor's account to $10,000): 14 The Chase Manhattan Bank One Chase Manhattan Plaza New York, NY 10081-1000 ABA # 021000021 Account: DDA # 910-2-733012 Attn: Cohen & Steers Special Equity Fund For further credit to: (Account Name) Account Number: Wire Reference Control #: INITIAL PURCHASE BY MAIL 1. Complete the Subscription Agreement included at the end of this Prospectus. 2. Mail the Subscription Agreement and a check for $10,000 or more, payable to the Fund, to the Transfer Agent at the address set forth above. ADDITIONAL PURCHASES BY MAIL 1. Make a check payable to the Fund (minimum: $500 or, if greater, the amount necessary to increase the value of the investor's account to $10,000). Write the shareholder's Fund account number on the check. 2. Mail the check and the detachable stub from the Statement of Account (or a letter providing the account number) to the Transfer Agent at the address set forth above. EXCHANGE PRIVILEGE Shareholders may exchange some or all of their Fund shares for shares of Cohen & Steers Realty Shares, Inc. ('Realty Shares'). Realty Shares is a no-load open-end investment company managed by the Adviser whose investment objective is total return through investment in real estate securities. Realty Shares pursues its objective of total return by seeking, with approximately equal emphasis, capital appreciation (both realized and unrealized) and current income. Exchanges are made at net asset value. An exchange of shares pursuant to the exchange privilege may result in a shareholder's realizing a taxable gain or loss for income tax purposes. The exchange privilege is available to shareholders residing in any state in which the shares of Realty Shares may be legally sold. A shareholder wishing to utilize the exchange privilege should read the Realty Shares prospectus. The Fund reserves the right to limit or terminate the exchange privilege as to any shareholder who makes exchanges more than four times a year. THE FUND CAN MODIFY OR REVOKE THE EXCHANGE PRIVILEGE FOR ALL SHAREHOLDERS UPON 60 DAYS' PRIOR WRITTEN NOTICE. There is no charge for the exchange privilege. For additional information concerning exchanges, or to effect exchanges, contact the Fund at (800) 437-9912. REDEMPTION OF SHARES Upon receipt by the Transfer Agent of a redemption request in proper form, shares of the Fund will be redeemed at their next determined net asset value, less any applicable redemption charge, as described below. See "Determination of Net Asset Value." Shareholders redeeming shares within 12 months of purchase will receive proceeds equal to 98% of the aggregate net asset value of the shares redeemed. Shares acquired through the reinvestment of dividends and distributions by the Fund will not be subject to any such redemption charge. For purposes of determining whether this redemption charge applies, shares acquired through the reinvestment of dividends and distributions will first be redeemed, and thereafter shares will be redeemed in the order that they were purchased. REDEMPTION BY TELEPHONE You may submit redemption requests by telephone by calling Chase Global Funds Services Company at (800) 437-9912 ((617) 557-8000 for Massachusetts residents) and requesting that the proceeds be directed as indicated in the Subscription Agreement. Requests for redemption made by telephone will be accepted if a proper redemption request is received prior to 4:00 p.m., Eastern time. Shares will be redeemed at the net asset value determined as of the closing of trading on the New York Stock Exchange on that day, less any applicable redemption charge, as described above. If a proper request is received after 4:00 p.m. Eastern time, the shares will be redeemed as of the close of trading on the New York Stock Exchange on the next business day. You may not make a redemption request by telephone if the proceeds are to be wired or mailed to a bank account number or address other than the one specified on the Subscription Agreement. Such requests must be in writing accompanied by a signature guarantee. If you would like to change your wiring instructions or the address to which your check should be mailed, your written notification must be signed by all of the account's registered shareholders, accompanied by a signature guarantee and sent to Chase Global Funds Services Company, at the address listed above. The guarantor of a signature must be a trust company or national bank, a member bank of the Federal Reserve System, a member firm of a national securities exchange or any other guarantor approved by Chase Global Funds Services Company. Telephone redemption privileges may be modified or suspended without notice during periods of drastic economic 15 or market changes. TELEPHONE REDEMPTION PRIVILEGES MAY BE MODIFIED OR TERMINATED AT ANY TIME BY THE FUND UPON 30 DAYS NOTICE TO SHAREHOLDERS. REDEMPTION BY MAIL Shares may be redeemed by submitting a written request for redemption to the Transfer Agent: Chase Global Funds Services Company P.O. Box 2798 Boston, Massachusetts 02208 A written redemption request must (i) state the number of shares or dollar amount to be redeemed, (ii) identify the shareholder account number and tax identification number, and (iii) be signed by each registered owner exactly as the shares are registered. If the shares to be redeemed were issued in certificate form, the certificate must be endorsed for transfer (or be accompanied by a duly executed stock power) and must be submitted to Chase Global Funds Services Company together with a redemption request. When proceeds of a redemption are to be paid to someone other than the shareholder, either by wire or check, the signature(s) on the letter of instruction must be guaranteed regardless of the amount of the redemption. The guarantor of a signature must be a trust company or national bank, a member bank of the Federal Reserve System, a member firm of a national securities exchange or any other guarantor approved by Chase Global Funds Services Company. For redemptions made by corporations, executors, administrators, guardians, Chase Global Funds Services Company may require additional supporting documents evidencing the authority of the person making the redemption (including evidence of appointment or incumbency). A redemption request will not be deemed to be properly received until Chase Global Funds Services Company receives all required documents in proper form. OTHER REDEMPTION INFORMATION Checks for redemption proceeds will normally be mailed within five business days, but will not be mailed until all checks in payment for the purchase of the shares to be redeemed have been collected, which may take up to 21 days or more. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Custodian may benefit from the use of redemption proceeds until the check issued to a redeeming shareholder for such proceeds has cleared. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that Exchange is closed, other than customary weekend and holiday closings, (ii) the Securities and Exchange Commission (the "SEC") has by order permitted such suspension or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio securities or determination of the value of the net assets of the Fund not reasonably practicable. A redemption is a taxable event which may result in a gain or loss for federal income tax purposes. The Fund reserves the right to redeem upon not less than 30 days' written notice the shares in an account that has a value of $2,000 or less as the result of voluntary redemption. However, any shareholder affected by the exercise of this right will be allowed to make additional investments prior to the date fixed for redemption to avoid liquidation of the account. DIVIDENDS AND DISTRIBUTIONS Dividends from the Fund's investment income will be declared and distributed semi-annually. Additional distributions may be made to satisfy certain annual distribution requirements. The Fund intends to distribute net realized capital gains, if any, at least annually although the Board of Directors may in the future determine to retain realized capital gains and not distribute them to shareholders. For information concerning the tax treatment of the Fund's distribution policies for the Fund and its shareholders, see "Taxation." 16 Distributions will automatically be paid in full and fractional shares of the Fund based on the net asset value per share at the close of business on the payable date unless the shareholder has elected to have them paid in cash. TAXATION The following discussion is intended for general information only. An investor should consult with his or her own tax adviser as to the tax consequences of an investment in the Fund, including the status of distributions under applicable state or local law. FEDERAL INCOME TAXES The Fund intends to elect and qualify annually to be treated as a regulated investment company under the Code. To qualify, the Fund must meet certain income, distribution and diversification requirements. In any year in which the Fund qualifies as a regulated investment company and timely distributes all of its taxable income, the Fund generally will not pay any U.S. federal income or excise tax. Dividends paid out of the Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to a U.S. shareholder as ordinary income. Because a portion of the Fund's income may consist of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated as capital gain dividends are taxable as long-term capital gains, regardless of how long the shareholder has held the Fund's shares. Dividends are taxable to shareholders in the same manner whether received in cash or reinvested in additional Fund shares. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. Each year the Fund will notify shareholders of the tax status of dividends and distributions. Upon the sale or other disposition of shares of the Fund, a shareholder may realize a capital gain or loss which will be long-term or short-term, generally depending upon the shareholder's holding period for the shares. The Fund may be required to withhold U.S. federal income tax at the rate of 31% of all taxable distributions payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder's U.S. federal income tax liability. Further information relating to tax consequences is contained in the Statement of Additional Information. STATE AND LOCAL TAXES Fund distributions also may be subject to state and local taxes. Shareholders should consult their own tax advisers regarding the particular tax consequences of an investment in the Fund. ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK The Fund was incorporated on February 14, 1997 as a Maryland corporation and is authorized to issue 50,000,000 shares of common stock, $.001 par value (the "Common Stock"). The Fund's Board of Directors may, without shareholder approval, increase or decrease the number of authorized but unissued shares of the Fund's Common Stock. Each of the Fund's shares has equal dividend, distribution, liquidation and voting rights. There are no conversion or preemptive rights in connection with any shares of the Fund. All shares of the Fund when 17 duly issued will be fully paid and nonassessable. The rights of the holders of shares of Common Stock may not be modified except by the vote of a majority of the shares outstanding. The Fund is empowered to establish, without shareholder approval, additional portfolios which may have different investment objectives. The Fund is not required to hold regular annual shareholders' meetings. A shareholders' meeting shall, however, be called by the secretary upon the written request of the holders of not less than 10% of the outstanding shares of the Fund. The Fund will assist shareholders wishing to communicate with one another for the purpose of requesting such a meeting. CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT Chase, which has its principal business address at One Chase Manhattan Plaza, New York, New York 10081-1000, has been retained to act as Custodian of the Fund's investments and to serve as the Fund's transfer and dividend disbursing agent. Chase has retained its wholly-owned subsidiary, Chase Global Funds Services Company, to provide transfer and dividend disbursing agency services to the Fund. Neither Chase nor Chase Global Funds Services Company has any part in deciding the Fund's investment policies or which securities are to be purchased or sold for the Fund's portfolio. REPORTS TO SHAREHOLDERS The fiscal year of the Fund ends on December 31 of each year. The Fund sends to its shareholders, at least semi-annually, reports showing the investments and other information (including unaudited financial statements). An annual report, containing financial statements audited by the Fund's independent accountants, is sent to shareholders each year. PERFORMANCE INFORMATION From time to time, the Fund may advertise its "average annual total return" over various periods of time. This total return figure shows the average percentage change in value of an investment in the Fund from the beginning date of the measuring period to the ending date of the measuring period. The figure reflects changes in the price of the Fund's shares and assumes that any income dividends and/or capital gains distributions made by the Fund during the period are reinvested in shares of the Fund. Figures will be given for recent one-, five- and ten-year periods (when applicable), and may be given for other periods as well (such as from commencement of the Fund's operations, or on a year-by-year basis). When considering "average" total return figures for periods longer than one year, investors should note that the Fund's annual total return for any one year in the period might have been greater or less than the average for the entire period. The Fund also may use "aggregate" total return figures for various periods, representing the cumulative change in value of an investment in the Fund for the specific period (again reflecting changes in the Fund's share price and assuming reinvestment of dividends and distributions). Aggregate total returns may be shown by means of schedules, charts or graphs, and may indicate subtotals of the various components of total return (that is, the change in value of initial investment, income dividends and capital gains distributions). It is important to note that total return figures are based on historical earnings and are not intended to indicate future performance. The Statement of Additional Information further describes the methods used to determine the Fund's performance. ADDITIONAL INFORMATION Any shareholder inquiries may be directed to the Fund at the address or telephone number listed on the back cover of this Prospectus. This Prospectus, including the Statement of Additional Information which has been incorporated by reference herein, does not contain all the information set forth in the Registration Statement filed by the Fund with the SEC under the Securities Act of 1933. Copies of the Registration Statement may be obtained at a reasonable charge from the SEC or may be examined, without charge, at the offices of the SEC in Washington, D.C. (http://www.sec.gov). 18 COHEN & STEERS SPECIAL EQUITY FUND, INC. 757 THIRD AVENUE NEW YORK, NEW YORK 10017 (212) 832-3232 ________________________________________________________________________________ STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1997 Cohen & Steers Special Equity Fund, Inc. (the "Fund") is a non-diversified, open-end management investment company that seeks maximum capital appreciation over the long-term through investment primarily in real estate oriented companies. Cohen & Steers Capital Management, Inc. serves as investment adviser (the "Adviser" or "Cohen & Steers") to the Fund. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED MAY 1, 1997 (THE "PROSPECTUS"). THIS STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL AND MORE DETAILED INFORMATION THAN THAT SET FORTH IN THE PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, ADDITIONAL COPIES OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY WRITING OR CALLING THE FUND AT THE ADDRESS AND TELEPHONE NUMBER GIVEN ABOVE. ________________________________________________________________________________ Table of Contents
Page ---- ADDITIONAL INFORMATION ABOUT INVESTMENT RESTRICTIONS AND POLICIES.......................... 21 ADDITIONAL INFORMATION ABOUT INVESTMENT TECHNIQUES......................................... 22 PORTFOLIO TURNOVER......................................................................... 25 MANAGEMENT OF THE FUND..................................................................... 25 Compensation of Directors and Certain Officers..................................... 26 Adviser and Investment Advisory Agreement.......................................... 27 Administrator and Sub-Administrator................................................ 28 DETERMINATION OF NET ASSET VALUE........................................................... 28 REDEMPTION OF SHARES....................................................................... 29 PORTFOLIO TRANSACTIONS AND BROKERAGE....................................................... 29 TAXATION................................................................................... 30 Taxation of the Fund............................................................... 30 Distributions...................................................................... 30 Sale of Shares..................................................................... 31 Original Issue Discount Securities................................................. 31 Market Discount Bonds.............................................................. 31 Options and Hedging Transactions................................................... 31 Currency Fluctuations--Section 988 Gains or Losses................................. 31 Investments in Real Estate Investment Trusts....................................... 31 Passive Foreign Investment Companies............................................... 31 Foreign Withholding Taxes.......................................................... 32 Backup Withholding................................................................. 32 Foreign Shareholders............................................................... 32 Other Taxation..................................................................... 33 ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK.............................................. 33 DISTRIBUTOR................................................................................ 34 CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT....................................... 34 PERFORMANCE INFORMATION.................................................................... 34 LEGAL MATTERS.............................................................................. 35 ACCOUNTANTS................................................................................ 35 FINANCIAL STATEMENTS....................................................................... 36 REPORT OF INDEPENDENT ACCOUNTANTS.......................................................... 37
