COHEN & STEERS EQUITY INCOME FUND INC, 485APOS, 1997-11-06

COHEN & STEERS EQUITY INCOME FUND INC
485APOS, 1997-11-06

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1997

FILE NO. 333-30919
811-8287
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

PRE-EFFECTIVE AMENDMENT NO. [ ]

POST-EFFECTIVE AMENDMENT NO. 1 [x]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

AMENDMENT NO. 2 [x]

------------------------

COHEN & STEERS EQUITY INCOME 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 EQUITY INCOME FUND, INC.
757 THIRD AVENUE, NEW YORK, NEW YORK 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)

------------------------

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)

[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485.

[x] 60 DAYS AFTER FILING 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 (b) OF RULE 485.

[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(1) 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.

------------------------

TITLE OF SECURITIES BEING REGISTERED
COHEN & STEERS EQUITY INCOME FUND, INC. -- CLASS A
COHEN & STEERS EQUITY INCOME FUND, INC. -- CLASS B
COHEN & STEERS EQUITY INCOME FUND, INC. -- CLASS C

________________________________________________________________________________

COHEN & STEERS EQUITY INCOME FUND, INC.
CROSS REFERENCE SHEET
(AS REQUIRED BY 404(c))

<TABLE>
<CAPTION>
N-1A ITEM
- -------------- LOCATION IN PROSPECTUS
------------------------------------
<S> <C> <C>
Item 1. Cover Page................................................... Cover Page
Item 2. Synopsis..................................................... Fee Table
Item 3. Condensed Financial Information.............................. Not Included
Item 4. General Description of Registrant............................ Investment Objective and Policies;
Investment Restrictions
Item 5. Management of the Registrant................................. Management of the Fund
Item 5A. Management's Discussion of Fund Performance.................. Not Applicable
Item 6. Capital Stock and Other Securities........................... Taxation; Organization and
Description of Capital Stock; Sales Charges
Item 7. Purchase of Securities Being Offered......................... Determination of Net Asset Value;
Purchase of Shares; Sales Charges
Item 8. Redemption or Repurchase..................................... Redemption of Shares; Sales Charges
Item 9. Pending Legal Proceedings.................................... Not Applicable

<CAPTION>
LOCATION IN STATEMENT OF
PART B ADDITIONAL INFORMATION (CAPTION)
- -------------- ------------------------------------
<S> <C> <C>
Item 10. Cover Page................................................... Cover Page
Item 11. Table of Contents............................................ Table of Contents
Item 12. General Information and History.............................. Not Applicable
Item 13. Investment Objectives and Policies........................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund....................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities.......... Organization and Description of
Capital Stock
Item 16. Investment Advisory and Other Services....................... Management of the Fund -- Adviser
and Investment Advisory Services
Item 17. Brokerage Allocation and Other Practices..................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities........................... Organization and Description of
Capital Stock
Item 19. Purchase, Redemption and Pricing of Securities Being Determination of Net Asset Value;
Offered.................................................... Redemption of Shares
Item 20. Tax Status................................................... Taxation
Item 21. Underwriters................................................. Principal Underwriter
Item 22. Calculation of Performance Data.............................. Performance Information
Item 23. Financial Statements......................................... Financial Statements
</TABLE>

[Logo]

- --------------------------------------------------------------------------------
Cohen & Steers Equity Income Fund, Inc. (the 'Fund') Inc. is a non-diversified,
open-end management investment company that seeks to achieve high current income
through investment in real estate securities. Capital appreciation is a
secondary objective. Under normal circumstances, the Fund will invest at least
65% of its total assets in the equity securities of real estate companies. Up to
35% of the Fund's total assets may be invested in debt securities issued or
guaranteed by real estate companies. The Fund may also invest in options,
financial futures and currency contracts. There can be no assurance that the
Fund will achieve its investment objectives. 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 , 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.

------------------------------------------
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
------------------------------------------

The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the Fund's shares are not federally insured or guaranteed
by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. Shares of the Fund involve investment risks,
including the possible loss of principal.

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.

,1997
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------

Shareholder Transaction Expenses

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------------------------ -------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price)............... 4.50%(1) 0% 0%
Maximum sales load imposed on reinvested dividends
(and other distributions)......................... 0% 0% 0%
Maximum deferred sales load (as a percentage of
original purchase price or redemption proceeds,
whichever is lower)............................... 0%(2) 5% in 1st year 1% in 1st year
4% in 2nd year
3% in 3rd and 4th years
2% in 5th year
1% in 6th year
None thereafter(3)
</TABLE>

- ------------

(1) Sales charges are reduced for large purchases.

(2) A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following purchases without a sales charge.

(3) Class B shares of the Fund automatically convert to Class A shares at the
end of the month which precedes the 8th anniversary of the purchase date.

Annual Fund Operating Expenses (as a percentage of average net assets)

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management fees........................................................ 0.75% 0.75% 0.75%
Rule 12b-1 fees*....................................................... 0.25% 0.75%** 0.75%
Service fees........................................................... 0.10% 0.25% 0.25%
Other expenses`D'...................................................... 0.40% 0.40% 0.40%
------- ------- -------
Total fund operating expenses.......................................... 1.50% 2.15% 2.15%
</TABLE>

- ------------

* 12b-1 expenses may not exceed 0.25% per annum of the average net assets
attributable to the Class A shares or 0.75% per annum of the average net
assets attributable to the Class B and Class C shares. Due to these
distribution expenses, long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.

** Until conversion which occurs automatically at the end of the month which
precedes the 8th anniversary of the purchase date.

`D' 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):

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A......................................................................... $ 60 $91
Class B
Assumes redemption at end of period....................................... $ 72 $98
Assumes no redemption at end of period.................................... $ 22 $68
Class C......................................................................... $ 32 $68
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES WHICH
MAY BE MORE OR LESS THAN THOSE SHOWN. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY
TO PURCHASE SHARES AT A REDUCED OR NO SALES CHARGE.

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 Securities and Exchange Commission (the 'Commission')
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 1.50% of the average net assets of the Fund attributable to the
Class A shares, 2.15% of the average net assets of the Fund attributable to the
Class B shares, and 2.15% of the average net assets of the Fund attributable to
the Class C shares until December 31, 1998. As long as these temporary expense
limitations continue, they may lower the expenses and increase the total return
attributable to each class of shares. After December 31, 1998, the expense
limitation on any or all classes of shares may be terminated or revised at any
time, at which time the expenses of such class may increase and its total return
may be reduced depending on the total assets of the Fund attributable to such
class. Without the expense reimbursement, it is estimated that the total
operating expenses for the current fiscal year for the Class A, Class B and
Class C shares of the Fund would have amounted to 2.21%, 2.86% and 2.86%,
respectively, of the Fund's average net assets attributable to such class for
the period.

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

The Fund's investment objective is to achieve high current income through
investment in real estate securities. Capital appreciation is a secondary
objective. There can be no assurance that the Fund's investment objectives will
be achieved. The Fund's investment objectives cannot be changed without the
approval of a majority of its outstanding voting securities.

Under normal circumstances, the Fund will invest at least 65% of its total
assets in the equity securities of real estate companies. Such equity securities
will consist of (i) common shares (including shares and units of beneficial
interest of REITs), (ii) rights or warrants to purchase common shares, (iii)
securities convertible into common shares where the conversion feature
represents, in the investment adviser's view, a

significant element of the securities' value, and (iv) preferred shares.

For purposes of the Fund's investment policies, a 'real estate company' is one
that derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets in such real estate. With the
exception of REITs, most real estate companies do not pay divide nds at the
higher end of the range for common stocks as a group. The Fund's investment
adviser, however, anticipates that the Fund's equity investments in real estate
companies will primarily be in securities that do pay high dividends relative to
the stock market as a whole.

Up to 35% of the Fund's total assets may be invested in debt securities issued
or guaranteed by real estate companies. The Fund may also invest in options,
financial futures and currency contracts. When, in the judgment of the Adviser,
market or general economic conditions justify a temporary defensive position,
the Fund may deviate from its investment objectives and policies and invest all
or any portion of its assets in high-grade debt securities, including corporate
debt securities, U.S. government securities, and short-term money market
instruments, without regard to whether the issuer is a real estate company.

