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COHEN & STEERS EQUITY INCOME FUND, INC.
October 17, 1997
To Our Shareholders:
We would like to take this opportunity to welcome you as shareholders of
Cohen & Steers Equity Income Fund, Inc. and submit to you the Fund's quarterly
report for the period ended September 30, 1997. The Fund commenced operations on
September 2, 1997 at an initial net asset value per share of $11.46 and at
September 30, 1997 the Fund's net asset value was $11.89 per share. The first
regular quarterly dividend is scheduled for review by the Board of Directors in
December.
FUND OVERVIEW
As described in the prospectus, the Fund's primary investment objective is
current income, with capital appreciation as a secondary objective. We intend to
achieve this objective by investing in the equity securities of companies which
are primarily engaged in the real estate industry or which own significant real
estate assets. The Fund may also invest up to 35% of its assets in debt
securities of real estate companies. The Fund's holdings will normally consist
of a diverse group of companies that represent various property types. These
companies' property holdings will represent broad diversification by geographic
region.
The majority of the securities held by the Fund are the common and
preferred stocks of real estate investment trusts, commonly referred to as
REITs. REITs primarily own equity interests in income-producing properties and,
provided that they comply with certain requirements, do not pay corporate income
taxes. Among these requirements is that REITs must distribute at least 95% of
their taxable income to shareholders in the form of dividends. Therefore, we
believe that REITs are ideal income vehicles. In addition, REITs tend to have
returns that exhibit a low correlation to the stock and bond markets, thereby
adding diversification benefits to an investor's portfolio.
We believe that the universe of companies and, therefore, the investment
opportunities available to the Fund will continue to grow at a substantial rate.
This is due to the prevailing trend towards increasing ownership of real estate
by companies that are publicly owned. For example, since 1992 the number of
publicly-traded equity REITs has almost doubled to 172 companies while the
industry's equity market capitalization has increased more than tenfold to $132
billion. In addition, a sizable universe of preferred stocks issued by REITs is
emerging and offers some very significant dividend income opportunities.
INVESTMENT REVIEW
We are pleased to report that the Fund provided a 3.8% total return in the
short period from its inception date to September 30, 1997. As shown in the
enclosed Schedule of Investments, at quarter end the Fund's assets were invested
in forty positions that represent broad property sector and geographic
diversification. REITs are performing very well due to the strong national
economy, recovering real estate markets, an attractive property acquisition
environment, and increased demand for real estate securities on the part of a
broad range of investors. We believe that the real estate investment environment
will remain favorable because these trends are expected to continue. Another
important factor is that the securitization of real estate, or the shift in
ownership from private to public hands, is still in the early stages.
Illustrative of this, the public market owns less than 10% of the
investment-grade real estate in this country.
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COHEN & STEERS EQUITY INCOME FUND, INC.
At this point in the real estate cycle, we believe that REITs offer
investors much more than high current dividend yields. Accordingly, our current
strategy emphasizes three basic themes:
DIVIDEND GROWTH. An important element of our investment strategy is to
identify companies that not only have above-average yields but also have
earnings and dividend growth that will result in capital appreciation. Today,
most REITs employ conservative financial structures and pay dividends that are
well-covered by recurring cash flows. This enhances the safety of dividends.
Further, because of the strong fundamentals of the real estate industry and
their ability to execute sound business plans, many REITs in our portfolio are
enjoying impressive earnings increases and are able to raise their dividends at
healthy rates.
UNDERVALUED COMPANIES. We have identified a significant number of companies
whose high current yields and depressed stock prices do not reflect the value of
their assets or their growth potential. Some are smaller companies with focused
geographic or property type strategies that are performing well but have failed
to gain the recognition of the investment community. Others are companies in the
midst of a turnaround in financial performance, which also is not yet fully
appreciated by investors. In both cases, these companies' attractive valuations
could lead either to above-average investment returns or to their eventual
participation in the ongoing consolidation trend in the real estate industry.