20 ADDITIONAL INFORMATION ABOUT INVESTMENT RESTRICTIONS AND POLICIES Cohen & Steers Special Equity Fund, Inc. (the "Fund") is a registered open-end management investment company. The fundamental investment objective and the general investment policies and investment techniques are described in the Prospectus. The Fund has also adopted certain investment restrictions limiting the following activities except as specifically authorized: The Fund may not: (1) Borrow money, except that it may borrow from banks to increase its holdings of portfolio securities in an amount not to exceed 30% of the value of its total assets and may borrow for temporary or emergency purposes from banks and entities other than banks in an amount not to exceed 5% of the value of its total assets; provided that aggregate borrowing at any time may not exceed 30% of the Fund's total assets; (2) Issue any senior securities, except that collateral arrangements with respect to transactions such as forward contracts, futures contracts, short sales or options, including deposits of initial and variation margin, shall not be considered to be the issuance of a senior security for purposes of this restriction; (3) Act as an underwriter of securities issued by other persons, except insofar as the Fund may be deemed an underwriter in connection with the disposition of securities; (4) Purchase or sell real estate, except that the Fund may invest in securities of companies that deal in real estate or are engaged in the real estate business, including real estate investment trusts, and securities secured by real estate or interests therein and the Fund may hold and sell real estate acquired through default, liquidation, or other distributions of an interest in real estate as a result of the Fund's ownership of such securities: (5) Purchase or sell commodities or commodity futures contracts, except that the Fund may invest in financial futures contracts, options thereon and similar instruments; (6) Make loans to other persons except through the lending of securities held by it (but not to exceed a value of one-third of total assets), through the use of repurchase agreements, and by the purchase of debt securities, all in accordance with its investment policies; (7) Purchase restricted or "illiquid" securities, including repurchase agreements maturing in more than seven days, if as a result, more than 15% of the Fund's net assets would then be invested in such securities (excluding securities which are eligible for resale pursuant to Rule 144A under the Securities Act of 1933); (8) Acquire or retain securities of any investment company, except that the Fund may (a) acquire securities of investment companies up to the limits permitted by Sec. 12(d)(1) of the Investment Company Act of 1940, and (b) acquire securities of any investment company as part of a merger, consolidation or similar transaction; (9) Make short sales whereby the dollar amount of short sales at any one time would exceed 25% of the net assets of the Fund; provided the Fund maintains collateral in a segregated account consisting of cash or liquid portfolio securities with a value equal to the current market value of the shorted securities, which is marked to market daily. If the Fund owns an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issuer as, and equal in amount to, the securities sold short (which sales are commonly referred to as "short sales against the box"), such restrictions shall not apply; (10) Invest in puts, calls, straddles, spreads or any combination thereof, except that the Fund may (a) purchase put and call options on securities and securities indexes, and (b) write covered put and 21 call options on securities and securities indexes, provided that (i) the securities underlying such options are within the investment policies of the Fund; (ii) at the time of such investment, the value of the aggregate premiums paid for such securities does not exceed 5% of the Fund's total assets; and (iii) the value of the underlying securities on which options may be written at any one time does not exceed 25% of total assets; (11) Invest in oil, gas or other mineral exploration programs, development programs or leases, except that the Fund may purchase securities of companies engaging in whole or in part in such activities; (12) Pledge, mortgage or hypothecate its assets except in connection with permitted borrowings; or (13) Purchase securities on margin, except short-term credits as are necessary for the purchase and sale of securities, provided that the deposit or payment of initial or variation margin in connection with futures contracts or related options will not be deemed to be a purchase on margin. FUNDAMENTAL INVESTMENT RESTRICTIONS. The Investment Objective and Policies set forth in the Prospectus and the Investment Restrictions numbered 1 through 6 in this Statement of Additional Information have been adopted as fundamental policies of the Fund. Under the Investment Company Act of 1940, as amended (the "1940 Act"), a fundamental policy may not be changed without the vote of a majority of the outstanding voting securities of the Fund, as defined under the 1940 Act. "Majority" means the lesser of (1) 67% or more of the shares present at a meeting of shareholders of the Fund, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding shares of the Fund. Investment restrictions numbered 7 through 13 above, are non-fundamental and may be changed at any time by vote of a majority of the Board of Directors. ADDITIONAL INFORMATION ABOUT INVESTMENT TECHNIQUES The following sections provide expanded discussion of several of the types of investments and investment techniques which may be used by the Fund. Real Estate Investment Trusts. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. An equity REIT may also realize capital gains (or losses) by selling real estate properties in its portfolio that have appreciated (or depreciated) in value. A mortgage REIT invests primarily in mortgages on real estate, which may secure construction, development or long-term loans. A mortgage REIT generally derives its income primarily from interest payments on the credit it has extended. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate. It is anticipated, although not required, that under normal circumstances a majority of the Fund's investments in REITs will consist of equity REITs. Futures Contracts. The Fund may purchase and sell financial futures contracts. A futures contract is an agreement to buy or sell a specific security or financial instrument at a particular price on a stipulated future date. Although some financial futures contracts call for making or taking delivery of the underlying securities, in most cases these obligations are closed out before the settlement date. The closing of a contractual obligation is accomplished by purchasing or selling an identical offsetting futures contract. Other financial futures contracts by their terms call for cash settlements. The Fund may also buy and sell index futures contracts with respect to any stock or bond index traded on a recognized stock exchange or board of trade. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. 22 At the time the Fund purchases a futures contract, an amount of cash or liquid portfolio securities equal to the market value of the futures contract will be deposited in a segregated account with the Fund's custodian. When writing a futures contract, the Fund will maintain with its custodian similar liquid assets that, when added to the amounts deposited with a futures commission merchant or broker as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or holding a call option permitting the Fund to purchase the same futures contract at a price no higher than the price of the contract written by the Fund (or at a higher price if the difference is maintained in liquid assets with the Fund's custodian). The Fund will be authorized to use financial futures contracts and related options for "bona fide hedging" purposes, as such term is defined in applicable regulations of the Commodity Futures Trading Commission ("CFTC"). The Fund will also be authorized to enter into such contracts and related options for nonhedging purposes, for example to enhance total return or provide market exposure pending the investment of cash balances, but only to the extent that aggregate initial margin deposits plus premiums paid by it for open futures options positions, less the amount by which any such positions are "in-the-money," would not exceed 5% of the Fund's total assets. The Fund may lose the expected benefit of the transactions if interest rates, currency exchange rates or securities prices change in an unanticipated manner. Such unanticipated changes in interest rates, currency exchange rates or securities prices may also result in poorer overall performance than if the Fund had not entered into any futures transactions. Options on Securities and Stock-Indices. The Fund may write covered call and put options and purchase call and put options on securities or stock indices that are traded on United States exchanges. An option on a security is a contract that gives the purchaser of the option, in return for the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. An option on a securities index gives the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund may write a call or put option only if the option is "covered." A call option on a security written by the Fund is covered if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option on a security is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash or liquid portfolio securities in a segregated account with its custodian. A put option on a security written by the Fund is "covered" if the Fund maintains similar liquid assets with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. The Fund will cover call options on stock indices by owning securities whose price changes, in the opinion of the investment adviser are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where the Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Fund will cover put options on stock indices by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The Fund will receive a premium from writing a put or call option, which increases the Fund's gross income in the event the option expires unexercised or is closed out at a profit. If the value of a security or an index 23 on which the Fund has written a call option falls or remains the same, the Fund will realize a profit in the form of the premium received (less transaction costs) that could offset all or a portion of any decline in the value of the portfolio securities being hedged. If the value of the underlying security or index rises, however, the Fund will realize a loss in its call option position, which will reduce the benefit of any unrealized appreciation in the Fund's stock investments. By writing a put option, the Fund assumes the risk of a decline in the underlying security or index. To the extent that the price changes of the portfolio securities being hedged correlate with changes in the value of the underlying security or index, writing covered put options on securities or indices will increase the Fund's losses in the event of a market decline, although such losses will be offset in part by the premium received for writing the option. The Fund may also purchase put options to hedge its investments against a decline in value. By purchasing a put option, the Fund will seek to offset a decline in the value of the portfolio securities being hedged through appreciation of the put option. If the value of the Fund's investments does not decline as anticipated, or if the value of the option does not increase, the Fund's loss will be limited to the premium paid for the option plus related transaction costs. The success of this strategy will depend, in part, on the accuracy of the correlation between the changes in value of the underlying security or index and the changes in value of the Fund's security holdings being hedged. The Fund may purchase call options on individual securities to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. Similarly, the Fund may purchase call options to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Fund holds uninvested cash or short-term debt securities awaiting investment. When purchasing call options, the Fund will bear the risk of losing all or a portion of the premium paid if the value of the underlying security or index does not rise. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum specified by the exchange. Although the Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. Foreign Currency Contracts and Currency Hedging Transactions. In order to hedge against foreign currency exchange rate risks, the Fund may enter into forward foreign currency exchange contracts and foreign currency futures contracts, as well as purchase put or call options on foreign currencies, as described below. The Fund may also conduct its foreign currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market. The Fund may enter into forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security. In addition, for example, when the Fund believes that a foreign currency may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell an amount of the former foreign currency (or another currency which acts as a proxy for that currency) approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. This second investment practice is generally referred to as "cross-hedging." Because in connection with the Fund's foreign currency forward transactions an amount of the Fund's assets equal to the amount of the purchase will be held aside or segregated to be used to pay for the commitment, the Fund will always have cash or other liquid assets available sufficient to cover any commitments under these contracts or to limit any potential risk. The segregated account will be marked-to-market on a daily basis. In addition, the Fund will not enter into such forward contracts if, as a result, the Fund will have more than 15% of the value of its total assets committed to such contracts. While these contracts are not presently regulated by the CFTC, the CFTC may 24 in the future assert authority to regulate forward contracts. In such event, the Fund's ability to utilize forward contracts in the manner set forth above may be restricted. Forward contracts may limit potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not engaged in such contracts. The Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of foreign portfolio securities and against increases in the dollar cost of foreign securities to be acquired. As is the case with other kinds of options, however, the writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuation in exchange rates although, in the event of rate movements adverse to the Fund's position, the Fund may forfeit the entire amount of the premium plus related transaction costs. The Fund may enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies ("foreign currency futures"). This investment technique will be used only to hedge against anticipated future changes in exchange rates which otherwise might adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities that the Fund intends to purchase at a later date. The successful use of currency futures will usually depend on the investment adviser's ability to forecast currency exchange rate movements correctly. Should exchange rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of foreign currency futures or may realize losses. PORTFOLIO TURNOVER The Fund may engage in portfolio trading when considered appropriate, but short-term trading will not be used as the primary means of achieving its investment objective. Although the Fund cannot accurately predict its portfolio turnover rate, it is not expected to exceed 100% in normal circumstances. However, there generally are no limits on the rate of portfolio turnover, and investments may be sold without regard to length of time held when, in the opinion of the investment adviser, investment considerations warrant such action. Higher portfolio turnover rates, such as rates in excess of 100%, and short-term trading involve correspondingly greater commission expenses and transaction costs. As a regulated investment company, however, the Fund's ability to dispose of certain assets held for less than three months will be limited. See "Taxation." MANAGEMENT OF THE FUND The directors and officers of the Fund and their principal occupations during the past five years are set forth below. Each such director and officer is also a director or officer of Cohen & Steers Realty Income Fund, Inc. and Cohen & Steers Total Return Realty Fund, Inc., both of which are closed-end investment companies sponsored by the investment adviser, and Cohen & Steers Realty Shares, Inc., which is an open-end investment company also sponsored by the investment adviser.
Principal Occupation Name and Address and Age Office during the Past 5 Years - ------------------------ ------ ----------------------- *Robert H. Steers Director, Chairman Chairman of Cohen & Steers 757 Third Avenue Capital Management, Inc., the New York, New York Fund's investment adviser, Age: 44 Chairman and President of Cohen & Steers Securities, Inc.
25
Principal Occupation Name and Address and Age Office during the Past 5 Years - ------------------------ ------ ----------------------- *Martin Cohen Director, President President of Cohen & Steers 757 Third Avenue Capital Management, Inc., the New York, New York Fund's investment adviser, Vice Age: 48 President of Cohen & Steers Securities, Inc. Gregory C. Clark Director Principal of Wellspring P.O. Box 5697 Management Group. Snowmass Village, Colorado Age: 50 George Grossman Director Attorney at law, 17 Elm Place Rye, New York Age: 43 Jeffrey H. Lynford Director Chairman of Wellsford Group 610 Fifth Avenue Inc. since 1986 and of Wellsford New York, New York Residential Property Trust since Age: 49 1992. Mr. Lynford is also an Emeritus Trustee of the National Trust for Historic Preservation. Willard H. Smith Jr. Director Board member Essex Property 7 Slayton Drive Trust, Inc., Highwoods Short Hills, New Jersey Properties, Inc., Realty Income Age: 60 Corporation and Willis Lease Finance Corporation. Managing director at Merrill Lynch & Co., Equity Capital Markets Division from 1983 to 1995. Elizabeth O. Reagan Vice President Senior Vice President of Cohen & 757 Third Avenue Steers Capital Management, Inc., New York, New York the Fund's investment adviser, Age: 34 since 1996 and prior to that Vice President of Cohen & Steers Capital Management, Inc. Ms. Reagan is also Vice President of Cohen & Steers Securities, Inc.