- --------------------------------------------------------------------------------

REAL ESTATE INVESTMENT TRUSTS

The Fund is authorized to invest without limit 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, and 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.

- --------------------------------------------------------------------------------

DEBT SECURITIES

The Fund may invest a maximum of 35% of its total assets in investment grade and
non-investment grade debt securities of companies, including real estate
industry 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 Appendix
A 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.
Restricted securities will be valued in such manner as the Board of Directors of
the Fund in good faith deems appropriate to reflect their fair market value.

- --------------------------------------------------------------------------------

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 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.

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 S&P's, certificates of
deposit, bankers' acceptances issued by domestic banks having total assets in
excess of one billion dollars, and money market mutual funds.

- --------------------------------------------------------------------------------

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.

Because the Fund will be concentrated in the real estate 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 an 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/or 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. In certain cases, the organizational documents of a REIT may grant the
REIT's sponsors the right to exercise control over the operations of the REIT
notwithstanding their minority share ownership; a conflict of interest (for
example, the desire to postpone certain taxable events) could influence such
sponsors to not act in the best interests of the REIT's shareholders. Many REITs
are subject in their organizational documents to various anti-takeover
provisions that could have the effect of delaying or preventing a transaction or
change in control of the REIT that might involve a premium price for the REIT's
shares or otherwise may not be in the best interests of the REIT's shareholders.
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.

- --------------------------------------------------------------------------------

NON-DIVERSIFIED STATUS; PORTFOLIO TURNOVER

The Fund is classified as a 'non-diversified' investment company under the
Investment Company Act of 1940 (the '1940 Act'), which means the Fund is not
limited by the 1940 Act in the proportion of its assets that may be invested in
the securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a regulated investment company for purposes of
the Code, which generally will relieve the Fund of any liability for Federal
income tax to the extent its earnings are distributed to shareholders. See
'Taxation.' To so qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will be invested in
the securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and the Fund will
not own more than 10% of the outstanding voting securities of a single 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.

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% under normal circumstances.
However, there 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.

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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.

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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 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 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 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.

- --------------------------------------------------------------------------------
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,
custodian and transfer agent. The management of the Fund's day-to-day operations
is delegated to its officers, the Adviser and the 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, Director, Chairman and Secretary, is the Chairman and one of
the principals of Cohen & Steers Capital Management, Inc. ('Cohen & Steers' or
the 'Adviser').

Martin Cohen, Director, President and Treasurer, 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 Real Properties, Inc.

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.

Adam Derechin, Vice President and Assistant Treasurer, is a Vice President of
the Adviser.

- --------------------------------------------------------------------------------

THE ADVISER

Cohen & Steers Capital Management, Inc., 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 Board of 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. and
Cohen & Steers Special Equity Fund, Inc., both of which are open-end investment
companies. 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, and have
been since the formation of the Adviser, 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.

- --------------------------------------------------------------------------------

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 Rules of Fair
Practice 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 0.75%
of the average daily net assets of the Fund. 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 also 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
require-

ments 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 0.02% 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 Chase Manhattan Bank ('Chase') as sub-administrator under a mutual fund
services agreement (the 'Mutual Fund Services Agreement'). Under the Mutual Fund
Services 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 in regards to
its obligations to the Fund under its agreement with the Fund, subject to the
overall authority of the Fund's Board of Directors.

Under the terms of the Mutual Fund Services Agreement, the Fund pays Chase a
monthly fee at the annual rate of 0.08% on the first $500 million of the Fund's
average daily net assets and at lower rates on net assets in excess of that
amount. Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108, 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.'

- --------------------------------------------------------------------------------

DISTRIBUTION PLAN

The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940
Act (the 'Distribution Plan'). Under the Distribution Plan, the Fund may pay
Cohen & Steers Securities, Inc., the Fund's principal underwriter ('CSSI'), a
quarterly distribution-related fee at an annual rate not to exceed 0.25% of the
average daily value of the Fund's net assets attributable to the Class A shares
and 0.75% of the average daily value of the Fund's net assets attributable to
the Class B and Class C shares. CSSI is obligated to use the amounts received
under the Distribution Plan for payments to qualifying dealers for their
assistance in the distribution of the Fund's shares and the provision of
shareholder services and for other expenses such as advertising costs and the
payment for the printing and distribution of prospectuses to prospective
investors. CSSI bears distribution expenses to the extent they are not covered
by payments under the Distribution Plan. Any distribution expenses incurred by
CSSI in any fiscal year of the Fund, which are not reimbursed from payments
under the Plan accrued in such fiscal year, will not be carried over for payment
under the Distribution Plan in any subsequent year.

- --------------------------------------------------------------------------------

SHAREHOLDER SERVICE PLAN

The Fund has adopted a shareholder services plan which provides that the Fund
may obtain the services of qualified financial institutions to act as
shareholder servicing agents for their customers. Under this plan, the Fund may
enter into agreements pursuant to which the shareholder servicing agents perform
certain shareholder services not otherwise provided by the Fund's transfer
agent. For these services, the Fund may pay the shareholder servicing agent a
fee at an annual rate of up to 0.10% of the average daily net asset value of the
Fund's Class A shares and up to 0.25% of the average daily net asset value of
the Fund's Class B and Class C shares owned by investors for which the
shareholder servicing agent maintains a servicing relationship.

Among the services provided by shareholder servicing agents are: answering
customer inquiries regarding account matters; assisting in designating and
changing various account options; aggregating and processing purchase and
redemption orders and transmitting and receiving funds for shareholder orders;
transmitting, on behalf of the Fund, proxy statements, prospectuses and
shareholder reports to shareholders and tabulating proxies; processing dividend
payments and providing subaccounting services for Fund shares held beneficially;
and providing such other services as the Fund or a shareholder may request.

- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value per share of each Class 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
attributable to that Class, subtracting liabilities attributable to that Class
(incurred or accrued) and dividing by the total number of the shares of such
Class then outstanding.

For purposes of determining the net asset value of each Class of the Fund,
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 Board of 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. However, certain fixed-income securities may be valued on the
basis of prices provided by a pricing service when such prices are believed by
the Board of Directors to reflect the fair market value of such securities. The
prices provided by a pricing service take into account institutional size
trading in similar groups of securities and any developments related to specific
securities. 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.

- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------

CHOOSING A CLASS OF SHARES

The Fund currently offers three classes of shares: Class A, Class B and Class C.
Each class has its own cost structure.

Class A shares are sold to investors who have concluded that they would prefer
to pay an initial sales load and have the benefit of lower continuing fees.
Class B shares are sold to investors choosing to pay no initial load, a higher
distribution fee and a contingent deferred sales charge with respect to
redemptions within six years of purchase and who desire shares to convert
automatically to Class A shares after eight years. Investors may elect to
purchase Class C shares, however, if they determine that it is advantageous to
have all their assets invested initially and they are uncertain as to the length
of time they intend to hold their assets in the Fund.

Investors who expect to maintain their investment for an extended period of time
might choose to purchase Class A shares because over time the accumulated
continuing distribution fees of Class B and Class C shares may exceed the
initial sales load and lower on-going fee of Class A shares. This consideration
must be weighed against the fact that the amount invested in the Fund will be
reduced by the initial sales load on Class A shares deducted at the time of
purchase. Furthermore, the distribution fees on Class B and Class C shares will
be offset to the extent any return is realized on the additional funds initially
invested therein that would have been equal to the amount of the initial sales
load on Class A shares.

Investors who qualify for reduced initial sales loads might also choose to
purchase Class A shares because the sales load deducted at the time of purchase
would be waived. However, investors should consider the effect of the 1%
contingent deferred sales charge imposed on shares on which the initial sales
load was waived because the amount of Class A shares purchased was $1,000,000 or
more. In addition, Class B shares will be converted automatically to Class A
shares after a period of approximately eight years, and thereafter investors
will be subject to lower ongoing fees. Shares purchased through reinvestment of
dividends and distributions on Class B shares also will convert automatically to
Class A shares along with the underlying shares on which they were earned.