UNDERVALUED PREFERRED AND DEBT SECURITIES. Added to the rapid growth in
common equity capitalization is the emergence of a sizable REIT preferred equity
market, which now totals 72 issues with more than $7 billion in capitalization.
Many of these issuers have investment grade credit ratings and substantial fixed
charge coverage. Stable cash flows, conservative balance sheets and healthy
coverage levels make these REIT securities compelling high yield investments. We
also see a unique value-added opportunity in non-investment grade preferreds
which have the potential to be upgraded to investment grade securities.
We believe that the combination of strong real estate fundamentals and the
securitization of the real estate industry will provide many attractive
income-oriented opportunities for the Fund. It is notable that some market
strategists are projecting that the supply of yield-oriented financial
instruments is dwindling. Consequently, the attractive dividends paid by REITs
could become more highly valued by the investment community. As a result, we are
confident in our ability to deliver satisfactory investment returns.
Sincerely,
<TABLE>
<S> <C>
/s/ Martin Cohen /s/ Robert Steers
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
/s/ Steven R. Brown
STEVEN R. BROWN
Senior Vice President
Cohen & Steers Capital Management, Inc.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF DIVIDEND
SHARES VALUE YIELD*
--------- ---------- ---------------
<S> <C> <C> <C> <C>
EQUITIES 93.40%
COMMON STOCK 71.42%
APARTMENT/RESIDENTIAL 13.29%
Associated Estates Realty Corp............................ 11,600 $ 278,400 7.75%
Colonial Properties Trust................................. 6,900 206,138 6.96%
Merry Land & Investment Co................................ 17,400 383,886 7.07%
Oasis Residential, $2.25, Series A (Convertible
Preferred)............................................. 2,200 58,575 8.45%
Post Properties........................................... 3,800 151,050 5.99%
Summit Properties......................................... 7,100 155,313 7.27%
United Dominion Realty Trust.............................. 7,200 108,000 6.73%
----------
1,341,362
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DIVERSIFIED 1.21%
`D'Ivex Packaging Corp.................................... 5,000 80,000 0.00%
Pacific Gulf Properties................................... 1,800 42,750 6.91%
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122,750
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HEALTH CARE 14.49%
American Health Properties................................ 15,600 382,200 8.57%
Health Care REIT.......................................... 4,900 134,750 7.71%
Healthcare Realty Trust................................... 12,700 361,156 7.03%
LTC Properties............................................ 18,500 351,500 7.68%
Meditrust................................................. 2,400 99,600 6.92%
Nationwide Health Properties.............................. 1,800 43,313 6.48%
Omega Healthcare Investors................................ 2,500 90,000 7.17%
----------
1,462,519
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OFFICE 3.26%
Arden Realty Group........................................ 5,000 156,875 5.10%
Brandywine Realty Trust................................... 6,300 150,806 6.02%
Cornerstone Properties.................................... 1,100 21,038 6.27%
----------
328,719
----------
OFFICE/INDUSTRIAL 3.55%
TriNet Corporate Realty Trust............................. 10,200 358,275 7.17%
----------
SELF STORAGE 2.49%
Shurgard Storage Centers.................................. 3,100 90,675 6.56%
Sovran Self Storage....................................... 5,100 160,650 6.86%
----------
251,325
----------
</TABLE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF DIVIDEND
SHARES VALUE YIELD*
--------- ---------- ---------------
<S> <C> <C> <C> <C>
SHOPPING CENTER 33.13%
Community Center 16.02%
Alexander Haagen Properties............................... 27,300 $ 448,743 8.76%
Burnham Pacific Properties................................ 8,300 122,944 6.75%
First Washington Realty Trust............................. 12,600 310,275 7.92%
Glimcher Realty Trust..................................... 19,400 444,987 8.38%
Mid-Atlantic Realty Trust................................. 4,800 64,200 7.18%
Pennsylvania REIT......................................... 300 7,669 7.35%
Saul Centers.............................................. 11,400 218,025 8.16%
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1,616,843
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Factory Outlet Center 9.99%
Horizon Group............................................. 20,600 248,488 11.61%
Prime Retail, $2.13, Series B (Convertible Preferred)..... 13,500 327,375 8.76%
Tanger Factory Outlet Centers............................. 14,700 432,731 7.47%
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1,008,594
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Regional Malls 7.12%
CBL & Associates.......................................... 10,700 277,531 6.82%
JP Realty................................................. 2,400 61,350 6.81%
The Mills Corp............................................ 14,700 379,444 7.32%
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718,325
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TOTAL SHOPPING CENTER..................................... 3,343,762
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TOTAL COMMON STOCK (Identified cost -- $7,088,643)........