- -------------------------- * Directors who are "interested persons" of the Fund, as defined in the Investment Company Act of 1940. The Directors of the Fund who are employees of the investment adviser or officers or employees of any of its affiliates receive no remuneration from the Fund. Each of the other Directors is paid an annual retainer of $5,500, and a fee of $500 for each meeting attended and is reimbursed for the expenses of attendance at such meetings. COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS The following table sets forth information regarding estimated compensation of Directors by the Fund and by the fund complex of which the Fund is a part for the Fund's current fiscal year. Officers of the Fund or any other fund in the fund complex which is a U.S. registered investment Company. In the Column headed "Total Compensation From Registrant and Fund Complex Paid to Directors," the number in parentheses indicated the total number of boards in the fund complex on which the Director serves. COMPENSATION TABLE FISCAL YEAR ENDED DECEMBER 31, 1997 (estimated)
Total Compensation Pension or From Retirement Estimated Registrant Aggregate Benefits Annual and Fund Compensation Accrued As Benefits Complex From Part of Fund Upon Paid to Name of Person, Position Registrant Expenses Retirement Directors ------------------------ ---------- -------- ---------- --------- Gregory C. Clark*........................ $6,125 N/A N/A $28,625 (4) Martin Cohen**, Director and President... 0 N/A N/A 0 (4) George Grossman*, Director............... 6,125 N/A N/A 28,625 (4) Jeffrey H. Lynford*, Director............ 6,125 N/A N/A 28,625 (4) Willard H. Smith, Jr. ................... 6,125 N/A N/A 28,625 (4) Robert H. Steers*, Director and Chairman. 0 N/A N/A 0 (4)
- -------------------- * Member of the Audit Committee. ** "Interested person," as defined in the Investment Company Act of 1940, of the Fund because of the affiliation with Cohen & Steers Capital Management, Inc., the Fund's investment adviser. 26 ADVISER AND INVESTMENT ADVISORY AGREEMENT Cohen & Steers Capital Management, Inc. (the "Adviser" or "Cohen & Steers"), a registered investment adviser, was formed in 1986 and specializes in the management of real estate securities portfolios. Its current clients include pension plans of leading corporations, endowment funds and mutual funds, including Cohen & Steers Realty Income Fund, Inc. and Cohen & Steers Total Return Realty Fund, Inc., both of which are closed-end investment companies and Cohen & Steers Realty Shares, Inc., an open-end investment company. Mr. Cohen and Mr. Steers may be deemed "controlling persons" of the Adviser on the basis of their ownership of the Adviser's stock. Certain other clients of the Adviser may have investment objectives and policies similar to those of the Fund. The Adviser may, from time to time, make recommendations which result in the purchase or sale of a particular security by its other clients simultaneously with the Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being sold there may be an adverse effect on price. It is the policy of the Adviser to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by the Adviser to the accounts involved, including the Fund. When two or more of the clients of the Adviser (including the Fund) are purchasing or selling the same security on a given day through the same broker-dealer, such transactions may be averaged as to price. Pursuant to an investment advisory agreement (the "Advisory Agreement"), the Adviser furnishes a continuous investment program for the Fund's portfolio, makes the day-to-day investment decisions for the Fund, executes the purchase and sale orders for the portfolio transactions of the Fund and generally manages the Fund's investments in accordance with the stated policies of the Fund, subject to the general supervision of the Board of Directors of the Fund. Under the Advisory Agreement, the Fund will pay the Adviser a monthly management fee in an amount equal to 1/12th of .90% of the average daily value of the net assets of the Fund (approximately .90% on an annual basis). The Adviser also provides the Fund with such personnel as the Fund may from time to time request for the performance of clerical, accounting and other office services, such as coordinating matters with the administrator, the transfer agent and the custodian, which the Adviser is not required to furnish under the Advisory Agreement. The personnel rendering these services, who may act as officers of the Fund, may be employees of the Adviser or its affiliates. The cost to the Fund of these services must be agreed to by the Fund and is intended to be no higher than the actual cost to the Adviser or its affiliates of providing the services. The Fund does not pay for services performed by officers of the Adviser or its affiliates. The Fund may from time to time hire its own employees or contract to have services performed by third parties, and the management of the Fund intends to do so whenever it appears advantageous to the Fund. The Advisory Agreement was approved on March 12, 1997 by the Fund's Directors, including a majority of the Directors who are not interested persons as defined in the Investment Company Act of 1940, as amended (the "1940 Act") of the Fund or the Adviser. The Advisory Agreement continues in effect from year to year, provided that its continuance is specifically approved annually by the Directors or by a vote of the shareholders, and in either case by a majority of the Directors who are not parties to the Advisory Agreement or interested persons of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement is terminable without penalty by the Fund on sixty days' written notice when authorized either by majority vote of its outstanding voting securities or by a vote of a majority of its Directors, or by the Adviser on sixty days' written notice, and will automatically terminate in the event of its assignment. The Advisory Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or of reckless disregard of its obligations thereunder, the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder. 27 ADMINISTRATOR AND SUB-ADMINISTRATOR The Adviser has entered into an administration agreement with the Fund (the "Administration Agreement") under which the Adviser performs certain administrative functions for the Fund, including (i) providing office space, telephone, office equipment and supplies for the Fund; (ii) paying compensation of the Fund's officers for services rendered as such; (iii) authorizing expenditures and approving bills for payment on behalf of the Fund; (iv) supervising preparation of the periodic updating of the Fund's registration statement, including the prospectus and statement of additional information, for the purpose of filings with the Securities and Exchange Commission and state securities administrators and monitoring and maintaining the effectiveness of such filings, as appropriate; (v) supervising preparation of quarterly reports to the Fund's shareholders, notices of dividends, capital gains distributions and tax credits, and attending to routine correspondence and other communications with individual shareholders; (vi) supervising the daily pricing of the Fund's investment portfolio and the publication of the net asset value of the Fund's shares, earnings reports and other financial data; (vii) monitoring relationships with organizations providing services to the Fund, including the Custodian, Transfer Agent and printers; (viii) providing trading desk facilities for the Fund; (ix) supervising compliance by the Fund with recordkeeping requirements under the 1940 Act and regulations thereunder, maintaining books and records for the Fund (other than those maintained by the Custodian and Transfer Agent) and preparing and filing of tax reports other than the Fund's income tax returns; and (x) providing executive, clerical and secretarial help needed to carry out these responsibilities. For its services under the Administration Agreement, the Adviser receives a monthly fee from the Fund at the annual rate of .02% of the Fund's average daily net assets. In accordance with the terms of the Administration Agreement and with the approval of the Fund's Board of Directors, the Adviser has caused the Fund to retain The Chase Manhattan Bank ("Chase") as sub-administrator under a fund accounting and administration agreement (the "Sub-Administration Agreement"). Under the Sub-Administration Agreement, Chase has assumed responsibility for performing certain of the foregoing administrative functions, including determining the Fund's net asset value and preparing such figures for publication, maintaining certain of the Fund's books and records that are not maintained by the Adviser, custodian or transfer agent, preparing financial information for the Fund's income tax returns, proxy statements, quarterly and annual shareholders reports, and Commission filings, and responding to shareholder inquiries. The Adviser remains responsible for monitoring and overseeing the performance by Chase and Chase Global Funds Services Company of their obligations to the Fund under their respective agreements with the Fund, subject to the overall authority of the Fund's Board of Directors. Under the terms of the Sub-Administration Agreement, the Fund pays Chase a monthly administration fee at the annual rate of .08% on the first $500 million of the Fund's average daily net assets and at lower rates on the Fund's average daily net assets in excess of that amount. Chase Global Funds Services Company, P.O. Box 2798, Boston, Massachusetts 02208, a wholly-owned subsidiary of Chase, has been retained by Chase to provide to the Fund the administrative services described above. Chase also serves as the Fund's custodian and transfer agent. See "Custodian and Transfer and Dividend Disbursing Agent," below. Chase Global Funds Services Company has been similarly retained by Chase to provide transfer agency services to the Fund and is hereafter sometimes referred to as the "Transfer Agent." The Administration Agreement is terminable by either party on sixty days' written notice to the other. The Administration Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Administrator, or of reckless disregard of its obligations thereunder, the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder. DETERMINATION OF NET ASSET VALUE Net asset value per share is determined by the Fund on each day the New York Stock Exchange is open for trading, and on any other day during which there is a sufficient degree of trading in the investments of the Fund to affect materially the Fund's net asset value. The New York Stock Exchange is closed on Saturdays, Sundays, and on New Years' Day, Presidents' Day (the third Monday in February), Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day (the first Monday in September), Thanksgiving Day and Christmas 28 Day (collectively, the "Holidays"). When any Holiday falls on a Saturday, the Exchange is closed the preceding Friday, and when any holiday falls on a Sunday, the Exchange is closed the following Monday. No redemptions will be made on Martin Luther King Day (the third Monday in January), Columbus Day (the second Monday in October) and Veteran's Day, nor on any of the Holidays. For purposes of determining the Fund's net asset value per share, all assets and liabilities initially expressed in foreign currencies will be converted into United States dollars at the mean of the bid and asked prices of such currencies against the United States dollar last quoted by a major bank which is a regular participant in the institutional foreign exchange markets or on the basis of a pricing service which takes into account the quotes provided by a number of such major banks. REDEMPTION OF SHARES Payment of the redemption price for shares redeemed may be made either in cash or in portfolio securities (selected in the discretion of the Board of Directors of the Fund and taken at their value used in determining the Fund's net asset value per share as described in the Prospectus under "Determination of Net Asset Value"), or partly in cash and partly in portfolio securities. However, payments will be made wholly in cash unless the Board of Directors believes that economic conditions exist which would make such a practice detrimental to the best interests of the Fund. If payment for shares redeemed is made wholly or partly in portfolio securities, brokerage costs may be incurred by the investor in converting the securities to cash. The Fund will not distribute in kind portfolio securities that are not readily marketable. PORTFOLIO TRANSACTIONS AND BROKERAGE Subject to the supervision of the Directors, decisions to buy and sell securities for the Fund and negotiation of its brokerage commission rates are made by the Adviser. Transactions on United States stock exchanges involve the payment by the Fund of negotiated brokerage commissions. There is generally no stated commission in the case of securities traded in the over-the-counter market but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In certain instances, the Fund may make purchases of underwritten issues at prices which include underwriting fees. In selecting a broker to execute each particular transaction, the Adviser will take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker; the size and difficulty in executing the order; and the value of the expected contribution of the broker to the investment performance of the Fund on a continuing basis. Accordingly, the cost of the brokerage commissions to the Fund in any transaction may be greater than that available from other brokers if the difference is reasonably justified by other aspects of the portfolio execution services offered. Subject to such policies and procedures as the Directors may determine, the Adviser shall not be deemed to have acted unlawfully or to have breached any duty solely by reason of its having caused the Fund to pay a broker that provides research services to the Adviser an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker would have charged for effecting that transaction, if the Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the research service provided by such broker viewed in terms of either that particular transaction or the Adviser's ongoing responsibilities with respect to the Fund. Research and investment information is provided by these and other brokers at no cost to the Adviser and is available for the benefit of other accounts advised by the Adviser and its affiliates, and not all of the information will be used in connection with the Fund. While this information may be useful in varying degrees and may tend to reduce the Adviser's expenses, it is not possible to estimate its value and in the opinion of the Adviser it does not reduce the Adviser's expenses in a determinable amount. The extent to which the Adviser makes use of statistical, research and other services furnished by brokers is considered by the Adviser in the allocation of brokerage business but there is no formula by which such business is allocated. The Adviser does so in accordance with its judgment of the best interests of the Fund and its shareholders. The Adviser may also take into account payments made by brokers effecting transactions for the Fund to other persons on behalf of the Fund for services provided to it for which it would be obligated to pay (such as custodial and professional fees). In addition, consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking best price and 29 execution, the Adviser may consider sales of shares of the Fund as a factor in the selection of brokers and dealers to enter into portfolio transactions with the Fund. TAXATION TAXATION OF THE FUND The Fund intends to qualify annually and to elect to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated investment company, the Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies or other income derived with respect to its business of investing in such stock, securities or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of certain assets (namely, (i) stock or securities, (ii) options, futures, and forward contracts (other than those on foreign currencies), and (iii) foreign currencies (including options, futures, and forward contracts on such currencies) not directly related to the Fund's principal business of investing in stock or securities (or options and futures with respect to stocks or securities)) held less than 3 months; (c) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items (including receivables), U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies); and (d) distribute at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses) each taxable year. As a regulated investment company, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income and net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, that it distributes to shareholders. The Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gains. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund must distribute during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the one-year period ending on October 31 of the calendar year, and (3) any ordinary income and capital gains for previous years that was not distributed during those years. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. To prevent application of the excise tax, the Fund intends to make its distributions in accordance with the calendar year distribution requirement. DISTRIBUTIONS Dividends paid out of the Fund's investment company taxable income will be taxable to a U.S. shareholder as ordinary income. Because a portion of the Fund's income may consist of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains, if any, designated as capital gain dividends are taxable as long-term capital gains, regardless of how long the shareholder has held the Fund's shares, and are not eligible for the dividends-received deduction. Shareholders receiving distributions in the form of additional shares, rather than cash, generally will have a cost basis in each such share equal to the net asset value of a share of the Fund on the reinvestment date. 30 Shareholders will be notified annually as to the U.S. federal tax status of distributions, and shareholders receiving distributions in the form of additional shares will receive a report as to the net asset value of those shares. SALE OF SHARES Upon the sale or other disposition of shares of the Fund, a shareholder may realize a capital gain or loss which will be long-term or short-term, generally depending upon the shareholder's holding period for the shares. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. ORIGINAL ISSUE DISCOUNT SECURITIES Investments by the Fund in zero coupon or other discount securities will result in income to the Fund equal to a portion of the excess of the face value of the securities over their issue price (the "original issue discount") each year that the securities are held, even though the Fund receives no cash interest payments. This income is included in determining the amount of income which the Fund must distribute to maintain its status as a regulated investment company and to avoid the payment of federal income tax and the 4% excise tax. In addition, if the Fund invests in certain high yield original issue discount securities issued by corporations, a portion of the original issue discount accruing on any such obligation may be eligible for the deduction for dividends received by corporations. In such event, dividends of investment company taxable income received from the Fund by its corporate shareholders, to the extent attributable to such portion of accrued original issue discount, may be eligible for this deduction for dividends received by corporations if so designated by the Fund in a written notice to shareholders. MARKET DISCOUNT BONDS Gain derived by the Fund from the disposition of any market discount bonds (i.e., bonds purchased other than at original issue, where the face value of the bonds exceeds their purchase price) held by the Fund will be taxed as ordinary income to the extent of the accrued market discount of the bonds, unless the Fund elects to include the market discount in income as it accrues. OPTIONS AND HEDGING TRANSACTIONS The taxation of equity options and over-the-counter options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by the Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If the Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by the Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by the Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss. Certain options, futures contracts and forward contracts in which the Fund may invest are "Section 1256 contracts." Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses ("60/40"); however, foreign currency gains or losses (as discussed below) arising from certain section 1256 contracts may be treated as ordinary income or loss. Also, section 1256 contracts held by the Fund at the end of each taxable year (and, generally, for purposes of the 4% excise tax, on October 31 of each year) are "marked-to-market" (that is, treated as sold at fair market value), resulting in unrealized gains or losses being treated as through they were realized. Generally, the hedging transactions undertaken by the Fund may result in "straddles" for U.S. federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of engaging in hedging transactions are not entirely clear. Hedging transactions may increase the amount of short-term capital gain realized by the Fund which is taxed as ordinary income when distributed to shareholders. The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which may be distributed to shareholders, and which will be taxed to them as ordinary income or long-term capital gain, may be increased or decreased as compared to a fund that did not engage in such hedging transactions. The 30% limitation described above and the diversification requirements applicable to the Fund's assets may limit the extent to which the Fund will be able to engage in transactions in options, futures contracts and forward contracts. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency, and on disposition of certain options, futures and foreign currency contracts, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of the Fund's investment company taxable income to be distributed to its shareholders as ordinary Income. A Fund will not realize gain or loss on a short sale of a security until it closes the transaction by delivering the borrowed security to the lender. All or a portion or any gain arising from a short sale may be treated as short-term capital gain, regardless of the period for which the Fund held the security used to close the short sale. In addition, the Fund's holding period for any security which is substantially indentical to that which is sold short may be reduced or eliminated as a result of the short sale. A recent budget proposal, if enacted, would in many cases require the Fund to recognize gain (but not loss) upon entering into a short sale with respect to an appreciated security that the Fund owns, as though the Fund constructively sold the security at the time of entering into the short sale. INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS The Fund may invest in real estate investment trusts ("REITs") that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of the Fund's income from a REIT that is attributable to the REIT's residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a regulated investment company, such as the Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Adviser does not intend on behalf of the Fund to invest in REITs, a substantial portion of the assets of which consists of residual interests in REMICs. PASSIVE FOREIGN INVESTMENT COMPANIES If the Fund invests in stock of certain foreign investment companies, the Fund may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the Fund's holding period for the stock. The distribution or gain so allocated to any taxable year of the Fund, other than the taxable year of the excess distribution or disposition, would be taxed to the Fund at the highest ordinary income tax 31 rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the Fund's investment company taxable income and, accordingly, would not be taxable to the Fund to the extent distributed by the Fund as a dividend to its shareholders. The Fund may be able to make an election, in lieu of being taxable in the manner described above, to include annually in income its pro rata share of the ordinary earnings and net capital gain of the foreign investment company, regardless of whether it actually received any distributions from the foreign company. These amounts would be included in the Fund's investment company taxable income and net capital gain which, to the extent distributed by the Fund as ordinary or capital gain dividends, as the case may be, would not be taxable to the Fund. In order to make this election, the Fund would be required to obtain certain annual information from the foreign investment companies in which it invests, which in many cases may be difficult to obtain. Alternatively, the Fund may be eligible to elect to mark to market its foreign investment company stock, resulting in the stock being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income, and any resulting loss would not be recognized. If this election were made, the special rules described above with respect to excess distributions and dispositions would still apply. FOREIGN WITHHOLDING TAXES Income received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. BACKUP WITHHOLDING The Fund may be required to withhold U.S. federal income tax at the rate of 31% of all taxable distributions payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder's U.S. federal income tax liability. FOREIGN SHAREHOLDERS U.S. taxation of a shareholder who, as to the United States, is a nonresident alien individual, a foreign trust or estate, a foreign corporation or foreign partnership ("foreign shareholder") depends on whether the income of the Fund is "effectively connected" with a U.S. trade or business carried on by the shareholder. Income Not Effectively Connected. If the income from the Fund is not "effectively connected" with a U.S. trade or business carried on by the foreign shareholder, distributions of investment company taxable income will be subject to a U.S. tax of 30% (or lower treaty rate, except in the case of any excess inclusion income allocated to the shareholder (see "Taxation -- Investments in Real Estate Investment Trusts," above)), which tax is generally withheld from such distributions. Distributions of capital gain dividends and any amounts retained by the Fund which are designated as undistributed capital gains will not be subject to U.S. tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is a nonresident alien individual and is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements. However, this 30% tax on capital gains of nonresident alien individuals who are physically present in the United States for more than the 182-day period only applies in exceptional cases because any individual present in the United States for more than 182 days during the taxable year is generally treated as a resident for U.S. income tax purposes; in that case, he or she would be subject to U.S. income tax on his or her worldwide income at the graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In the case of a foreign shareholder who is a nonresident alien individual, the Fund may be required to withhold U.S. income tax at a rate of 31% of distributions of net capital gains unless the foreign shareholder 32 certifies his or her non-U.S. status under penalties of perjury or otherwise establishes an exemption. See "Taxation -- Backup Withholding," above. If a foreign shareholder is a nonresident alien individual, any gain such shareholder realizes upon the sale or exchange of such shareholder's shares of the Fund in the United States will ordinarily be exempt from U.S. tax unless (i) the gain is U.S. source income and such shareholder is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements, or is otherwise considered to be a resident alien of the United States, or (ii) at any time during the shorter of the period during which the foreign shareholder held shares of the Fund and the five year period ending on the date of the disposition of those shares, the Fund was a "U.S. real property holding corporation" and the foreign shareholder held more than 5% of the shares of the Fund, in which event the gain would be taxed in the same manner as for a U.S. shareholder as discussed above and a 10% U.S. withholding tax would be imposed on the amount realized on the disposition of such shares to be credited against the foreign shareholder's U.S. income tax liability on such disposition. A corporation is a "U.S. real property holding corporation" if the fair market value of its U.S. real property interests equals or exceeds 50% of the fair market value of such interests plus its interests in real property located outside the United States plus any other assets used or held for use in a business. In the case of the Fund, U.S. real property interests include interests in stock in U.S. real property holding corporations (other than stock of a REIT controlled by U.S. persons and holdings of 5% or less in the stock of publicly traded U.S. real property holding corporations) and certain participating debt securities. Income Effectively Connected. If the income from the Fund is "effectively connected" with a U.S. trade or business carried on by a foreign shareholder, then distributions of investment company taxable income and capital gain dividends, any amounts retained by the Fund which are designated as undistributed capital gains and any gains realized upon the sale or exchange of shares of the Fund will be subject to U.S. income tax at the graduated rates applicable to U.S. citizens, residents and domestic corporations. Foreign corporate shareholders may also be subject to the branch profits tax imposed by the Code. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may differ from those described herein. Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. OTHER TAXATION Fund shareholders may be subject to state, local and foreign taxes on their Fund distributions. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK The Fund was incorporated on February 14, 1997 as a Maryland corporation and is authorized to issue 50,000,000 shares of Common Stock, $.001 par value. The Fund's shares have no preemptive, conversion, exchange or redemption rights. Each share has equal voting, dividend, distribution and liquidation rights. All shares of the Fund, when duly issued, will be fully paid and nonassessable. Shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that the holders of more than 50% of the shares can elect 100% of the Directors then nominated for election if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any Directors. The foregoing description is subject to the provisions contained in the Fund's Articles of Incorporation and By-Laws. The Board of Directors is authorized to reclassify and issue any unissued shares of the Fund without shareholder approval. Accordingly, in the future, the Directors may create additional series of shares with different investment objectives, policies or restrictions. Any issuance of shares of another class would he governed by the 1940 Act and Maryland law. 33 DISTRIBUTOR Cohen & Steers Securities, Inc., an affiliate of the Adviser, serves without charge as the Distributor of shares of the Fund. Cohen & Steers Securities, Inc. is not obligated to sell any specific amount of shares and will sell shares, as agent for the Fund, on a continuous basis only against orders to purchase shares. CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT Chase, which has its principal business at 770 Broadway, New York, New York 10003 has been retained to act as Custodian of the Fund's investments and as the Fund's transfer and dividend disbursing agent. Chase Global Funds Services Co., a wholly-owned subsidiary of Chase, has been retained by Chase to provide the Fund's transfer and dividend disbursing agency services and serves as the Fund's Transfer and Dividend Disbursing Agent. Chase Global Funds Services Co. has its principal business at 73 Tremont Street, Boston, Massachusetts 02108-3913. Neither Chase nor Chase Global Funds Services Co. determines the investment policies of the Fund or decides which securities the Fund will buy or sell. PERFORMANCE INFORMATION From time to time, the Fund may quote the Fund's total return in advertisements or in reports and other communications to shareholders. The Fund's performance will vary from time to time depending upon market conditions, the composition of its portfolio and its operating expenses. Consequently, any given performance quotation should not be considered representative of the Fund's performance for any specified period in the future. In addition, because performance will fluctuate, it may not provide a basis for comparing an investment in the Fund with certain bank deposits or other investments that pay a fixed yield for a stated period of time. Investors comparing the Fund's performance with that of other mutual funds should give consideration to the quality and maturity of the respective investment companies' portfolio securities. Average Annual Total Return The Fund's "average annual total return" figures described in the Prospectus are computed according to a formula prescribed by the SEC. The formula can be expressed as follows: P(1+T)'pp'n = ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-, or 10-year period at the end of a 1-, 5-, or 10-year period (or fractional portion thereof), assuming reinvestment of all dividends and distributions. Aggregate Total Return The Fund's aggregate total return figures described in the Prospectus represent the cumulative change in the value of an investment in the Fund for the specified period and are computed by the following formula: AGGREGATE TOTAL RETURN = ERV - P ------- P Where: P = a hypothetical initial payment of $1,000 ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of the 1-, 5-, or 10-year period at the end of a 1-, 5-, or 10-year period (or fractional portion thereof), assuming reinvestment of all dividends and distributions. 34 Yield Quotations of yield for the Fund will be based on all investment income per share earned during a particular 30-day period (including dividends and interest), less expenses accrued during the period ("net investment income") and are computed by dividing net investment income by the maximum offering price per share on the last day of the period, according to the following formula: 2[( a-b + 1)'pp'6 - 1] -------- cd Where: a = dividends and interest earned during the period, b = expenses accrued for the period (net of reimbursements), c = the average daily number of shares outstanding during the period that were entitled to receive dividends, and d = the maximum offering price per share on the last day of the period. In reports or other communications to shareholders of the Fund or in advertising materials, the Fund may compare its performance with that of (i) other mutual funds listed in the rankings prepared by Lipper Analytical Services, Inc., publications such as Barrons, Business Week, Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values, The New York Times, The Wall Street Journal and USA Today or other industry or financial publications or (ii) the Standard and Poor's Index of 500 Stocks, the Dow Jones Industrial Average and other relevant indices and industry publications. The Fund may also compare the historical volatility of its portfolio to the volatility of such indices during the same time periods. (Volatility is a generally accepted barometer of the market risk associated with a portfolio of securities and is generally measured in comparison to the stock market as a whole -- the beta -- or in absolute terms -- the standard deviation.) LEGAL MATTERS Legal matters in connection with the issuance of the shares of the Fund offered hereby will be passed upon by Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York 10112. ACCOUNTANTS Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New York 10019 have been appointed as independent accountants for the Fund. 35 FINANCIAL STATEMENTS COHEN & STEERS SPECIAL EQUITY FUND, INC. STATEMENT OF ASSETS AND LIABILITIES APRIL 1, 1997 ASSETS: Cash............................................................................................. $100,000 Deferred organization expenses................................................................... 123,000 -------- Total Assets................................................................................ 223,000 -------- LIABILITIES Accrued payables................................................................................. 123,000 -------- Total Liabilities........................................................................... 123,000 -------- NET ASSETS applicable to 4,000 shares of $.001 par value common stock outstanding..................... $100,000 -------- -------- Net Asset Value and offering price per share* ($100,000 4,000 shares outstanding)..................... $ 25.00 -------- --------
NOTE 1: ORGANIZATION Cohen & Steers Special Equity Fund Inc., (the "Fund") was incorporated under the laws of the State of Maryland on February 14, 1997 and is registered under the Investment Company Act of 1940 (the "Act"), as amended, as an open-ended non-diversified management investment company. The Fund has been inactive since that date except for matters relating to the Funds' establishment, designation, registration of the Fund's shares of common stock ("Shares") under the Securities Act of 1933, and the sale of 4,000 Fund shares ("Initial Shares") for $100,000 to Cohen & Steers Capital Management, Inc. (the "Adviser"). The proceeds of such initial Shares in the Fund were invested in cash. There are 50,000,000 shares of $0.001 par value common stock authorized. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Actual results could differ from these estimates. NOTE 2: AGREEMENT The Fund has entered into an Investment Advisory Agreement with the Adviser, under which the Adviser will provide general investment advisory and administrative services for the Fund. For providing, these services, facilities and for bearing the related expenses, the Advisers will receive a fee for the Fund, accrued daily and paid monthly, at an annual rate equal to 0.90% of the average daily net assets. NOTE 3: ORGANIZATION COSTS All costs incurred in connection with organizing and establishing the Fund will be amortized on the straight-line basis over a period of five years from the date on which the Fund commences operations. In the event that any of the Initial Shares of the Fund are redeemed during the amortization period, the redemption proceeds will be reduced by any unamortized organization and registration expenses in the same proportion as the number of shares being redeemed bears to the number of Initial Shares outstanding at the time of such redemption. * Redemption price varies based on period shares are held. 36 REPORT OF INDEPENDENT ACCOUNTANTS --------------- To the Shareholders and Board of Directors of Cohen & Steers Special Equity Fund, Inc.: We have audited the accompanying statement of assets and liabilities of Cohen & Steers Special Equity Fund, Inc. (the "Fund") as of April 1, 1997. This statement of assets and liabilities is the responsibility of the Fund's management. Our responsibility is to express an opinion on this statement of assets and liabilities based on our audit. We conducted our audit in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of material misstatement. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial position of Cohen & Steers Special Equity Fund, Inc. as of April 1, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. New York, New York April 4, 1997 37 PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits. (a)Financial Statements Included in Part A of the Registration Statement: None. Included in Part B of the Registration Statement: Report of Independent Certified Accountants Statement of Assets and Liabilities Notes to Financial Statements Included in Part C of the Registration Statement: None. (b)Exhibits 1. Articles of Incorporation* 2. By-Laws* 3. Not Applicable 4. Specimen certificate for common stock, par value $.001 per share 5. Form of Investment Advisory Agreement* 6. Distribution Agreement 7. Not Applicable 8. Form of Domestic Custody Agreement 9. (A) Administration Agreement* (B) Mutual Fund Services (Sub-Administration) Agreement 10. Opinion and Consent of Dechert Price & Rhoads 11. Consent of Independent Certified Public Accountants 12. Not Applicable 13. Not Applicable 14. Not Applicable 15. Not Applicable 16. Not Applicable
- ---------- * Filed with initial registration statement on February 19, 1997. 38 17. Not Applicable 18. Powers of Attorney
Item 25. Persons Controlled by or under Common Control with Registrant. Not applicable. Item 26. Number of Holders of Securities. One shareholder as of the effective date of this Registration Statement. Item 27. Indemnification. It is the Registrant's policy to indemnify its directors and officers, employees and other agents to the maximum extent permitted by Section 2-418 of the General Corporation Law of the State of Maryland and as set forth in Article SEVENTH, Section 7.4 of Registrant's Articles of Incorporation, filed as Exhibit 1, and Article VIII of the Registrant's By-laws filed as Exhibit 2, all set forth below. The liability of the Registrant's directors and officers is dealt with in Article SEVENTH, Section 7.4 of Registrant's Articles of Incorporation and Article VIII, Section 1 through Section 6, of the Registrant's By-laws, as set forth below. The liability of Cohen & Steers Capital Management, Inc., the Registrant's investment adviser (the "Adviser"), for any loss suffered by the Registrant or its shareholders is set forth in Section of the Investment Advisory Agreement filed as Exhibit 5 to this Registration Statement. The liability of Cohen & Steers Capital Management, Inc., the Registrant's administrator (the "Administrator"), for any loss suffered by the Registrant or its shareholders is set forth in Section of the Administration Agreement filed as Exhibit 9 to this Registration Statement. Item 28. Business and Other Connections of Investment Advisor The descriptions of the Adviser under the caption "Management of the Fund" in the Prospectus and in the Statement of Additional Information constituting Parts A and B, respectively, of this Registration Statement are incorporated by reference herein. Mr. Robert H. Steers, Director and Chairman of the Adviser, and Mr. Martin Cohen, Director and President of the Adviser, have had no other business connections of a substantial nature during the past two fiscal years. Cohen & Steers Capital Management, Inc. acts as investment adviser to, in addition to the Registrant, the following investment companies: Cohen & Steers Realty Shares, Inc. Cohen & Steers Realty Income Fund, Inc. Cohen & Steers Total Return Realty Fund, Inc. Frank Russell Investment Management Company Real Estate Securities Fund Item 29. Principal Underwriters (a) Cohen & Steers Securities, Inc. is the principal underwriter for the Registrant. (b) The following are directors and officers of Cohen & Steers Securities, Inc. the principal address of these persons is 757 Third Avenue, New York, New York 10017. 39
Position and Positions and Name Officers with Distributor Offices with Registrant ---- ------------------------- ----------------------- Robert H. Steers President and Chairman Chairman, Director of the Board Martin Cohen Senior Vice President President, Director Elizabeth Reagan Vice President Vice President
(c) Not applicable Item 30. Location of Accounts and Records. The majority of the accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder will be maintained as follows: Journals, ledgers, securities records and other original records will be maintained principally at the offices of the Registrant's Sub-Administrator and Custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, New York 10081-1000. All other records so required to be maintained will be maintained at the offices of Cohen & Steers Capital Management, Inc., 757 Third Avenue, New York, New York 10017. Item 31. Not Applicable Item 32. The Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of a director, if requested to do so by the holders of at least 10% of the Fund's outstanding shares, and that it will assist communication with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. The Registrant undertakes to file a post-effective amendment, using financial statements which need not be certified, within four to six months from the effective date of this post-effective amendment to the Registrant's 1933 Act Registration Statement. 40 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, Registrant has duly caused this Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 8th day of April, 1997. COHEN & STEERS SPECIAL EQUITY FUND, INC. By: \s\ Martin Cohen ------------------------------------- Martin Cohen President Pursuant to the requirements of the Securities Act of 1933, as amended, this Pre-Effective Amendment No. 1 has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- \s\ Martin Cohen Director, President and Treasurer 4/8/97 - ------------------------- Martin Cohen \s\ Robert H. Steers Director, Chairman and Secretary 4/8/97 - ------------------------- Robert H. Steers * Director 4/8/97 - ------------------------- Gregory C. Clark * Director 4/8/97 - ------------------------- George Grossman * Director 4/8/97 - ------------------------- Jeffrey H. Lynford * Director 4/8/97 - ------------------------- Willard H. Smith Jr. * By: /s/ Martin Cohen --------------------- Attorney-in-Fact