Investors should bear in mind that total asset based sales charges (i.e., the
higher continuing distribution fee plus the contingent deferred sales

charge) on Class B shares that are redeemed may exceed the total asset based
sales charges that would be payable on the same amount of Class A or Class C
shares, particularly if the Class B shares are redeemed shortly after purchase
or if the investor qualifies for a reduced sales load on the Class A shares.

Investors should understand that the purpose and function of the initial sales
loads (and deferred sales charges, when applicable) with respect to Class A
shares is the same as those of the deferred sales charges and higher
distribution fees with respect to Class B and Class C shares in that the sales
charges and distribution fees applicable to each class provide for the financing
of the distribution of the shares of the Fund.

Class B and Class C shares are subject to the same ongoing distribution fees but
Class C shares are subject to a contingent deferred sales charge for a shorter
period of time (one year as opposed to six years) than Class B shares. However,
unlike Class C shares, Class B shares automatically convert to Class A shares,
which are subject to lower ongoing fees.

The three classes of shares represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution and, potentially, certain
other class expenses and has exclusive voting rights with respect to any matter
to which a separate vote of any class is required by the 1940 Act or Maryland
law. The net income attributable to each class and dividends payable on the
shares of each class will be reduced by the amount of distribution and other
expenses of each class. Class B and Class C shares bear higher distribution
fees, which will cause the Class B and Class C shares to pay lower dividends
than the Class A shares.

Although Class C shareholders are subject to a shorter contingent deferred sales
charge period at a lower rate, they forgo the Class B automatic conversion
feature, making their investment subject to higher distribution fees for an
indefinite period of time. Each class has advantages and disadvantages for
different investors, and investors should choose the class that best suits their
circumstances and their objectives.

Dealers and agents may receive different compensation for selling Class A, Class
B or Class C shares. The maximum purchase of Class B shares is $250,000.

- --------------------------------------------------------------------------------

CLASS A SHARES -- INITIAL SALES CHARGE

An initial sales charge may apply, as described below, when purchasing Class A
shares of the Fund. Sales charges may be reduced for large purchases as
indicated below.

<TABLE>
<CAPTION>
SALES CHARGE AS
A PERCENTAGE OF DEALER
--------------------- CONCESSION
NET AS % OF
OFFERING AMOUNT OFFERING
INVESTMENT AMOUNT PRICE INVESTED PRICE
- ------------------------------------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
Less than $100,000....................................................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000.......................................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000.......................................... 2.75% 2.83% 2.50%
$500,000 but less than $1 million........................................ 2.25% 2.30% 2.00%
$1 million or more and certain other investments described below......... see below see below see below
</TABLE>

Investments of $1 million or more are sold with no initial sales charge. A 1%
CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED ON CERTAIN REDEMPTIONS MADE
WITHIN ONE

YEAR OF PURCHASE BY CLASS A ACCOUNTS OF $1 MILLION OR MORE. A dealer concession
of up to 1% may be paid by CSSI on these investments. Investments by certain
individuals and entities including employees and other associated persons of
dealers authorized to sell shares of the Fund and Cohen & Steers are not subject
to a sales charge. (see 'Sales at Net Asset Value,' below).

REDUCING THE SALES CHARGE. As shown in the table above, the size of the total
investment in the Class A shares of the Fund will affect the sales charge.
Described below are several methods to reduce the applicable sales charge. In
order to obtain a reduction in the sales charge, an investor must notify, at the
time of purchase, his dealer, the transfer agent or CSSI of the applicability of
one of the following:

Rights of Aggregation. The investment schedule above applies to the total amount
being invested by any 'person,' which term includes an individual, his spouse
and children under the age of 21, a trustee or other fiduciary purchasing for a
single trust, estate or single fiduciary account (including a pension,
profit-sharing or other employee benefit trust created pursuant to a plan
qualified under the Code) although more than one beneficiary is involved, or any
United States bank or investment adviser purchasing shares for its investment
advisory clients or customers. Any such person purchasing for several accounts
at the same time may combine these investments into a single transaction in
order to reduce the applicable sales charge.

Rights of Accumulation. The Class A shares of the Fund may be purchased at a
reduced sales charge by a 'person' (as defined above) who is already a
shareholder by taking into account not only the amount then being invested, but
also the current net asset value of the shares of the Fund already held by such
person. If the current net asset value of the qualifying shares already held
plus the net asset value of the current purchase exceeds a point in the schedule
of sales charges at which the charge is reduced to a lower percentage, the
entire current purchase is eligible for the reduced charge. To be entitled to a
reduced sales charge pursuant to the Rights of Accumulation, the investor must
notify his dealer, the transfer agent or CSSI at the time of purchase that he
wishes to take advantage of such entitlement, and give the numbers of his
account, and those accounts held in the name of his spouse or for a minor child,
and the specific relationship of each such other person to the investor.

Letter of Intention. An investor may also qualify for a reduced sales charge by
completing a Letter of Intention (the 'Letter') set forth in the Subscription
Agreement or on a separate form for this purpose which is available from the
Fund. This enables the investor to aggregate purchases of shares of the Fund
during a 12-month period for purposes of calculating the applicable sales
charge. All shares of the Fund currently owned by the investor will be credited
as purchases toward the completion of the Letter at the greater of their net
asset value on the date the Letter is executed or their cost. No retroactive
adjustment will be made if purchases exceed the amount indicated in the Letter.
For each investment made, the investor must notify his dealer, the transfer
agent or CSSI that a Letter is on file along with all account numbers associated
with the Letter.

The Letter is not a binding obligation on the investor. However, 5% of the
amount specified in the Letter will be held in escrow, and if the investor's
purchases are less than the amount specified, the investor will be requested to
remit to the Fund an amount equal to the difference between the sales charge
paid and the sales charge applicable to the aggregate purchases actually made.
If not remitted within 20 days

after written request, an appropriate number of escrowed shares will be redeemed
in order to realize the difference. However, the sales charge applicable to the
investment will in no event be higher than if the shareholder had not submitted
a Letter.

Sales at Net Asset Value. Class A shares of the Fund may be sold at net asset
value (i.e., without a sales charge) (i) to registered representatives or
employees (and their immediate families) of authorized dealers, or to any trust,
pension, profit-sharing or other benefit plan for only such persons, (ii) to
banks or trust companies or their affiliates when the bank, trust company, or
affiliate is authorized to make investment decisions on behalf of a client,
(iii) to investment advisers and financial planners who place trades for their
own accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services, (iv) to clients of such investment
advisers and financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker, agent, investment
adviser or financial institution, and (v) to retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to those defined in Section 401(a), 403(b) or 457 of the Code and 'rabbi
trusts.' Investors may be charged a fee if they effect transactions in Fund
shares through a broker or agent. Class A shares of the Fund may also be sold at
net asset value to current officers, directors and employees (and their
immediate families) of the Fund, the Adviser, CSSI, employees (and their
immediate families) of certain firms providing services to the Fund (such as the
custodian and shareholder servicing agent), and to any trust, pension,
profit-sharing or other benefit plan for only such persons. The Fund may also
issue Class A shares at net asset value in connection with the acquisition of,
or merger or consolidation with, another investment company. The sales of Class
A shares at net asset value described in this section are made upon the written
assurance of the purchaser that the purchase is made for investment purposes and
that the Class A shares will not be resold except through redemption. Such
notice must be given to the transfer agent or CSSI at the time of purchase on a
form for this purpose as available from the Fund.

- --------------------------------------------------------------------------------

CLASS B SHARES -- DEFERRED SALES CHARGE ALTERNATIVE

The Class B shares can be purchased at net asset value without an initial sales
charge. However, if the Class B shares are redeemed within six years after
purchase, they are subject to a contingent deferred sales charge (expressed as a
percentage of the lesser of the current net asset value or original cost) which
will vary according to the number of years from the purchase of Class B shares
until the redemption of those shares. The amount of the contingent deferred
sales charge on Class B shares is set forth below.