7,208,712
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PREFERRED STOCK 21.98%
CarrAmerica Realty Corp, 8.57%, Series B.................. 18,100 461,550 8.40%
Crown American Realty Trust, 11.00%, Series A............. 9,000 481,500 10.28%
Liberty Properties Trust, 8.80%, Series A................. 18,000 459,000 8.63%
Taubman Centers, 8.30%, Series A.......................... 16,000 400,000 8.30%
Winston Hotels, Inc., 9.25%, Series A..................... 16,400 416,150 9.11%
----------
TOTAL PREFERRED STOCK (Identified cost -- $2,212,774).....
2,218,200
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TOTAL EQUITIES (Identified cost -- $9,301,417)...... 9,426,912
----------
</TABLE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C> <C>
COMMERCIAL PAPER 5.78%
Dillards, Inc., 6.00%, 10/1/97 (Identified cost -- $583,000) $583,000 $583,000
-----------
TOTAL INVESTMENTS (Identified cost -- $9,884,417)............ 99.18% 10,009,912
OTHER ASSETS IN EXCESS OF LIABILITIES........................ 0.82% 83,366
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NET ASSETS (Equivalent to $11.89 per share based
on 848,804 shares of capital stock outstanding)...........100.00% $10,093,278
------ -----------
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</TABLE>
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* Dividend yield is computed by dividing the security's current annual dividend
rate by the last sale price on the principal exchange, or market, on which
such security trades.
`D' Non-income producing security.
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COHEN & STEERS EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS*
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET
VALUE
TOTAL NET ASSETS PER SHARE
------------------------ --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 09/02/97**...................................... $ 100,000 $11.46
Net investment income.......................................... $ 52,571 $0.06
Net realized and unrealized gain on investments................ 151,989 0.37
-----
Capital stock transactions:
Sold..................................................... 9,818,002
Redeemed................................................. (29,284)
Net increase in net asset value...................................... 9,993,278 0.43
----------- ------
End of period: 9/30/97............................................... $10,093,278 $11.89
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</TABLE>
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* Financial information included in this report has been taken from the records
of the Fund without examination by independent accountants.
** Commencement of operations.
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COHEN & STEERS EQUITY INCOME FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Willard H. Smith Jr.
Director
Elizabeth O. Reagan
Vice President
Adam Derechin
Vice President
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
FUND ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, MA 02108
(800) 437-9912
CUSTODIAN
The Chase Manhattan Bank, N.A.
3 Chase MetroTech Center
Brooklyn, NY 11245
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
This report is authorized for delivery to other than shareholders of Cohen &
Steers Equity Income Fund, Inc. only when accompanied or preceded by the
delivery of a currently effective prospectus setting forth details of the Fund.
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COHEN & STEERS First Class Mail
EQUITY INCOME FUND U.S. Postage
757 THIRD AVENUE PAID
NEW YORK, NY 10017 Boston, MA
Permit No. 56712
COHEN & STEERS
EQUITY INCOME FUND
STATEMENT OF DIFFERENCES
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The dagger symbol shall be expressed as.................................... `D'