41 EXHIBIT INDEX 4. Specimen Certificate 6. Distribution Agreement 8. Form of Domestic Custody Agreement 9(B). Mutual Fund Services (Sub-Administration) Agreement 10. Opinion and Consent of Dechert Price & Rhoads 11. Consent of Independent Certified Public Accountants 18. Powers of Attorney STATEMENT OF DIFFERENCES Characters normally expressed as superscript shall be preceded by...'pp' EX-99.B4 2 EXHIBIT 4 INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND COHEN & STEERS SPECIAL EQUITY SEE REVERSE SIDE FOR FUND, INC. CERTAIN DEFINITIONS SHARES OF COMMON STOCK PAR VALUE $.001 EACH This is to Certify that_______________________________________________________ is the owner of _______________________________________________________________________________ fully paid and non-assessable shares of the above Corporation transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. Witness, the seal of the Corporation and the signatures of its duly authorized officers. Dated: _______________________________________________________________ _________________________________ SECRETARY/TREASURER PRESIDENT
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian --- ----------------------------------- TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants in common Act _______________________________ (State) For value received ________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ------------------------------- - ------------------------------- ________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) ________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________ _________________________________________________________________________________________________________ Shares represented by the within certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________________________________________ Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises. Dated __________________ 19 ___ In presence of ________________________________________________________________________________________________________________
EX-99.B6 3 EXHIBIT 6 COHEN & STEERS SPECIAL EQUITY FUND, INC. 757 Third Avenue New York, New York 10017 March 13, 1997 Cohen & Steers Securities, Inc. 757 Third Avenue New York, New York 10017 Dear Sirs: 1. In consideration of the agreements on your part herein contained and of the payment by us to you of a fee of $1 per year and on the terms and conditions set forth herein, we have agreed that you shall be, for the period of this agreement, a distributor, as our agent, for the unsold portion of such number of shares of our common stock, $.001 par value per share, as may be effectively registered from time to time under the Securities Act of 1933, as amended (hereinafter referred to as the "Act"). 2. We hereby agree that you will act as our agent, and hereby appoint you our agent, to offer, and to solicit offers to subscribe to, the unsold balance of shares of our common stock as shall then be effectively registered under the Act. All subscriptions for shares of our common stock obtained by you shall be directed to us for acceptance and shall not be binding on us until accepted by us. You shall have no authority to make binding subscriptions on our behalf. We reserve the right to sell shares of our common stock through other distributors or directly to investors through subscriptions received by us at our principal office in New York, New York. The right given to you under this agreement shall not apply to shares of our common stock issued in connection with (a) the merger or consolidation of any other investment company with us, (b) our acquisition by purchase or otherwise of all or substantially all of the assets or stock of any other investment company, or (c) the reinvestment in shares of our common stock by our stockholders of dividends or other distributions or any other offering by us of securities to our stockholders. 3. You will use your best efforts to obtain subscriptions to shares of our common stock upon the terms and conditions contained herein and in the then current Prospectus and Statement of Additional Information including the offering price. You will send to us promptly all subscriptions placed with you. We will advise you of the approximate net asset value per share or net asset value per share (as used in the Prospectus or Statement of Additional Information) on any date requested by you and at such other times as it shall have been determined by us. We shall furnish you from time to time, for use in connection with the offering of shares of our common stock, such other information with respect to us and shares of our common stock as you may reasonably request. We shall supply you with such copies of our current Prospectus and Statement of Additional Information in effect from time to time as you may request. You are not authorized to give any information or to make any representations, other than those contained in the Registration Statement, Prospectus or Statement or Additional Information, as then in effect, filed under the Act covering shares of our common stock or which we may authorize in writing. You may use employees, agents and other persons who may not be your employees or agents, at your cost and expense, to assist you in carrying out your obligations hereunder, but no such employee, agent or other person shall be deemed to be your agent or have any rights under this agreement. 4. We reserve the right to suspend the offering of shares of our common stock at any time, in the absolute discretion of our Board of Directors, and upon notice of such suspension you shall cease to offer shares of our common stock hereunder. 5. Both of us will cooperate with each other in taking such action as may be necessary to qualify shares of our common stock for sale under the securities laws of such states as we may designate, provided, that you shall not be required to register as a broker-dealer or file a consent to service of process in any such state. Pursuant to our Investment Advisory Agreement dated March 13, 1997, with Cohen & Steers Capital Management, Inc., we will pay all fees and expenses of registering shares of our common stock under the Act and of qualification of shares of our common stock and our qualification under applicable state securities laws. You shall pay all expenses relating to your broker-dealer qualification. 6. We represent to you that our Registration Statement, Prospectus and Statement of Additional Information (as in effect from time to time) under the Act have been or will be, as the case may be, carefully prepared in conformity with the requirements of the Act and the rules and regulations of the Securities and Exchange Commission thereunder. We represent and warrant to you that your Registration Statement, Prospectus and Statement of Additional Information contain or will contain all statements required to be stated therein in accordance with the Act and the rules and regulations of said Commission, and that all statements of fact contained or to be contained therein are or will be true and correct at the time indicated or the effective date as the case may be; that our Registration Statement, Prospectus and Statement of Additional Information when any of them shall become effective or be authorized for use, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of shares of our common stock. We will from time to time file such amendment or amendments to our Registration Statement, Prospectus and Statement of Additional Information as, in the light of future developments, shall, in the opinion of our counsel, be necessary in order to have our Registration Statement, Prospectus and Statement of Additional Information at all times contain all material facts required to be stated therein or necessary to make any statements therein not misleading to a purchaser of shares of our common stock, but, if we shall not file such amendment or amendments within fifteen days after receipt by us of a written request from you to do so, you may, at your option, terminate this agreement immediately. We shall not file any amendment to our Registration Statement, Prospectus or Statement of Additional Information without giving you reasonable notice thereof in advance; provided, however, that nothing contained in this agreement shall in any way limit our right to file at any time such amendments to our Registration Statement, Prospectus or Statement of Additional Information of whatever character, as we may deem advisable, such right being in all respects absolute and unconditional. We represent and warrant to you that any amendment to our Registration Statement, Prospectus or Statement of Additional Information hereafter filed by us will, when it becomes effective, contain all statements required to be stated therein in accordance with the Act and the rules and regulations of said Commission, that all statements of fact contained therein will, when the same shall become effective, be true and correct and that no such amendment, when it becomes effective, will include an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of our shares. 7. We agree to indemnify, defend and hold you, and any person who controls you within the meaning of Section 15 of the Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which you or any such controlling person may incur, under the Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in our Registration Statement, Prospectus or Statement of Additional Information in effect from time to time under the Act or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading; provided, however, that in no event shall anything herein contained be so construed as to protect you against any liability to us or our security holders to which you would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of your duties, or by reason of your reckless disregard of your obligations and duties under this agreement. Our agreement to indemnify you and any such controlling person as aforesaid is expressly conditioned upon our being notified of any action brought against you or any such controlling person, such notification to be given by letter or by telegram addressed to us at our principal office in New York, New York, and sent to us by the person against whom such action is brought within ten days after the summons or other first legal process shall have been served. The failure so to notify us of any such action shall not relieve us from any liability which we may have to the person against whom such action is brought by reason of any such alleged untrue statement or omission otherwise than on account of our indemnity agreement contained in this paragraph 7. We will be entitled to assume the defense of any suit brought to enforce any such claim, and to retain counsel of good standing chosen by us and approved by you. In the event we do elect to assume the defense of any such suit and retain counsel of good standing approved by you, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case we do not elect to assume the defense of any such suit, or in case you do not approve of counsel chosen by us, we will reimburse you or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by you or them. Our indemnification agreement contained in this paragraph 7 and our representations and warranties in this agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any controlling person and shall survive the sale of any shares of our common stock made pursuant to subscriptions obtained by you. This agreement of indemnity will inure exclusively to your benefit, to the benefit of your successors and assigns, and to the benefit of any controlling persons and their successors and assigns. We agree promptly to notify you of the commencement of any litigation or proceeding against us in connection with the issue and sale of any shares of our common stock. 8. You agree to indemnify, defend and hold us, our several officers and directors, and any person who controls us within the meaning of Section 15 of the Act, free and harmless from and against any and all claims, demands, liabilities, and expenses (including the cost of investigating or defending such claims, demands or liabilities and any reasonable counsel fees incurred in connection therewith) which we, our officers or directors, or any such controlling person may incur under the Act or under common law or otherwise, but only to the extent that such liability, or expense incurred by us, our officers or directors or such controlling person resulting from such claims or demands shall arise out of or be based upon any alleged untrue statement of a material fact contained in information furnished in writing by you to us for use in our Registration Statement, Prospectus or Statement of Additional Information in effect from time to time under the Act, or shall arise out of or be based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement, Prospectus or Statement of Additional Information or necessary to make such information not misleading. Your agreement to indemnify us, our officers or directors, and any such controlling person as aforesaid is expressly conditioned upon your being notified of any action brought against us, our officers or directors or any such controlling person, such notification to be given by letter or telegram addressed to you at your principal office in New York, New York, and sent to you by the person against whom such action is brought, within ten days after the summons or other first legal process shall have been served. You shall have a right to control the defense of such action, with counsel of your own choosing, satisfactory to us, if such action is based solely upon such alleged misstatement or omission on your part, and in any other event you and we, our officers or directors or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. The failure so to notify you of any such action shall not relieve you from any liability which you may have to us, to our officers or directors, or to such controlling person by reason of any such untrue statement or omission on your part otherwise than on account of your indemnity agreement contained in this paragraph 8. 9. We agree to advise you immediately: (a) of any request by the Securities and Exchange Commission for amendments to our Registration Statement, Prospectus or Statement of Additional Information or for additional information, (b) in the event of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of our Registration Statement, Prospectus or Statement of Additional Information or the initiation of any proceedings for that purpose, (c) of the happening of any material event which makes untrue any statement made in our Registration Statement, Prospectus or Statement of Additional Information or which requires the making of a change in any thereof in order to make the statements therein not misleading, and (d) of all action of any Securities and Exchange Commission with respect to any amendments to our Registration Statement, Prospectus or Statement of Additional Information which may from time to time be filed with the Securities and Exchange Commission under the Act. 10. This Agreement shall become effective on the date hereof and shall remain in effect until December 31, 1998, and thereafter automatically for successive twelve-month periods (computed from each January 1) provided that such continuance is specifically approved at least annually by a vote of a majority of our outstanding voting securities, as defined in the Investment Company Act of 1940, as amended, or by our Board of Directors, and in either case by a majority of our directors who are not parties to this agreement or interested persons, as defined in the Investment Company Act of 1940, of any such party. This agreement may be terminated at any time, without the payment of any penalty, by vote of a majority of our outstanding voting securities (as so defined), or by a vote of a majority of our Directors who are not parties to this agreement or interested persons (as defined in the Investment Company Act of 1940, as amended) of any party to this agreement, on sixty days' written notice to you, or by you on sixty days' written notice to us. 11. This agreement may not be transferred, assigned, sold or in any manner hypothecated or pledged by you and this agreement shall terminate automatically in the event of any such transfer, assignment, sale, hypothecation or pledge. The terms "transfer", "assignment", and "sale" as used in this paragraph shall have the meanings ascribed thereto by governing law and any interpretation thereof contained in rules or regulations promulgated by the Securities and Exchange Commission thereunder. 12. Except to the extent necessary to perform your obligations hereunder, nothing herein shall be deemed to limit or restrict your right, or the right of any of your officers, directors or employees who may also be a director, officer or employee of ours, to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other corporation, firm, individual or association. If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof. Very truly yours, Cohen & Steers Special Equity Fund, Inc. By___________________________ Martin Cohen President Accepted: Cohen & Steers Securities, Inc. By_____________________________ Robert H. Steers President EX-99.B8 4 EXHIBIT 8 DOMESTIC CUSTODY AGREEMENT To: The Chase Manhattan Bank Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004 Gentlemen: We hereby request you to open and to maintain a Custody Account in our name and to hold therein as our custodian, upon the following terms and conditions, all stocks, bonds, rights, warrants and other negotiable and non-negotiable paper issued in certificated or book-entry form and commonly treated or dealt with on securities exchanges or securities markets as shall be received by and acceptable to you for the Custody Account (hereinafter refereed to as "securities"). As used herein, the term Custody Account shall include all such Custody Accounts opened pursuant to this Domestic Custody Agreement (the "Agreement"). Securities held by you for the Custody Account shall be segregated at all times from your proprietary assets. 1. Transactions. Unless you receive contrary written instructions from us, and subject to the provisions of this Agreement, you are authorized: (a) to receive all interest and dividends payable on the securities and (except as hereinafter set forth in the section entitled "Miscellaneous") to credit such interest and dividends to the demand deposit cash account of ours with you designated by us to receive all sums collected in respect of transactions to the Custody Account (each such account a "Cash Account"); (b) to credit all proceeds received from sales and redemptions of securities to the Cash Account; (c) to debit the Cash Account for the cost of acquiring securities for the Custody Account; (d) to present obligations (including coupons) for payment upon maturity, when called for redemption and when income payments are due; (e) to exchange securities for other securities where the exchange is purely ministerial as, for example, the exchange of securities in temporary form for securities in definitive form or the mandatory exchange of certificates; (f) to sell fractional interests resulting from a stock split or a stock dividend and to credit the Cash Account with the proceeds thereof; (g) to execute in our name, whenever you deem it appropriate, such ownership and other certificates as may be required to obtain payments with respect to, or to effect the sale, transfer or other disposition of, securities in the Custody Account and to guarantee as our signature the signature so affixed; (h) to receive and hold in the Custody Account securities which have transfer limitations imposed upon them by the Securities Act of 1933, as amended; and (i) to convert moneys received with respect to securities of foreign issue into United States dollars whenever it is practical to do so through customary banking channels. In effecting such conversion you may use any method or agency available to you, including the facilities of your own divisions, subsidiaries or affiliates. You shall incur no liability on account of any loss suffered or expense incurred as a result of such conversion, including, without limitation, losses arising from fluctuations in exchange rates affecting any such conversion. 