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC
- -------------------------------------------------------- ----
<S> <C>
Less than 1 year........................................ 5.0%
1 to 2 years............................................ 4.0%
2 to 4 years............................................ 3.0%
4 to 5 years............................................ 2.0%
5 to 6 years............................................ 1.0%
6 years or more......................................... None
</TABLE>

Class B shares are subject to higher distribution fees than Class A shares for a
period of eight years (after which they convert to Class A shares). Shares
purchased through reinvestment of dividends on Class B shares also will convert
automatically to Class A shares along with the underlying shares on which they
were earned. Conversion occurs at the end of the month which precedes the eight
anniversary of the purchase date.

The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.

- --------------------------------------------------------------------------------

CLASS C SHARES -- ASSET-BASED SALES CHARGE

The Class C shares can be purchased at net asset value without any initial sales
charge. Unlike Class B shares, Class C shares do not automatically convert to
Class A shares after eight years. The Class C shares incur higher distribution
fees than Class A shares. The higher fees mean a higher expenses ratio, so Class
C shares pay correspondingly lower dividends and may have a lower net asset
value than Class A shares.

A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED ON REDEMPTIONS MADE WITHIN
ONE YEAR OF PURCHASE BY CLASS C ACCOUNTS.

- --------------------------------------------------------------------------------

GENERAL

In addition to the discount or commission paid to dealers, CSSI may from time to
time pay additional cash or other incentives to dealers in connection with the
sale of shares of the Fund. Such additional amounts may be utilized, in whole or
in part, in some cases together with other revenues of such dealers, to provide
additional compensation to registered representatives who sell shares of the
Fund. On some occasions, such cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of the Fund during a
specific period of time. Such incentives may take the form of payment for
attendance at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in connection with travel
by persons associated with a dealer and their immediate family members to urban
or resort locations within or outside of the United States. Such dealer may
elect to receive cash incentives of equivalent amount in lieu of such payments.

- --------------------------------------------------------------------------------

REINSTATEMENT PRIVILEGE

If a shareholder redeems Class A shares and then decides to reinvest them, the
shareholder may, within 120 calender days of the date of redemption, use all or
any part of the proceeds of the redemption to reinstate, free of an initial
sales charge, all or any part of the investment in Class A shares of the Fund.
If a shareholder redeems shares and the redemption was subject to a contingent
deferred sales charge, the shareholder may reinstate all or any part of the
investment in shares of the same class of the Fund within 120 calender days of
the date of redemption and receive a credit for the applicable contingent
deferred sales charge paid. Such investment will be reinstated at the net asset
value per share established as of the close of trading on the New York Stock
Exchange on the day the request is received. The transfer agent must be informed
that the purchase represents a reinstated investment. REINSTATED SHARES MUST BE
REGISTERED EXACTLY AND BE OF THE SAME CLASS AS THE SHARES PREVIOUSLY REDEEMED;
AND THE FUND'S MINIMUM INITIAL INVESTMENT AMOUNT MUST BE MET AT THE TIME OF
REINSTATEMENT.

- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------

The minimum initial investment to open a shareholder account of any class is
$1,000. The minimum amount for subsequent investments in any class is $250. The
Fund's shares may be purchased through authorized dealers or directly through
CSSI, the Fund's principal underwriter. A Subscription Agreement should
accompany this Prospectus. For accounts opened directly through CSSI, a
completed and signed Subscription Agreement is required for the initial account
opened with the Fund.

- --------------------------------------------------------------------------------

INITIAL PURCHASE BY WIRE

1. Telephone toll free from any continental state: (800) 437-9912. Give the name
of the Fund, the Class(es) of shares, 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
($1,000 or more per Class purchased) 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 Equity Income Fund, Inc.
For further credit to: (Account name)
Account Number:
Wire Reference Control #:

3. Complete the Subscription Agreement located in the center 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. Give the name
of the Fund, the Class(es) of shares, 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: $250 per Class purchased or, if greater, the amount
necessary to increase the value of the investor's account of a Class to $1,000):

- --------------------------------------------------------------------------------

INITIAL PURCHASE BY MAIL

1. Complete the Subscription Agreement located in the center of this Prospectus.

2. Mail the Subscription Agreement and a check for $1,000 or more per Class
purchased, 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: $250 per Class purchased or, if
greater, the amount necessary to increase the value of the investor's account of
a Class to $1,000). Write the shareholder's Fund account number and the Class of
shares to be purchased 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.

- --------------------------------------------------------------------------------

PURCHASES THROUGH DEALERS

Investors may purchase the Fund's shares through selected securities dealers
with whom CSSI has sales agreements. A prospective investor may obtain
additional Subscription Agreements from such authorized dealers. For a list of
authorized dealers, please contact the Fund at (800) 437-9912.

Financial service firms that do not have a sales agreement with CSSI also may
place orders for purchases of the Fund's shares, but may charge the investor a
transaction fee in addition to the applicable sales load.

Authorized dealers and financial service firms are responsible for promptly
transmitting purchase orders to CSSI.

- --------------------------------------------------------------------------------

PURCHASES THROUGH CSSI

Shares of the Fund may be purchased through CSSI by mailing a check made payable
to Cohen & Steers Equity Income Fund, Inc. along with the completed Subscription
Agreement to Cohen & Steers Equity Income Fund, Inc. c/o Chase Global Funds
Services Company, P.O. Box 2798, Boston, MA 02208-9915. CSSI will deduct any
applicable sales charge from the investor's payment.

- --------------------------------------------------------------------------------

AUTOMATIC INVESTMENT PLAN

The Fund's automatic investment plan (the 'Plan') provides a convenient way to
invest in the Fund. Under the Plan, you can have money transferred automatically
from your checking account to the Fund each month to buy additional shares. If
you are interested in this Plan, please refer to the automatic investment plan
section of Subscription Agreement included with this prospectus or contact your
dealer. The market value of the Fund's shares may fluctuate and a systematic
investment plan such as this will not assure a profit or protect against a loss.
You may discontinue the program at any time by notifying the Fund by mail or
phone.

- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

You may exchange some or all of your Fund shares for shares of the other mutual
funds managed by Cohen & Steers as well as for shares of Cohen & Steers Vista
Cash Management Fund, subject to the applicable contingent deferred charge, if
any. If you acquire shares of other Cohen & Steers funds by purchase (rather
than by exchange of Fund shares), you may exchange these shares for Fund shares,
subject to the applicable Fund initial sales charge, if any.

An exchange of shares pursuant to the exchange privilege may result in a
shareholder 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 being acquired may be legally sold. A shareholder wishing to utilize
the exchange privilege should read the prospectus of the fund whose shares are
being acquired. Certain dealers may limit or prohibit the right of shareholders
to utilize the exchange privilege.

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 special 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 contingent deferred sales charge. See 'Determination of Net
Asset Value.'

Shareholders may redeem either through authorized dealers, by telephone, or
through Chase. Shares held in the dealer's 'street name' must be redeemed
through the dealer.

- --------------------------------------------------------------------------------

REDEMPTIONS THROUGH DEALERS

Shareholders who have an account with an authorized dealer may submit a
redemption request to such dealer. Authorized dealers are responsible for
promptly transmitting redemption requests to CSSI. Dealers may impose a charge
for handling redemption transactions placed through them and may have particular
requirements concerning redemptions. Accordingly, shareholders should contact
their authorized dealers for more information.

- --------------------------------------------------------------------------------

REDEMPTION BY TELEPHONE

You may submit redemption requests by telephone by calling Chase Global Funds
Services Company at (800) 437-9912 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 close of trading on the New York Stock Exchange on that
day. 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 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 02208-9915

Attn: Cohen & Steers Equity Income Fund, Inc.

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. 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 15 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.

The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption 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 $1,000 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
- --------------------------------------------------------------------------------

The Fund's policy will be to make quarterly distributions from investment
company taxable income of the Fund. Net capital gains (net long-term capital
gain in excess of net short-term capital loss), if any, are expected to be
distributed at least annually. Investment company taxable income of the Fund
consists of all of the Fund's taxable income other than the excess, if any, of
net long-term capital gain over net short-term capital loss, reduced by
deductible expenses of the Fund. The expenses of each class of shares of the
Fund are accrued each day. In addition, the Fund currently expects that a
portion of its dividends will consist of amounts in excess of investment company
taxable income derived from non-taxable components of the cash flow from the
real estate underlying the Fund's portfolio investments. These amounts would be
considered a return of capital and thus would not be subject to current
taxation. To the extent practicable, the Fund will attempt to pay quarterly
distributions to shareholders of each class of shares at a constant rate, which
may be adjusted from time to time by the Fund's Board of Direc-

tors, although there can be no assurance that it will be able to do so. In order
to maintain such quarterly distributions, short-term capital gains, and amounts
representing a return of the shareholder's capital, may from time to time be
included in quarterly distributions. See 'Taxation.'

Dividends paid by the Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution and service
fees applicable to Class B or Class C shares will be borne exclusively by that
class.

- --------------------------------------------------------------------------------
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 of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the 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.

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 July 3, 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of common stock, $.001 par value (the
'Common Stock'). The authorized shares of the Fund are currently divided into
three classes designated Class A, Class B and Class C. 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 class of shares
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class is subject to different sales charges and
distribution and service fees, which may affect performance, and (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class. With the exceptions noted above, 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 duly issued will be fully paid and nonassessible. 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, or additional classes of shares.

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 role 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',
which is computed separately for Class A, Class B and Class C shares, over
various periods of time. Each total return figure shows the average percentage
change in value of an investment in the specified class of shares from the
beginning date of the measuring period to the ending date of the measuring
period. The figure reflects changes in the price of such class' shares and
assumes that any income dividends and/or capital gains distributions made by the
Fund during the period are reinvested in shares of that class 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).
For the

Class A shares, each type of total return will be calculated assuming the
deduction of the maximum sales commission of 4.50% and the reinvestment of all
income dividends and capital gains distributions.

Advertisements may quote performance rankings or ratings of the Fund by
financial publications or independent organizations such as Lipper
Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices.

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).

- --------------------------------------------------------------------------------
APPENDIX A: DESCRIPTION OF BOND RATINGS
- --------------------------------------------------------------------------------

MOODY'S RATINGS

Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with bonds rated Aaa (Moody's highest rating), they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than Aaa
bonds because margins of protection may not be as large as those of Aaa bonds,
or fluctuations of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat larger
than those applicable to Aaa securities. Bonds which are rated A by Moody's
possess many favorable investment attributes and are to be considered upper
medium-grade obligations. Factors giving security to payment of principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Moody's Baa rated bonds are considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Bonds which are rated Ba are judged to have speculative elements because their
future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class, because the protection of interest and
principal payments may be very moderate and not well safeguarded.

Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period of time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of attaining any real
investment standing.

- --------------------------------------------------------------------------------

S&P's RATINGS

Bonds rated AA by S&P have a very strong capacity to pay interest and differ
only in a small degree from issues rated AAA (S&P's highest rating). Bonds rated
AAA are considered by S&P to be the highest grade obligations and have an
extremely strong capacity to pay interest and principal. Bonds rated A by S&P
have a strong capacity to pay principal and interest, although they are somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions.

S&P's BBB rated bonds are regarded as having adequate capacity to pay interest
and principal. Although these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal.

Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and principal
in accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While such bonds may
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

[Logo]

SUBSCRIPTION AGREEMENT

MAILING INSTRUCTIONS:

1. Complete Subscription Agreement

2. Make check payable to 'Cohen & Steers Equity Income Fund'

3. Mail Subscription Agreement and
check to: Cohen & Steers Equity Income Fund, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208

FOR ASSISTANCE PLEASE CALL: (800) 437-9912

- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1 ACCOUNT TYPE (Please print; indicate only one registration type)

[ ] INDIVIDUAL OR JOINT ACCOUNT

-------------------------------------------------------- ------------------------
Name Social Security Number

--------------------------------------------------------
Name of Joint Registrant, if any.
(For joint registrations, the account registrants will be joint tenants with the right of survivorship and
not tenants in common unless tenants in common or community property registrations are requested.)

[ ] TRUST [ ] CORPORATION [ ] PARTNERSHIP [ ] OTHER ENTITY
-------------------------------------------------------- -------------------------
Name of Entity Tax Identification Number

-------------------------------------------------------- -------------------------
Name of Trust Agreement (if applicable) Date of Trust Agreement (if applicable)

[ ] UNIFORM GIFT TO MINORS, OR [ ] UNIFORM TRANSFER TO MINORS (where allowed by Law)

-------------------------------------------------------- Under the________________state of residence
Name of Adult Custodian (only one permitted) of minor) Uniform Gifts/Transfer to Minor's
Act

-------------------------------------------------------- ------------------------------------
Name of Minor (only one permitted) Minor's Social Security Number

- ---------------------------------------------------------------------------------------------------------------
2 MAILING ADDRESS

________________________________________________________ (____)_______________________________
Street or P.O. Box Home Telephone Number

________________________________________________________ (____)_______________________________
City and State Zip Code Business Telephone Number

- ---------------------------------------------------------------------------------------------------------------
3 INVESTMENT INFORMATION

Amount to invest $________________________

Class of shares (check one): Class A [ ] Class B [ ] Class C [ ]

The minimum investment in each class of shares is $1,000. The maximum investment in Class B shares is
$250,000. Do not send cash. Investment will be paid for by (please check one):
[ ] Check or draft made payable to 'Cohen & Steers Equity Income Fund, Inc.'

[ ] Wire through the Federal Reserve System.* _____________________________
Wire Reference Control Number

* Call (800) 437-9912 to notify the Fund of investments by wire and to obtain a Wire Reference Control
Number.

- ---------------------------------------------------------------------------------------------------------------
4 AUTOMATIC INVESTMENT PLAN

The Automatic Investment Plan makes possible regularly scheduled monthly purchases of Fund shares of the
Class selected above. The Fund's Transfer Agent can arrange for an amount of money selected by you ($100
minimum) to be deducted from your checking account and used to purchase shares of the Fund.

Please debit $___________________ from my checking account beginning on ________________________*.
(Month)

Please debit my account on (check one): [ ] 1st of Month [ ] 15th of Month

*To initiate the Automatic Investment Plan, Section 9 of this Subscription Agreement must be completed.
</TABLE>

<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------

5 REDUCED SALES CHARGE - CLASS A SHARES

Rights of Aggregation or Accumulation

[ ] I apply for Rights of Aggregation reduced sales charges based on the following accounts:

[ ] I apply for Rights of Accumulation reduced sales charges based on the following accounts:

Account Name Social Security Number
1.--------------------------------------------------------- ------------------------

2.--------------------------------------------------------- ------------------------

3.--------------------------------------------------------- ------------------------

LETTER OF INTENT

[ ] I am already investing under an existing Letter of Intent.

[ ] I agree to the Letter of Intent provisions in the Fund's current prospectus. During a 12 month period,
I plan to invest a dollar amount of at least: [ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $1,000,000

NET ASSET VALUE PURCHASE

[ ] I certify that I qualify for an exemption from the sales charge by meeting the conditions set forth in
the Prospectus.

- ---------------------------------------------------------------------------------------------------------------
6 EXCHANGE PRIVILEGES

Exchange privileges will be automatically granted unless you check the box below. Shareholders wishing to
exchange into other Cohen & Steers Funds should consult the EXCHANGE PRIVILEGE section of the Prospectus.
(Note: If shares are being purchased through a dealer, please contact your dealer for availability of this
service.)

[ ] I decline the exchange privilege.

- ---------------------------------------------------------------------------------------------------------------
7 REDEMPTION PRIVILEGES

Shareholders may select the following redemption privileges by checking the box(es) below. See REDEMPTION OF
SHARES section in the Prospectus for further details. Redemption privileges will be automatically declined
for boxes not checked.

[ ] I authorize the Transfer Agent to redeem shares in my account(s) by telephone, in accordance with the
procedures and conditions set forth in the Fund's current Prospectus.