2. Instructions. You are authorized to rely and act upon all further written instructions given or purported to be given by one or more officers, employees or agents of ours (i) authorized by or in accordance with a corporate resolution of ours delivered to you or (ii) described as authorized in a certificate delivered to you by our Secretary or an Assistant Secretary or similar officer of ours (each such officer, employee or agent or combination of officers, employees and agents authorized pursuant to clause (i) or described pursuant to clause (ii) of this paragraph is hereinafter referred to as an "Authorized Officer"). (The term "instructions" includes, without limitation, instructions to sell, assign, transfer, deliver, purchase or receive for the Custody Account, any and all stocks, bonds and other securities or to transfer funds in the Cash Account.) You may also rely and act upon instructions when bearing or purporting to bear the facsimile signature of any of the individuals designated by an Authorized Officer regardless of - 2 - by whom or by what means the actual or purported facsimile signature or signatures thereon may have been affixed thereto if such facsimile signature or signatures resemble the facsimile specimen or specimens from time to time furnished to you by any of such Authorized Officers, our Secretary or an Assistant Secretary or similar officer of ours. In addition, you may rely and act upon instructions received by telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic instruction or trade information system acceptable to you which you believe in good faith to have been given by an Authorized Officer or which are transmitted with proper testing or authentication pursuant to terms and conditions which you may specify. You may also rely and act upon instructions transmitted electronically through your TITAN Data Entry System or any similar electronic instruction system acceptable to you. You shall incur no liability to us or otherwise as a result of any act or omission by you in accordance with instructions on which you are authorized to rely pursuant to the provisions of this paragraph. Any instructions delivered to you by telephone shall promptly thereafter be confirmed in writing by an Authorized Officer, but you shall incur no liability for our failure to send such confirmation in writing, the failure of any such written confirmation to conform to the telephone instructions which you received, the failure of any such written confirmation to be signed or properly signed, or your failure to produce such confirmation at any subsequent time. You shall incur no liability for refraining from acting upon any instructions which for any reason you, in good faith, are unable to verify to your own satisfaction. With respect to instructions received hereunder to transfer funds from the Cash Account to any other account or party, we agree to implement any callback or other authentication method or procedure or security device required by you at any time or from time to time. Unless otherwise expressly provided, all authorizations and instructions shall continue in full force and effect until canceled or superseded by subsequent authorizations or instructions received by your safekeeping account administrator with reasonable opportunity to act thereon. Your authorization to rely and act upon instructions pursuant to this paragraph shall be in addition to, and shall not limit, any other authorization which we may give you regarding our accounts with you. We agree that, if you require test arrangements, authentication methods or procedures or other security devices to be used with respect to instructions which we may give hereunder, thereafter instructions given by us shall be given and processed in accordance with terms and conditions for the use of such arrangements, methods or procedures or devices as you may put - 3 - into effect and modify from time to time. We shall safeguard any testkeys, identification codes or other security devices which you make available to us and agree that we shall be responsible for any loss, liability or damage incurred by you or by us as a result of your acting in accordance with instructions from any unauthorized person using the proper security device. You may electronically record any instructions given by telephone, and any other telephone discussions with respect to the Custody Account or transactions pursuant to this Agreement. If you are instructed by us to purchase or sell securities for the Custody Account you may enter purchase and sale orders and confirmations, and perform any other acts incidental or necessary to the performance thereof with brokers or dealers or similar agents selected by you, including any broker or dealer or similar agent affiliated with you, for our account and risk in accordance with accepted industry practices in the relevant market. Except as may be provided otherwise herein, you are authorized to execute our instructions and take other actions pursuant to this Agreement in accordance with your customary processing practices for customers similar to us and, in accordance with such practices, you may retain agents, including subsidiaries or affiliates of yours, to perform certain of such functions. In acting upon instructions to deliver securities against payment, you are authorized, in accordance with customary securities processing practices, to deliver such securities to the purchaser thereof or dealer therefor (including to an agent for any such purchaser or dealer) against a receipt, with the expectation of collecting payment from the purchaser, dealer or agent to whom the securities were so delivered before the close of business on the same day. 3. Registration. Unless you receive contrary instructions from us, you are authorized to keep securities in your own vaults or in book entry form registered in your name or in the name of your nominee or nominees or, where securities are eligible for deposit in a Depository (hereinafter defined), such as The Depository Trust Company, the Federal Reserve Bank of New York or Participants Trust Company, you may use any such Depository and permit the registration of registered securities in the name of its nominee or nominees, and we agree to hold you and the nominees harmless from any liability as holders of record. We shall accept the return or delivery of securities of the same class and denomination as those deposited with you by us or - 4 - otherwise received by you for the Custody Account, and you need not retain the particular certificates so deposited or received. If any of our securities registered in your name or the name of your nominee or held in a Depository and registered in the name of the Depository's nominee are called for partial redemption by the issuer of such securities, you are authorized to allot the call portion to the respective beneficial holders of the securities in any manner deemed to be fair and equitable by you in your sole discretion. 4. Statements. You shall notify us of each securities transaction effected for the Custody Account and of income on and redemptions of the securities in the Custody Account, as well as furnish us a listing of such securities, at such times upon which you and we mutually agree. Periodic statements shall be rendered to us as we may reasonably require, but not less frequently than monthly. You shall at all times maintain proper books and records that shall identify the securities as ours. Your books and records relating to the Custody Account shall be available for inspection upon reasonable notice to you during your regular business hours by duly authorized officers, employees, or agents of ours, or by legally authorized regulatory officials who are then in the process of reviewing our financial affairs upon proof to you of such official status. Unless we shall send to you a written exception or objection to any statement of account within 60 days of our receipt of such statement from you, we shall be deemed to have approved such statement. In such event, or where we have otherwise approved such statement, you shall, to the extent permitted by law, be released, relieved and discharged with respect to all matters set forth in such statement or reasonably implied therefrom as though it had been settled by the decree of a court of competent jurisdiction in an action where we and all persons having or claiming an interest in the Custody Account or Cash Account were parties. 5. Corporate Actions. You shall send us such proxies (signed in blank, if issued in your name or the name of your nominee or a nominee of a Depository) and communications with respect to securities in the Custody Account as call for voting or relate to legal proceedings within a reasonable time after sufficient copies are received by you for forwarding to customers. In addition, you shall follow coupon payments, redemptions, exchanges or similar matters with respect to securities in the Custody Account and advise us of rights issued, tender offers or any other discretionary rights with respect to - 5 - such securities, in each case, of which you receive notice at your central corporate actions department from the issuer or from the Depository in which such securities are held or notice published in publications and reported in reporting services routinely used by you for this purpose. 6. Custodian Responsibility. Except as provided in the next following paragraph, you shall be obligated to indemnify us for any loss of securities credited to the Custody Account resulting from (i) the negligence or willful misconduct of you or your officers, employees or agents retained by you to hold such securities or (ii) the burglary, robbery, hold-up, theft or mysterious disappearance, including loss by damage or destruction. In the event of a loss of securities in the Custody Account for which you are required to indemnify us pursuant to the immediately preceding sentence, at your option, you shall promptly replace such securities (by among other means posting appropriate security or bond with the Issuer(s) of such securities and obtaining their reissue) or the value thereof (determined based upon the market value of the securities which are the subject of such loss as of the date of the discovery of such loss) and the value of any loss of rights or privileges resulting from the loss of such securities. The foregoing indemnity shall be your exclusive liability to us for your loss of securities from the Custody Account. In respect of all your other duties and obligations pursuant to the terms of this Agreement, you shall be liable to us only to the extent of our general damages suffered or incurred as a result of any act or omission of you or your officers, employees or agents which constitutes negligence or willful misconduct. General damages shall mean only those damages as directly and necessarily result from such act or omission without reference to any special conditions or circumstances of ours or of any transaction, whether or not you have been advised of any such special conditions or circumstances. Anything in this Agreement to the contrary notwithstanding, in no event shall you be liable to us under this Agreement for special, indirect or consequential loss or damage of any kind whatsoever, whether or not you are advised as to the possibility of such loss or damage and regardless of the form of action any such loss or damage may be claimed. You shall not be liable for the acts or omissions of (or the bankruptcy or insolvency of) any Depository. If, however, as a result of any act or omission of, or the bankruptcy or insolvency of, any Depository we suffer any loss or liability, you will take such steps with respect thereto in order to effect a recovery as you shall reasonably deem appropriate under the circumstances (including the bringing and settling of legal proceedings), - 6 - provided that unless you shall be liable as set forth in the immediately preceding paragraph of this Agreement, for such loss or liability by virtue of the negligence or misconduct of you or your officers, employees or agents, the amount of any cost or expense in effecting, or attempting to effect, such recovery shall be for our account, and you shall have the right to charge such cost or expense to the Cash Account. We further agree to be bound by the Depository rules and procedures applicable to you as a participant in respect of any securities held by you in your account with such Depository. "Depository" shall mean a federal reserve bank and any "clearing corporation" as defined under Article 8 of the New York Uniform Commercial Code, as amended from time to time. All collection and receipt of funds or securities and all payment and delivery of funds or securities under this Agreement shall be made by you as our agent, at our risk with respect to our actions or omissions and those of persons other than you, including, without limitation, the risk associated with the securities processing practice of delivering securities against a receipt and the risk that the counterparty in any transaction into which we enter will not transfer funds or securities or otherwise perform in accordance with our expectation of its obligations thereunder (including, without limitation, where, as a result of such nonperformance, a Depository reverses, or requires repayment of, any credit given in connection with the transfer of securities). In no event shall you be responsible or liable for any loss due to forces beyond your control, including, but not limited to, acts of God, flood, fire, nuclear fusion, fission or radiation, war (declared or undeclared), terrorism, insurrection, revolution, riot, strikes or work stoppages for any reason, embargo, closure or disruption of any market, government action, including any laws, ordinances, regulations or the like which restrict or prohibit the providing of the services contemplated by this Agreement, inability to obtain equipment or communications facilities, or the error in transmission of information caused by any machines or systems or the failure of equipment or interruption of communications facilities, and other causes whether or not of the same class or kind as specifically named above. In the event that you are unable substantially to perform for any of the reasons described in the immediately preceding sentence, you shall so notify us as soon as reasonably practicable. You shall be responsible for only those duties expressly stated in this Agreement or expressly contained in instructions - 7 - to perform the services described herein given to you pursuant to the provisions of this Agreement and accepted by you and, without limiting the foregoing, you shall have no duty or responsibility: (a) to supervise the investment of, or make recommendations with respect to the purchase, retention or sale of, securities relating to the Custody Account, or to maintain any insurance on securities in the Custody Account for our benefit; (b) with regard to any security in the Custody Account as to which a default in the payment of principal or interest has occurred, to give notice of default, make demand for payment or take any other action with respect to such default; (c) except as otherwise specifically provided in this section under the heading "Custodian Responsibility", for any act or omission, or for the solvency or insolvency, or notice to us of the solvency or insolvency, of any broker or agent which is selected by you with reasonable care or by us or any other person to effect any transaction for the Custody Account or to perform any service under this Agreement; (d) to evaluate, or report to us regarding, the financial condition of any person, firm or corporation to which you deliver securities or funds pursuant to this Agreement; (e) for any loss occasioned by delay in the actual receipt of notice by you of any payment, redemption or other transaction in respect to which you are authorized to take some action pursuant to this Agreement; or (f) for any errors or omissions made by any securities pricing service used by you to value securities credited to the Custody Account as part of any service subscribed to by us from you. 7. Settlement. We agree with you that all credits of securities and proceeds by you to the Custody Account and the Cash Account, respectively, on the settlement or payable date shall be provisional when made and you shall be entitled to reverse any such credits subject to actual receipt or collection of immediately available funds. - 8 - We shall have sufficient immediately available funds each day in the Cash Account to pay for the settlement of all securities delivered against payment to you and credited to the Custody Account. Should we fail to have sufficient immediately available funds in the Cash Account to settle these deliveries of securities pursuant to the preceding sentence (a "Deficit"), you, in your sole discretion, may elect (i) to reject the settlement of any or all of the securities delivered to you that day to the Custody Account, (ii) to settle the deliveries on our behalf and debit the Cash Account (A) for the amount of such Deficit and (B) for the amount of the funding or other cost or expense incurred or sustained by you for our failure to have sufficient immediately available funds in the Cash Account by the applicable settlement deadline for you, or (iii) to reverse the posting of the securities credited to the Custody Account. The foregoing rights are in addition to and not in limitation of any other rights or remedies available to you under this Agreement or otherwise. Any advances made by you to us in connection with the purchase, sale, redemption, transfer or other designation of securities or in connection with disbursements of funds to any party, which create or result in an overdraft in the Cash Account shall be deemed a loan by you to us, payable on demand, and bear interest on the amount of the loan each day that the loan remains unpaid at your prime rate in effect as announced by you from time to time, plus the cost to you of any required reserves. We shall also bear the cost of any Federal Reserve Bank daylight overdraft charge incurred by you and allocated to transactions effected for the Custody Account of the Cash Account. No prior action or course of dealing on your part with respect to the settlement of securities transactions on our behalf shall be used by or give rise to any claim or action by us against you for your refusal to pay or settle for a securities transaction we have not timely funded as required herein. 8. Responsible as Principal. We agree that we shall be responsible to you as a principal for all of our obligations to you arising under or in connection with this Agreement, notwithstanding that we may be acting on behalf of other persons, and we warrant our authority to deposit in the Custody Account and Cash Account, respectively, any securities and funds which you or your agents receive therefor and to give instructions relative thereto. We further agree that you shall not be subject to, nor shall your rights and obligations with respect to this Agreement and the Custody Account or the Cash Account be affected by, any agreement between us and any such person. - 9 - 9. Crediting and Debiting Procedures. With respect to all transactions for the Custody Account and the Cash Account, including, without limitation, divided and interest payments and sales and redemptions of securities, availability of funds credited to the Custody Account and Cash Account shall be based on the type of funds used in the trade settlement or payment, including, but not limited to, same day availability for federal or same day funds and next business day availability for clearing house or next day funds. Furthermore, with respect to all purchases and sales of securities for the Custody Account, the proceeds from the sale of securities shall be credited to the Cash Account on the date proceeds are received by you and the cost of securities purchased shall be debited to the Cash Account on the date securities are received by you, unless we request your contractual settlement service for the Custody Account in which case the following provisions shall apply with respect to the delivery and receipt of securities for the Custody Account for those securities and transaction as to which you customarily offer this service. (a) When we instruct you to deliver or receive securities, on the contractual settlement date you shall credit the Cash Account with the expected proceeds of the transaction and debit the Custody Account for the securities which we have instructed you to deliver, in the case of deliveries, and debit the Cash Account for the cost of the Securities which we have instructed you to receive and credit the Custody Account with such accounting entire which you shall reverse on our instructions and which you may reverse, even in the absence of instructions from us, if the transaction with respect to which they were made fails to settle within a reasonable period, determined by you in your discretion, after the contractual settlement date, except that if you deliver securities which are returned by the recipient thereof, you may reverse such credits and debits at any time. You have no obligation to use this crediting and debiting procedure with respect to a delivery or securities if we do not have actually in our account sufficient to make the delivery. (b) As with other transactions processed by you, your responsibility with respect to transactions for which you use this crediting and debiting procedure shall be governed by the provisions of this Custody Agreement, including the section headed "Custodian Responsibility". We agree that your using this procedure is not an assurance by you that the transaction will actually settle on the contractual settlement date and does not impose any additional - 10 - responsibility on you with respect to the transaction. Without limiting your right to reverse credits and debits described above, the account statements which you furnish to us shall reflect transactions as to which you use this procedure as if they had actually settled on the contractual settlement date, unless prior to the date to which the statement relates, you have reversed such credits and debits. (c) We agree that you may terminate this contractual settlement service to us at any time and for any reason. With respect to securities or transactions as to which you do not customarily offer this service, you shall (i) in the case of deliveries of securities, credit the proceeds of the transaction to the Cash Account on the date they are received by you and debit the securities from the Custody Account on the date they are delivered by you, and (ii) in the case of securities received, debit the Cash Account for the cost of such securities and credit the Custody Account with such securities on the date the securities are received by you. 10. Sweep of Cash Balances. Unless you receive contrary instructions from us, you are directed automatically to arrange for the investment of cash in the Cash Account in mutual funds (including, without limitation, the VISTA Money Market Funds and any other mutual fund with respect to which you or an affiliate or subsidiary of yours serves as an investment adviser, administrator, shareholder servicing agent, and/or custodian or subcustodian and regardless of whether or not you or an affiliate or subsidiary of yours receives any fees for services to this Agreement, all of which such fees you are specifically authorized to retain) or money market accounts (including, without limitation, accounts of yours or an affiliate or subsidiary of yours) which you make available for such purposes and which we shall select through instructions to you. Further, in this regard, you are directed automatically to arrange for the redemption of such mutual fund shares or for the withdrawal of amounts from such money market accounts as may be necessary to avoid any potential overdraft hereunder that you perceive based upon the information available to you at the time of such redemption or withdrawal. We agree that we shall read the prospectus for any mutual fund prior to investing and acknowledge that investments in mutual fund shares are not insured by the Federal Deposit Insurance Corporation and are not obligations of or guaranteed by you. - 11 - 11. Taxes. Unless we have already done so, we shall deliver promptly to you with respect to each Custody Account established under this Agreement, two duly completed and executed copies of the proper United States Internal Revenue Service forms; (i) Form W-9, if we are a U.S. citizen or resident person; and (ii) Form 1001, Form 4224, Form W-8 or Form 8709 (as applicable), if we are a nonresident person, certifying our status as a nonresident person, and that we are entitled to receive United States source payments under or in connection with this Agreement without deduction as withholding or at a reduced rate of withholding for Untied States federal income taxes. We agree to provide duly executed and completed updates of such form(s) (or successor applicable forms), on or before the date that such form(s) expire or become obsolete or after the occurrence of an event requiring a change in the most recent form previously delivered by us to you. We further agree to pay, indemnify, and hold you harmless from and against any and all liabilities, penalties, interest or additions to tax with respect to, or resulting from, any delay in, or failure by, you (i) to pay, withhold or report any Federal, state or foreign taxes imposed on, or in respect of, the property held in the Custody Account(s), or this Agreement, or (ii) to report interest, dividend or other income paid or credited to the Cash Account, whether such failure or delay by you to pay, withhold or report tax or income is a result of (x) our failure to comply with the terms of this sub-paragraph, or (y) your own acts or omissions; provided, however, we shall not be liable to you for any penalty or additions to tax due as a result of your failure to pay or withhold tax or to report to us interest, dividend or other income paid or credited to the Cash Account solely as a result of your negligent acts or omissions. 