[ ] I wish to have redemption proceeds paid by wire (please complete Section 9).

- ---------------------------------------------------------------------------------------------------------------
8 DISTRIBUTION OPTIONS

Dividends and capital gains may be reinvested or paid by check. If no options are selected below, both
dividends and capital gains will be reinvested in additional Fund shares.

Dividends [ ] Pay in cash. [ ] Reinvest.

Capital Gains [ ] Pay in cash. [ ] Reinvest.

[ ] I wish to have my distributions paid by wire (please complete Section 9).

- ---------------------------------------------------------------------------------------------------------------
9 BANK OF RECORD (FOR WIRE INSTRUCTIONS AND/OR THE AUTOMATIC INVESTMENT PLAN)

PLEASE ATTACH A VOIDED CHECK FROM YOUR BANK ACCOUNT.

------------------------------------------------------- ------------------------------------
Bank Name Bank ABA Number

------------------------------------------------------- ------------------------------------
Street or P.O. Box Bank Account Number

------------------------------------------------------- ------------------------------------
City and State Zip Code Account Name
</TABLE>

<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
10 SIGNATURE AND TAXPAYER CERTIFICATION

By signing this form, the Investor represents and warrants that: (A) the Investor has the full right, power
and authority to invest in the Fund; and (b) the Investor has received a current prospectus of the Fund and
agrees to be bound by its terms. Persons signing as representatives or fiduciaries of corporations,
partnerships, trusts or other organizations are required to furnish corporate resolutions or similar
documents providing evidence that they are authorized to effect securities transactions on behalf of the
Investor (alternatively, the secretary or designated officer of the organization may certify the authority
of the persons signing on the space provided below). In addition, signatures of representatives or
fiduciaries of corporations and other entities must be accompanied by a signature guarantee by a commercial
bank that is a member of the Federal Deposit Insurance Corporation, a trust company or a member of a
national securities exchange.

- ---------------------------------------------------------------------------------------------------------------
PLEASE CHECK ONE:

[ ] U.S. CITIZEN/TAXPAYER

UNDER THE PENALTIES OF PERJURY, THE UNDERSIGNED CERTIFIES THAT: (1) THE TAXPAYER IDENTIFICATION NUMBER
PROVIDED IS CORRECT, AND (2) I/WE ARE NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE: (A) I/WE ARE EXEMPT FROM
BACKUP WITHHOLDING, OR (B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ('IRS') THAT I/WE ARE
SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS
HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. NOTE: IF YOU HAVE BEEN NOTIFIED BY THE
IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER-REPORTING INTEREST OF DIVIDENDS ON
YOUR TAX RETURN, YOU MUST CROSS OUT ITEM 2 ABOVE.

[ ] NON U.S. CITIZEN/TAXPAYER (FORM W-8 ATTACHED)

INDICATE COUNTRY OF RESIDENCE FOR TAX PURPOSES____________________________________________________________
UNDER PENALTY OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS AND I/WE ARE EXEMPT FOREIGN PERSONS
AS DEFINED BY THE IRS. THE IRS DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAT
THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.

- ---------------------------------------------------------------------------------------------------------------
I certify that (i) the information provided on this Subscription Agreement is true, correct and complete,
(2) I have read the prospectus for the Fund and agree to the terms thereof, and (3) I am of legal age or an
emancipated minor.

x_____________________________________ ___________ x____________________________________ ____________
Signature (Owner, Trustee, Etc.) Date Signature (Joint Owner, Co-Trustee) Date

- ---------------------------------------------------------------------------------------------------------------
FOR AUTHORIZED DEALER USE ONLY

We hereby authorize the Transfer Agent to act as our agent in connection with the transactions authorized by
the Subscription Agreement and agree to notify the Transfer Agent of any purchases made under a Letter of
Intent, Rights of Accumulation or Rights of Aggregation. If the Subscription Agreement includes a Telephone
Redemption Privilege, we guarantee the signature(s) above.

___________________________________________________________ _____________________________________
Dealer's Name Dealer Number

___________________________________________________________ _____________________________________
Main Office Address Branch Number

___________________________________________________________ _____________________________________
Representative's Name Rep. Number

___________________________________________________________ (____)_______________________________
Branch Address Telephone Number

___________________________________________________________ _____________________________________
Authorized Signature of Dealer Date
</TABLE>

____________________________________ ___________________________________

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.

- ---------------------------------------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table..................................................................................................... 2
Investment Objectives and Policies............................................................................ 3
Investment Techniques......................................................................................... 8
Management of the Fund........................................................................................ 10
Determination of Net Asset Value.............................................................................. 13
Sales Charges................................................................................................. 14
Purchase of Shares............................................................................................ 19
Exchange Privilege............................................................................................ 22
Redemption of Shares.......................................................................................... 22
Dividends and Distributions................................................................................... 24
Taxation...................................................................................................... 25
Organization and Description of Capital Stock................................................................. 26
Custodian and Transfer and Dividend Disbursing Agent.......................................................... 26
Reports to Shareholders....................................................................................... 27
Performance Information....................................................................................... 27
Additional Information........................................................................................ 28
Appendix A: Description of Bond Ratings....................................................................... 28
</TABLE>

[Logo]

------------------
PROSPECTUS
------------------

INVESTMENT ADVISER

COHEN & STEERS CAPITAL MANAGEMENT, INC.
757 THIRD AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 832-3232

TRANSFER AGENT

CHASE GLOBAL FUNDS SERVICES COMPANY
73 TREMONT ST.
BOSTON, MASSACHUSETTS 02108-3913
TELEPHONE: (800) 437-9912

, 1997

____________________________________ ___________________________________

[Logo]

757 Third Avenue
New York, New York 10017
(212) 832-3232
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION

, 1997

Cohen & Steers Equity Income Fund, Inc. (the 'Fund') is a non-diversified,
open-end management investment company that seeks to achieve high current income
through investment in real estate securities. Capital appreciation is a
secondary objective. Under normal circumstances, the Fund will invest at least
65% of its total assets in the equity securities of real estate companies. Up to
35% of the Fund's total assets may be invested in debt securities issued or
guaranteed by real estate companies. The Fund may also invest in options,
financial futures and currency contracts. There can be no assurance that the
Fund will achieve its investment objectives. 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 , 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.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS AND POLICIES
- --------------------------------------------------------------------------------

Cohen & Steers Equity Income Fund, Inc. (the 'Fund') is a registered open-end
management investment company. The fundamental investment objectives 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, or pledge its assets, except that the Fund may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of securities.
Borrowing in the aggregate may not exceed 15%, and borrowing for purposes other
than meeting redemptions may not exceed 5%, of the value of the Fund's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of the Fund's total assets will be repaid before any
subsequent investments are made;

(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 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 Objectives 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.

- --------------------------------------------------------------------------------
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 securities issued by 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.

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 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 that is 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 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.

- --------------------------------------------------------------------------------
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 Adviser, and Cohen & Steers Realty Shares, Inc. and
Cohen & Steers Special Equity Fund, Inc., both of which are open-end investment
companies sponsored by the Adviser.

<TABLE>
<CAPTION>
NAME AND ADDRESS OFFICE PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS
- --------------------------------- ------------------- -------------------------------------------------------
<S> <C> <C>
*Robert H. Steers ............... Director, Chairman Chairman of Cohen & Steers Capital Management, Inc.,
757 Third Avenue and Secretary the Fund's investment adviser. Chairman and Presi-
New York, New York dent of Cohen & Steers Securities, Inc.
Age: 44
</TABLE>

<TABLE>
<CAPTION>
NAME AND ADDRESS OFFICE PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS
- --------------------------------- ------------------- -------------------------------------------------------
<S> <C> <C>
*Martin Cohen ................... Director, President President of Cohen & Steers Capital Management, Inc.,
757 Third Avenue and Treasurer the Fund's investment adviser. Vice President of
New York, New York Cohen & Steers Securities, Inc.
Age: 48

Gregory C. Clark ................ Director Principal of Wellspring Management Group.
P.O. Box 5697
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 Inc. since 1986 and of
610 Fifth Avenue Wellsford Real Properties, Inc. since 1992. Mr.
New York, New York Lynford is also an Emeritus Trustee of the National
Age: 49 Trust for Historic Preservation.