12. Other Accounts. From time to time we may instruct you to open and maintain more than one Custody Account for us. Unless we and you otherwise expressly agree, such accounts will be governed by the provisions of this Agreement. 13. Fees, Indemnification. We agree to pay you compensation for your services pursuant to this Agreement at the fees of which you shall notify us from time to time. We also agree to hold you and your officers, employees and agents harmless from, and to indemnify and reimburse you and them for, all claims, liabilities, losses, damages and expenses (including out-of-pocket and incidental expenses and legal fees) incurred by you or them in connection with or relating to the Custody Account or your acting under this Agreement, provided that you or they,as the case may be, have not acted with negligence or willful - 12 - misconduct with respect to the events resulting in such claims, liabilities, losses, damages or expenses. 14. Lien. We hereby pledge, assign and grant to you a continuing security interest in, and a lien on the securities in the Custody Account and any securities in your possession or under your control for credit to the Custody Account, and you shall have all of the rights and remedies of a secured party under the New York Uniform Commercial code, as amended, as security for any and all obligations, matured or not matured, direct or indirect, absolute or contingent, now due or hereafter to become due of us to you pursuant to this Agreement; provided, however, if the Custody Account in which such securities are credited is clearly designated on your records as an account in which our interest is that of an agent or fiduciary for others, your security interest in a particular security in such account will terminate at the time we pay to you the settlement amount for such security in immediately available funds. 15. Set-Off. You may, without notice to us, setoff any sums held for us or standing to the credit of any of our cash accounts with you in or towards the satisfaction of any obligation of us to you under this Agreement, whether or not any such sums or credits or obligations are matured or unmatured, direct or indirect, absolute or contingent, and may do so notwithstanding that the accounts may be maintained at different branches of yours and may not be expressed in the same currency. 16. Termination. Either party may terminate this Agreement at any time upon thirty days written notice. Our obligations pursuant to the paragraphs under the headings "Registration", "Settlements" and "Fees, Indemnification" shall survive the termination of this Agreement. 17. Notices. Notices with respect to termination, specification of Authorized Officers and terms and conditions for instructions required hereunder shall be in writing, and shall be deemed to have been duly given if delivered personally, by courier service or by mail, postage prepaid, to the following addresses (or to such other address as either party hereto may from time to time designate by notice duly given in accordance with this paragraph): To us at: Cohen & Steers Special Equity Fund, Inc. 757 Third Avenue New York, New York 10017 - 13 - To you, to the attention of the individual designated by you as the safekeeping account administrator for our account, at: The Chase Manhattan Bank Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004 18. Governing Law, Successors and Assigns, Headings. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to laws as to conflicts of laws, and shall be binding on our and your respective successors and assigns. We and you hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts in the State and County of New York for the purposes of any suit, action or other proceedings arising out of this Agreement. We and you hereby irrevocably waive any objection on the ground of venue, forum non conveniens, or any similar grounds, and irrevocably consent to service of process by mail or in any manner permitted by New York law, and irrevocably waive our rights to any jury trial. The headings of the paragraphs hereof are included for convenience of reference only and do not form a part of this Agreement. 19. Prior Proposals. This Agreement (including any Riders relating to additional services in respect of the Custody Account we may request of you) shall contain the complete agreement of the parties hereto with respect to the Custody Account (except as may be expressly provided to the contrary herein) and supersedes and replaces any previously made proposals, representations, warranties or agreements with respect thereto by either or both of the parties hereto. This Agreement shall become effective upon execution hereof by us and acceptance by you. 20. Separability. Any provisions of this Agreement, which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 21. Reservation of Right. You shall have the right not to accept for deposit to the Custody Account any securities which are in a form or condition which you, in your sole discretion, - 14 - determine not be suitable for the services you provide under this Agreement. 22. Additional Duties. If we shall ask you to perform duties or responsibilities not specifically set forth in this Agreement and you choose to perform such additional duties or responsibilities, you shall be held to the same standard of care and you shall be entitled to all the protective provisions (including but not limited to limitation of liability and indemnification) set forth herein. 23. Counterparts. This Agreement may be executed in several counterparts each of which shall be deemed to be an original and together shall constitute one and the same agreement. 24. Miscellaneous. We understand that we may request to have a Custody Account established under this Agreement which is not linked to a Cash Account. We understand further that with respect to any such Custody Account so established any funds received by you in respect of transactions for such Custody Account will be credited to the Custody Account and, further, funds credited to the Custody Account must be transferred by us by means of instruction (a "payment order") to one of your account administrators assigned by you for the Custody Account, which you will identify to us. We agree that payment orders and communications seeking to cancel or amend payment orders which are issued by telephone, telecopier or in writing shall be subject to a mutually agreed security procedure and you may execute or pay payment orders issued in our name when verified by you in accordance with such procedure. In executing or paying a payment order you may rely upon the identifying number (e.g. Fedwire routing number or account) or any party as instructed in the payment order. We assume full responsibility for any inconsistency between the name and identifying number of any party in payment orders issued to you in our name. - 15 - With respect to any Custody Account established under this Agreement which is not linked to a Cash Account, all references to Cash Account shall be read to mean Custody Account. COHEN & STEERS SPECIAL EQUITY FUND, INC. By: __________________________ Title: _______________________ Date: ________________________ Accepted by: THE CHASE MANHATTAN BANK By: __________________________ Title: ______________________ Date: _______________________ - 16 - EX-99.B9 5 EXHIBIT 9(B) MUTUAL FUNDS SERVICE AGREEMENT Fund Administration Services Fund Accounting Services Transfer Agency Services CHASE GLOBAL FUNDS SERVICES COMPANY June ___, 1997 MUTUAL FUNDS SERVICE AGREEMENT Table of Contents Section Page - ------- ---- 1. APPOINTMENT....................................................... 1 2. REPRESENTATIONS AND WARRANTIES.................................... 1 3. DELIVERY OF DOCUMENTS............................................. 4 4. SERVICES PROVIDED................................................. 5 5. FEES AND EXPENSES................................................. 6 6. LIMITATION OF LIABILITY AND INDEMNIFICATION....................... 9 7. TERM.............................................................. 13 8. NOTICES........................................................... 13 9. WAIVER............................................................ 14 10. FORCE MAJEURE..................................................... 14 11. AMENDMENTS........................................................ 14 11. SEVERABILITY...................................................... 15 12. GOVERNING LAW..................................................... 15 Signatures................................................................. 15 - i - MUTUAL FUNDS SERVICE AGREEMENT Table of Contents (continued) Page ---- Schedule A -- Fees and Expenses .......................................... A-1 Schedule B -- Fund Administration Services Description ................... B-1 Schedule C -- Fund Accounting Services Description........................ C-1 Schedule D -- Transfer Agency Services Description........................ D-1 - ii - MUTUAL FUNDS SERVICE AGREEMENT AGREEMENT made as of June _, 1997 by and between Cohen & Steers Special Equity Fund, Inc. (the "Fund"), a Maryland corporation, and Chase Global Funds Services Company ("Chase"), a Delaware corporation. WITNESSETH: WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the " 1940 Act"); and WHEREAS, the Fund wishes to contract with Chase to provide certain services with respect to the Fund; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Fund hereby appoints Chase to provide services for the Fund, as described hereinafter, subject to the supervision of the Board of Directors [Trustees] of the Fund (the "Board"), for the period and on the terms set forth in this Agreement. Chase accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Section 5 of and Schedule A to this Agreement. 2. REPRESENTATIONS AND WARRANTIES. (a) Chase represents and warrants to the Fund that: (i) Chase is a corporation, duly organized and existing under the laws of the State of Delaware; (ii) Chase is duly qualified to carry on its business in the Commonwealth of Massachusetts; (iii) Chase is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (iv) all requisite corporate proceedings have been taken to authorize Chase to enter into and perform this Agreement; (v) Chase has, and will continue to have, access to the facilities, personnel and equipment required to fully perform its duties and obligations hereunder; (vi) no legal or administrative proceedings have been instituted or threatened which would impair Chase's ability to perform its duties and obligations under this Agreement; and (vii) Chase's entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of Chase or any law or regulation applicable to Chase; (b) The Fund represents and warrants to Chase that: (i) the Fund is a Maryland corporation [business trust], duly organized and existing and in good standing under the laws of the State of Maryland; (ii) the Fund is empowered under applicable laws and by its Charter Document and By-Laws to enter into and perform this Agreement; - 2 - (ii) all requisite proceedings have been taken to authorize the Fund to enter into and perform this Agreement; (iii) the Fund is an investment company properly registered under the 1940 Act; (iv) a registration statement under the Securities Act of 1933, as amended ("1933 Act") and the 1940 Act on Form N-1A has been filed and will be effective and will remain effective during the term of this Agreement, and all necessary filings under the laws of the states will have been made and will be current during the term of this Agreement; (v) no legal or administrative proceedings have been instituted or threatened which would impair the Fund's ability to perform its duties and obligations under this Agreement; (vi) the Fund's registration statements comply in all material respects with the 1933 Act and the 1940 Act (including the rules and regulations thereunder) and none of the Fund's prospectuses and/or statements of additional information contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein not misleading; and (vii) the Fund's entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it. - 3 - 3. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to Chase such copies, properly certified or authenticated, of contracts, documents and other related information that Chase may request or requires to properly discharge its duties. Such documents may include but are not limited to the following: (a) Resolutions of the Board authorizing the appointment of Chase to provide certain services to the Fund and approving this Agreement; (b) The Fund's Charter Document; (c) The Fund's By-Laws; (d) The Fund's Notification of Registration on Form N-8A under the 1940 Act as filed with the Securities and Exchange Commission ("SEC"); (e) The Fund's registration statement including exhibits, as amended, on Form N-1A (the "Registration Statement") under the 1933 Act and the 1940 Act, as filed with the SEC; (f) Copies of the Investment Advisory Agreement between the Fund and its investment adviser (the "Advisory Agreement"); (g) Opinions of counsel and auditors' reports; (h) The Fund's prospectus(es) and statement(s) of additional information relating to all funds, series, portfolios and classes, as applicable, and all amendments and supplements thereto (such Prospectus(es) and Statement(s) of Additional Information and supplements thereto, as presently in effect and - 4 - as from time to time hereafter amended and supplemented, herein called the "Prospectuses"); and (i) Such other agreements as the Fund may enter into from time to time including securities lending agreements, futures and commodities account agreements, brokerage agreements and options agreements. 4. SERVICES PROVIDED. (a) Chase will provide the following services subject to the control, direction and supervision of the Board and in compliance with the objectives, policies and limitations set forth in the Fund's Registration Statement, Charter Document and By-Laws; applicable laws and regulations; and all resolutions and policies implemented by the Board: (i) Fund Administration, (ii) Fund Accounting, and (iii) Transfer Agency. A detailed description of each of the above services is contained in Schedules B, C and D, respectively, to this Agreement. (b) Chase will also: (i) provide office facilities with respect to the provision of the services contemplated herein (which may be in the offices of Chase or a corporate affiliate of Chase); (ii) provide the services of individuals to serve as officers of the Fund who will be designated by Chase and elected by the Board subject to reasonable Board approval; - 5 - (iii) provide or otherwise obtain personnel sufficient for provision of the services contemplated herein; (iv) furnish equipment and other materials, which are necessary or desirable for provision of the services contemplated herein; and (v) keep records relating to the services provided hereunder in such form and manner as Chase may deem appropriate or advisable. To the extent required by Section 31 of the 1940 Act and the rules thereunder, Chase agrees that all such records prepared or maintained by Chase relating to the services provided hereunder are the property of the Fund and will be preserved for the periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the Fund's expense, and made available in accordance with such Section and rules. 5. FEES AND EXPENSES. (a) As compensation for the services rendered to the Fund pursuant to this Agreement the Fund shall pay Chase monthly fees determined as set forth in Schedule A to this Agreement. Such fees are to be billed monthly and shall be due and payable upon receipt of the invoice. Upon any termination of the provision of services under this Agreement before the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full month period and shall be payable upon the date of such termination. - 6 - (b) For the purpose of determining fees calculated as a function of the Fund's assets, the value of the Fund's assets and net assets shall be computed as required by its currently effective Prospectus, generally accepted accounting principles, and resolutions of the Board. (c) The Fund may request additional services, additional processing, or special reports, with such specifications and requirements documentation as may be reasonably required by Chase. If Chase elects to provide such services or arrange for the provision, it shall be entitled to additional fees and expenses at its customary rates and charges. (d) Chase will bear its own expenses in connection with the performance of the services under this Agreement except as provided herein or as agreed to by the parties. The Fund agrees to promptly reimburse Chase for any services, equipment or supplies ordered by or for the Fund through Chase and for any other expenses that Chase may incur on the Fund's behalf at the Fund's request or as consented to by the Fund. Such other expenses to be incurred in the operation of the Fund and to be borne by the Fund, include, but are not limited to: taxes; interest; brokerage fees and commissions; salaries and fees of officers and directors [trustees] who are not officers, directors, shareholders or employees of Chase, or the Fund's investment adviser or distributor; SEC and state Blue Sky registration and qualification fees, levies, fines and other charges; EDGAR filing fees', processing services and related - 7 - fees; postage and mailing costs; costs of share certificates; advisory and administration fees; charges and expenses of pricing and data services, independent public accountants and custodians; insurance premiums including fidelity bond premiums; legal expenses; consulting fees; customary bank charges and fees; costs of maintenance of corporate [or trust] existence; expenses of typesetting and printing of Prospectuses for regulatory purposes and for distribution to current shareholders of the Fund (the Fund's distributor to bear the expense of all other printing, production, and distribution of Prospectuses, and marketing materials); expenses of printing and production costs of shareholders' reports and proxy statements and materials; expenses of proxy solicitation, proxy tabulation and annual meetings; costs and expenses of Fund stationery and forms; costs and expenses of special telephone and data lines and devices; costs associated with corporate [or trust], shareholder, and Board meetings; trade association dues and expenses; reprocessing costs to Chase caused by third party errors; and any extraordinary expenses and other customary Fund expenses. In addition, Chase may utilize one or more independent pricing services to obtain securities prices and to act as backup to the primary pricing services, in connection with determining the net asset values of the Fund. The Fund will reimburse Chase for the Fund's share of the cost of such services based upon the actual usage, or a pro-rata estimate of the use, of the services for the benefit of the Fund. - 8 - (e) All fees, out-of-pocket expenses, or additional charges of Chase shall be billed on a monthly basis and shall be due and payable upon receipt of the invoice. (f) Chase will render, after the close of each month in which services have been furnished, a statement reflecting all of the charges for such month. Charges remaining unpaid after thirty (30) days shall bear interest in finance charges equivalent to, in the aggregate, the Prime Rate (as determined by Chase) plus two percent per year and all costs and expenses of effecting collection of any such sums, including reasonable attorney's fees, shall be paid by the Fund to Chase. (g) In the event that the Fund is more than sixty (60) days delinquent in its payments of monthly billings in connection with this Agreement (with the exception of specific amounts which may be contested in good faith by the Fund), this Agreement may be terminated upon thirty (30) days' written notice to the Fund by Chase. The Fund must notify Chase in writing of any contested amounts within thirty (30) days of receipt of a billing for such amounts. Disputed amounts are not due and payable while they are being investigated. 