Willard H. Smith Jr. ............ Director Board member Essex Property Trust, Inc., Highwoods
7 Slayton Drive Properties, Inc., Realty Income Corporation and
Short Hills, New Jersey Willis Lease Finance Corporation. Managing director
Age: 60 at Merrill Lynch & Co., Equity Capital Markets
Division from 1983 to 1995.

Elizabeth O. Reagan ............. Vice President Senior Vice President of Cohen & Steers Capital Manage-
757 Third Avenue ment, Inc., the Fund's investment adviser, since
New York, New York 1996 and prior to that Vice President of Cohen &
Age: 34 Steers Capital Management, Inc.

Adam Derechin ................... Vice President and Vice President of Cohen & Steers Capital Management,
757 Third Avenue Assistant Treasurer Inc., the Fund's investment adviser, since 1995. Ad-
New York, New York ministrator to Cohen & Steers Capital Management,
Age: 33 Inc. since 1993. Prior to that studied at the
University of Maryland at College Park.
</TABLE>

- ------------

* 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 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 compensation of Directors
by the Fund and by the fund complex of which the Fund is a part for the fiscal
year ended December 31, 1997. Officers of the Fund and Directors who are
interested persons of the Fund do not receive any compensation from the

Fund or any other fund in the fund complex which is a U.S. registered investment
company. Neither the Fund nor any other fund in the fund complex of which the
Fund is a part provides compensation in the form of pension or retirement
benefits to any of its directors. In the Column headed 'Total Compensation From
Registrant and Fund Complex Paid to Directors,' the number in parentheses
indicates the total number of boards in the fund complex on which the Director
serves.

COMPENSATION TABLE
FISCAL YEAR ENDED DECEMBER 31, 1997
(ESTIMATED)

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM REGISTRANT
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID TO
NAME OF PERSON, POSITION FROM REGISTRANT DIRECTORS
- ------------------------------------------------ --------------- ---------------
<S> <C> <C>
Gregory C. Clark*, Director..................... $ 3,750 $32,575(5)
Martin Cohen**, Director and President.......... 0 0(5)
George Grossman*, Director...................... 3,750 32,375(5)
Jeffrey H. Lynford*, Director................... 3,750 32,375(5)
Willard H. Smith Jr.*........................... 3,750 32,375(5)
Robert H. Steers**, Director and Chairman....... 0 0(5)
</TABLE>

- ------------

* 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.

- --------------------------------------------------------------------------------

ADVISER AND INVESTMENT ADVISORY AGREEMENT

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. and Cohen & Steers Special
Equity Fund, Inc., both of which are open-end investment companies. 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 0.75% of the average daily value of the net
assets of the Fund.

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 August 13, 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.

- --------------------------------------------------------------------------------

ADMINISTRATOR AND SUB-ADMINISTRATOR

The Adviser has also 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 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 0.02% 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 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. Under the Administration Agreement, the Adviser remains
responsible for monitoring and overseeing the performance by Chase of its
obligations to the Fund under its agreement with the Fund, subject to the
overall authority of the Fund's Board of Directors.

Under the terms of the Administration Agreement, the Fund pays Chase a monthly
administration fee at the annual rate of 0.08% on the first $500 million of the
Fund's average daily net assets and at lower rates on net assets in excess of
that amount. Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108, 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 Sub-Administration Agreement is terminable by either party on sixty days
written notice to the other. The Sub-Administration Agreement provides that in
the absence of willful misfeasance, bad faith or gross negligence on the part of
the Sub-Administrator, or of reckless disregard of its obligations thereunder,
Chase shall not be liable for any action or failure to act in accordance with
its duties thereunder.

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DISTRIBUTION PLAN

The Fund has adopted a Distribution Plan and related agreements pursuant to Rule
12b-1 under the Investment Company Act of 1940, which provides that investment
companies may pay distribution expenses, directly or indirectly, pursuant to a
Distribution Plan adopted by the investment company's Board and approved by its
shareholders. Under the Distribution Plan, the Fund makes assistance payments to
brokers, financial institutions and other financial intermediaries ('payee(s)')
for shareholder accounts ('qualified accounts') as to which a payee has rendered
distribution assistance services to shareholders at annual rates of 0.25%, 0.75%
and 0.75% of the

average net asset value of the Fund attributable to the Class A shares, the
Class B shares and the Class C shares, respectively. Substantially all such
monies are paid by CSSI to payees for their distribution assistance with any
remaining amounts being used to partially defray other expenses incurred by CSSI
in distributing Fund shares. In addition to the amounts required by the
Distribution Plan, CSSI may, in its discretion, pay additional amounts from its
own resources. The Directors have determined that there is a reasonable
likelihood the Distribution Plan will benefit the Fund and its shareholders.

The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling, or
distributing securities, although national and state chartered banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. Those persons who wish to provide assistance in the form of
activities not primarily intended to result in the sale of Fund shares (such as
administrative and account maintenance services) may include banks, upon advice
of counsel that they are permitted to do so under applicable laws and
regulations, including the Glass-Steagall Act. In such event, no preference will
be given to securities issued by such banks as investments and the assistance
payments received by such banks under the Distribution Plan may or may not
compensate the banks for their administrative and account maintenance services
for which the banks may also receive compensation from the bank accounts they
service. It is Fund management's position that payments to banks pursuant to the
Distribution Plan for activities not primarily intended to result in the sale of
Fund shares, such as administrative and account maintenance services, do not
violate the Glass-Steagall Act. However, this is an unsettled area of the law
and if a determination contrary to management's position is made by a bank
regulatory agency or court concerning payments to banks contemplated by the
Distribution Plan, any such payments will be terminated and any shares
registered in the bank's name, for its underlying customer, will be registered
in the name of that customer. Financial institutions providing distribution
assistance or administrative services for the Fund may be required to register
as securities dealers in certain states.

Under the Distribution Plan, the Fund's Treasurer reports quarterly the amounts
and purposes of assistance payments. During the continuance of the Distribution
Plan the selection and nomination of the disinterested Directors are at the
discretion of the disinterested Directors currently in office.

The Distribution Plan and related agreements were duly approved by the
shareholders and may be terminated at any time by a vote of the shareholders or
by vote of the disinterested Directors. The Distribution Plan and related
agreements may be renewed from year to year if approved by a vote of the
majority of the Board of Directors, and by the vote of a majority of the
disinterested Directors cast in person at a meeting called for the purpose of
voting on such renewal. The Distribution Plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval.
All material amendments to the Distribution Plan must be approved by a vote of
the Board of Directors and of the disinterested Directors, cast in person at a
meeting called for the purpose of such vote.

Pursuant to the rules of the NASD, CSSI is required to limit aggregate initial
sales charges, deferred sales charges and asset-based sales charges to 6.25% of
total gross sales of each class of shares. Interest charges on unreimbursed
distribution expenses equal to the prime rate plus one percent per annum may be
added to the 6.25% limitation. Sales from the reinvestment of dividends and
distributions are not included in the calculation of the 6.25% limitation. The
annual asset-based sales charge on shares of the Fund may not exceed .75 of 1%
per class. The 6.25% limitation applies to each class of the Fund rather

than on a per shareholder basis. If aggregate sales charges were to exceed 6.25%
of total gross sales of any class, all sales charges on shares of that class
would be suspended.

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DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value per share of each class 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
materially affect the Fund's net asset value. The New York Stock Exchange is
closed on Saturdays, Sundays, and on New Years' Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas 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, Jr. Day, Columbus Day 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' less any applicable contingent deferred sales charge on redemptions of
Class B shares made within six years of purchase and on certain redemptions of
Class A and Class C shares made within 12 months following purchases without a
sales charge), 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.

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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 Rules of Fair Practice 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.

- --------------------------------------------------------------------------------
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) for taxable years beginning before January 1, 1998, 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 (this restriction will not be applicable beginning in 1998);
(c) diversify its holding so that, at 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 Funds 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 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 value of a share of the Fund on the reinvestment
date.

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

Gains 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 is 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 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 though 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.

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 of 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 identical to that which is sold short may be reduced or
eliminated as a result of the short sale. In many cases, the Fund is required 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.

Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain 'appreciated financial positions' if the
Fund enters into a short sale, offsetting notational principal contract, futures
or forward contract transactions with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.

Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the fund will recognize gain at that time as though it
had closed the short sale. Future regulations may supply similar treatment to
other transactions with respect to property that becomes substantially
worthless.

- --------------------------------------------------------------------------------

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 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.

- --------------------------------------------------------------------------------

INVESTMENT 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
existing Treasury regulations, 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 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 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; any resulting
loss and any loss from an actual dispostion of the stock would be reported as
ordinary loss to the extent of any net gains reported in prior years.

- --------------------------------------------------------------------------------

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 certifies his
or her non-U.S. status under penalties of perjury or otherwise establishes an
exemption. See 'Taxation -- Backup Withholding,' above. If a for-

eign 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 entited 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.

The Fund was incorporated on July 3, 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of Common Stock, $.001 par value. The
authorized shares of the Fund are currently divided into three classes
designated Class A, Class B and Class C. The Fund's shares have no preemptive or
conversion rights. Each class of shares represents an interest in the same
assets of the Fund and is identical in all respects except that (i) each class
is subject to different sales charges and distributions and service fees, which
may affect performance, and (ii) each class has exclusive voting rights on any

matter submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class. With the
exceptions noted above, 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.

- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------

Cohen & Steers Securities, Inc., an affiliate of the Adviser, serves as the
principal underwriter of the 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.

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. Total return will be
calculated separately for Class A, Class B and Class C shares. The performance
of each class of shares will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and such class' 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

<TABLE>
<S> <C> <C>
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 payment of the maximum sales charge and reinvestment of all dividends and
distributions.
</TABLE>

- --------------------------------------------------------------------------------

AGGREGATE TOTAL RETURNS

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

<TABLE>
<S> <C> <C>
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 the 1-, 5- or 10-year period (or fractional portion thereof),
assuming payment of the maximum sales charge and reinvestment of all dividends and
distributions.
</TABLE>

- --------------------------------------------------------------------------------

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:

a -- b
2[( ------ + 1)'pp'6 -- 1]
cd
<TABLE>
<S> <C> <C>
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.
</TABLE>

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 Center, 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.

COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 7, 1997

<TABLE>
<S> <C>
ASSETS:
Cash.......................................................................................... $100,000
Deferred organization expenses................................................................ 123,710
--------
Total Assets............................................................................ 223,710
--------
LIABILITIES
Accrued payables.............................................................................. 123,710
--------
Total Liabilities....................................................................... 123,710
--------
NET ASSETS applicable to 8,726.003 shares of $.001 par value common stock outstanding............... $100,000
--------
--------
Net asset value and redemption price per share ($100,000/8,726.003 shares outstanding).............. $ 11.46
--------
--------
Offering price per share (including 4.5% sales charge).............................................. $ 12.00
--------
--------
</TABLE>

NOTE 1: ORGANIZATION

Cohen & Steers Equity Income Fund, Inc. (the 'Fund') was incorporated under the
laws of the State of Maryland on July 3, 1997 and is registered under the
Investment Company Act of 1940 (the 'Act'), as amended, as an open-end
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 8,726.003 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: AGREEMENTS

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 Adviser will receive a fee from the
Fund, accrued daily and paid monthly, at an annual rate equal to 0.75% 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.

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Shareholders and Board of Directors of Cohen & Steers Equity Income Fund,
Inc.:

We have audited the accompanying statement of assets and liabilities of Cohen &
Steers Equity Income Fund, Inc. (the 'Fund') as of August 7, 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 Equity Income Fund, Inc. as of August 7, 1997, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

New York, New York
August 12, 1997

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

Part A -- None.

Part B -- Report of Independent Certified Accountant, Statement of
Assets and Liabilities, Notes to Financial Statements.

Part C -- 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. Form of Underwriting Agreement**

7. Not Applicable

8. Form of Domestic Custody Agreement**

9. (A) Form of Administration Agreement**

(B) Mutual Fund Services (Sub-Administration) Agreement**

(D) Form of Shareholder Service Agreement**`D'

10. Opinion and Consent of Dechert Price & Rhoads**`D'

11. Consent of Independent Accountants

12. Not Applicable

13. Investment Representation Letter**

14. Not Applicable

15. Distribution Plan**`D'

16. Not Applicable

17. Not Applicable

18. Powers of Attorney

- ------------

* Filed with initial registration statement on July 9, 1997.

** Filed with Pre-Effective Amendment No. 1 on August 21, 1997.

`D' Applies to Class A shares only.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not Applicable.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of November 4, 1997, there were 596 record holders of the Class A shares
of the Registrant. There are no outstanding Class B or Class C shares.

ITEM 27. INDEMNIFICATION

It is the Registrant's policy to indemnify its directors, officers,
employees and other agents to the maximum extent permitted by Section 2 - 418 of
the General Corporation Law of the State of Maryland 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. 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. The liability

C-1

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 4 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, for any loss suffered by the
Registrant or its shareholders is set forth in Section 6 of the Administration
Agreement, filed as Exhibit 9 to this Registration Statement.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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.

Cohen & Steers Special Equity 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.

<TABLE>
<CAPTION>
POSITION AND POSITIONS AND
NAME OFFICES WITH DISTRIBUTOR OFFICES WITH REGISTRANT
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Robert H. Steers.............. President and Chairman Chairman, Director and
Secretary
Martin Cohen.................. Vice President President, Director and
Treasurer
</TABLE>

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. MANAGEMENT SERVICES

Not Applicable.

ITEM 32. UNDERTAKINGS

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.

C-2

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Post-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 6th day of November, 1997.

COHEN & STEERS EQUITY INCOME FUND, INC.

By /s/ MARTIN COHEN
......................................
MARTIN COHEN
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 has been signed below by the following
persons in the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------

<C> <S> <C>
/s/ MARTIN COHEN President, Treasurer and Director November 6, 1997
.........................................
(MARTIN COHEN)

/s/ ROBERT H. STEERS Director November 6, 1997
By........................................
(ROBERT H. STEERS)

* Director November 6, 1997
By........................................
(GREGORY C. CLARK)

Director November , 1997
By........................................
(GEORGE GROSSMAN)

* Director November 6, 1997
By........................................
(JEFFREY H. LYNFORD)

* Director November 6, 1997
By........................................
(WILLARD H. SMITH, JR.)

/s/ ROBERT H. STEERS
By........................................
* ROBERT H. STEERS
AS ATTORNEY-IN-FACT
</TABLE>

C-3

EXHIBITS

<TABLE>
<S> <C>
99.11 -- Consent of Independent Accountants................................................................
99.18 -- Powers of Attorney................................................................................
</TABLE>

C-4

STATEMENT OF DIFFERENCES
------------------------

The dagger symbol shall be expressed as............................ `D'
Characters normally expressed as superscript shall be preceded by.. 'pp'

<PAGE>

[COOPERS & LYBRAND LETTERHEAD]

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in the Post-Effective Amendment No.1 to the
Registration Statement of Cohen & Steers Equity Income Fund, Inc. on Form N-1A
(File Nos. 33-30919 and 811-8287) of our report dated August 12, 1997, on our
audit of the statement of assets and liabilities of Cohen & Steers Equity Income
Fund, Inc. as of August 7, 1997, which report is included in the Post-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.

/s/ Coopers & Lybrand L.L.P.

New York, New York
November 5, 1997

<PAGE>

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 Equity Income 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.

November 5, 1997 /s/ Jeffrey H. Lynford
--------------------------
Jeffrey H. Lynford

POWER OF ATTORNEY

November 5, 1997 /s/ William H. Smith Jr.
---------------------------
William H. Smith Jr.

POWER OF ATTORNEY

November 5, 1997 /s/ Gregory C. Clark
---------------------------
Gregory C. Clark

<PAGE>