6. LIMITATION OF LIABILITY AND INDEMNIFICATION. (a) Chase shall not be liable for any error of judgment or mistake of law or for any loss or expense suffered by the Fund, in connection with the matters to which this Agreement relates, except for a loss or expense solely caused by or resulting from willful misfeasance, bad faith or negligence on - 9 - Chase's part in the performance of its duties or from reckless disregard by Chase of its obligations and duties under this Agreement. In no event shall Chase be liable for any indirect, incidental, special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if Chase has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) Subject to Section 6(a) above, Chase shall not be responsible for, and the Fund shall indemnify and hold Chase harmless from and against, any and all losses, damages, costs, reasonable attorneys' fees and expenses, payments, expenses and liabilities incurred by Chase, any of its agents, or the Fund's agents in the performance of its/their duties hereunder, including but not limited to those arising out of or attributable to; (i) any and all actions of Chase or its officers or agents required to be taken pursuant to this Agreement; (ii) the reliance on or use by Chase or its officers or agents of information, records, or documents which are received by Chase or its officers or agents and furnished to it or them by or on behalf of the Fund, and which have been prepared or maintained by the Fund or any third party on behalf of the Fund; (iii) the Fund's refusal or failure to comply with the terms of this Agreement or the Fund's lack of good faith, or its - 10 - actions, or lack thereof, involving negligence or willful misfeasance; (iv) the breach of any representation or warranty of the Fund hereunder; (v) the taping or other form of recording of telephone conversations or other forms of electronic communications with investors and shareholders, or reliance by Chase on telephone or other electronic instructions of any person acting on behalf of a shareholder or shareholder account for which telephone or other electronic services have been authorized: (vi) the reliance on or the carrying out by Chase or its officers or agents of any proper instructions reasonably believed to be duly authorized, or requests of the Fund or recognition by Chase of any share certificates which are reasonably believed to bear the proper signatures of the officers of the Fund and the proper countersignature of any transfer agent or registrar of the Fund; (vii) any delays, inaccuracies, errors in or omissions from information or data provided to Chase by data services, corporate action services, pricing services or securities brokers and dealers; (viii) the offer or sale of shares by the Fund in violation of any requirement under the Federal securities laws or regulations or the securities laws or regulations of any state, or in violation of any stop order or other determination or ruling by any Federal agency or any state agency with respect to - 11 - the offer or sale of such shares in such state (1) resulting from activities, actions, or omissions by the Fund or its other service providers and agents, or (2) existing or arising out of activities, actions or omissions by or on behalf of the Fund prior to the effective date of this Agreement; (ix) any failure of the Fund's registration statement to comply with the 1933 Act and the 1940 Act (including the rules and regulations thereunder) and any other applicable laws, or any untrue statement of a material fact or omission of a material fact necessary to make any statement therein not misleading in a Fund's prospectus; (x) the actions taken by the Fund, its investment adviser, and its distributor in compliance with applicable securities, tax, commodities and other laws, rules and regulations, or the failure to so comply; and (xi) all actions, inactions, omissions, or errors caused by third parties to whom Chase or the Fund has assigned any rights and/or delegated any duties under this Agreement at the request of or as required by the Fund, its investment advisers, distributor, administrator or sponsor. (c) In performing its services hereunder, Chase shall be entitled to rely on any oral or written instructions, notices or other communications, including electronic transmissions, from the Fund and its custodians, officers and directors, investors, agents and other since providers which Chase reasonably believes to be genuine, valid and authorized, and shall be indemnified by - 12 - the Fund for any loss or expense caused by such reliance. Chase shall also be entitled to consult with and rely on the advice and opinions of outside legal counsel retained by the Fund, as necessary or appropriate. 7. TERM. This Agreement shall become effective on the date first hereinabove written and may be modified or amended from time to time by mutual agreement between the parties hereto. The Agreement shall continue in effect unless terminated by either party on 180 days' prior written notice. Upon termination of this Agreement, the Fund shall pay to Chase such compensation and any out-of-pocket or other reimbursable expenses which may become due or payable under the terms hereof as of the date of termination or after the date that the provision of services ceases, whichever is later. 8. NOTICES. Any notice required or permitted hereunder shall be in writing and shall be deemed effective on the date of personal delivery (by private messenger, courier service or otherwise) or upon confirmed receipt of telex or facsimile, whichever occurs first or upon receipt if by mail to the parties at the following address (or such other address as a party may specify by notice to the other): If to the Fund: Cohen & Steers Special Equity Fund, Inc. 757 Third Avenue New York, New York 10017 Attention: Fax: 212-832-3622 - 13 - If to Chase: Chase Global Funds Services Company 73 Tremont Street Boston, MA 02108 Attention: Karl Hartmann, General Counsel Fax: 617-557-8616 9. WAIVER. The failure of a party to insist upon strict adherence to any tenn of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be writing signed by the waiving party. 10. FORCE MAJEURE. Chase shall not be responsible or liable for any harm, loss of damage suffered by the Fund, its investors, or other third parties or for any failure or delay in performance of Chase's obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond Chase's control. In the event of a force majeure, any resulting harm, loss, damage, failure or delay by Chase will not give the Fund the right to terminate this Agreement. 11. AMENDMENTS. This Agreement may be modified or amended from time to time by mutual written agreement between the parties. No provision of this Agreement may be changed, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought. - 14 - 11. SEVERABILITY. If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances. 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above. COHEN & STEERS SPECIAL EQUITY FUND, INC. By: _________________________ Name: _______________________ Title: ______________________ CHASE GLOBAL FUNDS SERVICES COMPANY By: _________________________ Name: _______________________ Title: ______________________ - 15 - MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE A FEES AND EXPENSES Fund Administration and Accounting Fees A. For the services rendered under this Agreement, the Fund shall pay to the Administrator an annual fee based on the following schedule: 8 basis points of 1% on the first $500 million in total assets, plus 5 basis points of 1% on the next $500 million in total assets, plus 3 basis points of 1% of the total assets in excess of $1 billion There will be a $120,000 minimum per year, which will be waived for the first three months of operation. B. The foregoing calculation is based on the average daily net assets of the Fund. The fees will be computed, billed and payable monthly. C. Out-of-pocket expenses, including but not limited to those in Section 5(d), will be computed, billed and payable monthly. A-1 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE B GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES I. Financial and Tax Reporting A. Prepare management reports and Board of Directors [Trustees] materials, such as unaudited financial statements and summaries of dividends and distributions. B. Report Fund performance to outside services as directed by Fund management. C. Calculate dividend and capital gain distributions in accordance with distribution policies detailed in the Fund's prospectus(es). Assist Fund management in making final determinations of distribution amounts. D. Estimate and recommend year-end dividend and capital gain distributions necessary to establish Fund's status as a regulated investment company ("RIC") under Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code") regarding minimum distribution requirements. E. Working with the Fund's public accountants or other professionals, prepare and file Fund's Federal tax return on Form 1120-RIC along with all state and local tax returns where applicable. Prepare and file Federal Excise Tax Return (Form 8613). F. Prepare and file Fund's Form N-SAR with the SEC. G. Prepare and coordinate printing of Fund's Semiannual and Annual Reports to Shareholders. H. In conjunction with transfer agent, notify shareholders as to what portion, if any, of the distributions made by the Funds during the prior fiscal year were exempt- interest dividends under Section 852 (b)(5)(A) of the Code. I. Provide Form 1099-MISC to persons other than corporations (i.e., Trustees [Directors]) to whom the Fund paid more than $600 during the year. B-1 J. Prepare and file California State Expense Limitation Report, if applicable. K. Provide financial information for Fund proxies and prospectuses (Expense Table). II. Portfolio Compliance A. Assist with monitoring each Investment Fund's compliance with investment restrictions (e.g., issuer or industry diversification, etc.) listed in the current prospectus(es) and Statement(s) of Additional Information, although primary responsibility for such compliance shall remain with the Fund's investment adviser or investment manager. B. Assist with monitoring each Investment Fund's compliance with the requirements of Section 851 of the Code for qualification as a RIC (i.e., 90% Income, 30% Income - Short Three, Diversification Tests), although primary responsibility for such compliance shall remain with the Fund's investment adviser or investment manager. C. Assist with monitoring investment manager's compliance with Board directives such as "Approved Issuers Listings for Repurchase Agreements", Rule 17a-7, and Rule 12d-3 procedures, although primary responsibility for such compliance shall remain with the Fund's investment adviser or investment manager. D. Mail quarterly requests for "Securities Transaction Reports" to the Fund's Directors [Trustees] and Officers and "access persons" under the terms of the Fund's Code of Ethics and SEC regulations. III. Regulatory Affairs and Corporate Governance A. Prepare and file post-effective amendments to the Fund's registration statement and supplements as needed. B. Prepare and file proxy materials and administer shareholder meetings. C. Prepare and file all state registrations of the Fund's securities including annual renewals; registering new funds, portfolios, or classes; preparing and filing sales reports; filing copies of the registration statement, prospectus and statement of additional B-2 information; and increasing registered amounts of securities in individual states. D. Prepare Board materials for Board meetings. E. Assist with the review and monitoring of fidelity bond and errors and omissions insurance coverage and the submission of any related regulatory filings. F. Prepare and update documents such as charter document, by-laws, and foreign qualification filings. G. Provide support with respect to routine regulatory examinations or investigations of the Fund. H. File copies of financial reports to shareholders with the SEC under Rule 30b2-1. IV. General Administration A. Furnish officers of the Fund, subject to reasonable Board approval. B. Prepare fund, portfolio or class expense projections, establish accruals and review on a periodic basis, including expenses based on a percentage of average daily net assets (advisory and administrative fees) and expenses based on actual charges annualized and accrued daily (audit fees, registration fees, directors' fees, etc.). C. For new funds, portfolios and classes, obtain Employer or Taxpayer Identification Number and CUSIP numbers, as necessary. Estimate organizational costs and expenses and monitor against actual disbursements. D. Coordinate all communications and data collection with regard to any regulatory examinations and yearly audits by independent accountants. B-3 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE C DESCRIPTION OF FUND ACCOUNTING SERVICES I. General Description Chase shall provide, the following accounting services to the Fund: A. Maintenance of the books and records for the Fund's assets, including records of all securities transactions. B. Calculation of each funds', portfolios' or classes' Net Asset Value in accordance with the Prospectus, and after the fund, portfolio or class meets eligibility requirements, transmission to NASDAQ and to such other entities as directed by the Fund. C. Accounting for dividends and interest received and distributions made by the Fund. D. Coordinate with the Fund's independent auditors with respect to the annual audit, and as otherwise requested by the Fund. E. As mutually agreed upon, Chase will provide domestic and/or international reports. C-1 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE D DESCRIPTION OF TRANSFER AGENCY SERVICES The following is a general description of the transfer agency services Chase shall provide to the Fund. A. Shareholder Recordkeeping. Maintain records showing for each Fund shareholder the following: (i) name, address, appropriate tax certification and tax identifying number; (ii) number of shares of each fund, portfolio or class; (iii) historical information including, but not limited to, dividends paid, date and price of all transactions including individual purchases and redemptions, based upon appropriate supporting documents; and (iv) any dividend reinvestment order, application, specific address, payment and processing instructions and correspondence relating to the current maintenance of the account. B. Shareholder Issuance. Record the issuance of shares of each fund, portfolio or class. Except as specifically agreed in writing between Chase and the Fund, Chase shall have no obligation when countersigning and issuing and/or crediting shares to take cognizance of any other laws relating to the issue and sale of such shares except insofar as policies and procedures of the Stock Transfer Association recognize such laws. C. Transfer, Purchase and Redemption Orders. Process all orders for the transfer, purchase and redemption of shares of the Fund in accordance with the Fund's current prospectus and customary transfer agency policies and procedures, including electronic transmissions which the Fund acknowledges it has authorized, or in accordance with any instructions of the Fund or its agents which Chase reasonably believes to be authorized. D. Shareholder Communications. Transmit all communications by the Fund to its shareholders promptly following the delivery by the Fund of the material to be transmitted by mail, telephone, courier service or electronically. E. Proxy Materials. Assist with the mailing or transmission of proxy materials, tabulating votes, and D-1 compiling and certifying voting results. Services may include the provision of inspectors of election at any meeting of shareholders. F. Share Certificates. If permitted by Fund policies, and if a shareholder of the Fund requests a certificate representing shares, Chase as Transfer Agent, will countersign and mail a share certificate to the investor at his/her address as it appears on the Fund's shareholder records. G. Returned Checks. In the event that any check or other negotiable instrument for the payment of shares is returned unpaid for any reason, Chase will take such steps, as Chase may, in its discretion, deem appropriate and notify the Fund of such action. However, the Fund remains ultimately liable for any returned checks or negotiable instruments of its shareholders. H. Shareholder Correspondence. Acknowledge all correspondence from shareholders relating to their share accounts and undertake such other shareholder correspondence as may from time to time be mutually agreed upon. I. Tax Reporting. Chase shall issue appropriate shareholder tax forms as required. J. Dividend Disbursing. Chase will prepare and mail checks, place wire transfers or credit income and capital gain payments to shareholders. The Fund will advise Chase of the declaration of any dividend or distribution and the record and payable date thereof at least five (5) days prior to the record date. Chase will, on or before the payment date of any such dividend or distribution, notify the Fund's Custodian of the estimated amount required to pay any portion of such dividend or distribution payable in cash, and on or before the payment date of such distribution, the Fund will instruct its Custodian to make available to Chase sufficient funds for the cash amount to be paid out. If a shareholder is entitled to receive additional shares by virtue of any such distribution or dividend, appropriate credits will be made to each shareholder's account. D-2 K. Escheatment. Chase shall provide escheatment services only with respect to the escheatment laws of the Commonwealth of Massachusetts, including those which relate to reciprocal agreements with other states. L. Telephone Services. Chase will provide staff coverage, training and supervision in connection with the Fund's telephone line for shareholder inquiries, and will respond to inquiries concerning shareholder records, transactions processed by Chase, procedures to effect the shareholder records and inquiries of a general nature relative to shareholder services. All other telephone calls will be referred to the Fund, as appropriate. M. Fulfillment Services. As directed by the Fund, the Fund Adviser or the Distributor, or upon the request of prospective shareholders either by telephone or in writing, Chase will mail reasonable quantities of prospectuses, applications to purchase shares, and other information normally sent to prospective shareholders. D-3 EX-99.B10 6 EXHIBIT 10 April 7, 1997 Cohen & Steers Special Equity Fund, Inc. 757 Third Avenue New York, New York 10017 Ladies and Gentlemen: We have acted as counsel to Cohen & Steers Special Equity Fund, Inc., a Maryland corporation ("CSSEF"), in connection with the preparation and filing of its Registration Statement on Form N-1A (the "Registration Statement") covering shares of common stock, $.001 par value per share, of CSSEF. We have examined copies of the Articles of Incorporation and By-Laws of CSSEF, the Registration Statement, and such other records, proceedings and documents as we have deemed necessary for the purpose of this opinion. We have also examined such other documents, papers, statutes and authorities as we deemed necessary to form a basis for the opinion hereinafter expressed. In our examination of such material, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. Based upon the foregoing, we are of the opinion that the shares of common stock, $.001 par value per share, of CSSEF to be issued in accordance with the terms of the offering, as set forth in the Registration Statement, when so issued and paid for will constitute validly authorized and legally issued shares of common stock, fully paid and non-assessable by CSSEF. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm as set forth under the caption "Legal Counsel" in the above-referenced Registration Statement. In giving such consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Securities Act of 1933, as amended, and the rules and regulations thereunder. Very truly yours, /s/ Dechert Price & Rhoads EX-99.B11 7 EXHIBIT 11 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Pre-Effective Amendment No. 1 to the Registration Statement of Cohen & Steers Special Equity Fund, Inc. on Form N-IA (File No. 333-21993) of our report dated April 4, 1997, on our audit of the statement of assets and liabilities of Cohen & Steers Special Equity Fund, Inc. as of April 1, 1997, which report is included in this Pre-Effective Amendment to the Registration Statement. We also consent to the reference to our firm under the caption 'Accountants' in the Statement of Additional Information. COOPERS & LYBRAND L.L.P. New York, New York April 7, 1997 EX-99.B18 8 EXHIBIT 18 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Robert H. Steers and Martin Cohen, and each of them, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for him in his name, place, and stead, to sign any and all registration statements applicable to Cohen & Steers Special Equity Fund, Inc. and any amendments or supplements thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 1, 1997 /s/ Willard H. Smith Jr. ------------------------ Willard H. Smith Jr. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Robert H. Steers and Martin Cohen, and each of them, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for him in his name, place, and stead, to sign any and all registration statements applicable to Cohen & Steers Special Equity Fund, Inc. and any amendments or supplements thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 1, 1997 /s/ Gregory C. Clark -------------------- Gregory C. Clark POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Robert H. Steers and Martin Cohen, and each of them, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for him in his name, place, and stead, to sign any and all registration statements applicable to Cohen & Steers Special Equity Fund, Inc. and any amendments or supplements thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 1, 1997 /s/ Jeffrey H. Lynford ---------------------- Jeffrey H. Lynford POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Robert H. Steers and Martin Cohen, and each of them, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for him in his name, place, and stead, to sign any and all registration statements applicable to Cohen & Steers Special Equity Fund, Inc. and any amendments or supplements thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 1, 1997 /s/ George Grossman ------------------- George Grossman -----END PRIVACY-ENHANCED MESSAGE-----