COHEN & STEERS EQUITY INCOME FUND INC, N-1A EL, 1997-07-09

COHEN & STEERS EQUITY INCOME FUND INC
N-1A EL, 1997-07-09

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1997

FILE NO. 33-
811-
________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

PRE-EFFECTIVE AMENDMENT NO. ______ [ ]

POST-EFFECTIVE AMENDMENT NO. ______ [ ]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]

AMENDMENT NO. ______ [ ]

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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)

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

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

[ ] 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.

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PURSUANT TO THE PROVISIONS OF RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940, REGISTRANT DECLARES THAT AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK ARE BEING REGISTERED UNDER THE SECURITIES ACT OF 1933 BY THIS REGISTRATION
STATEMENT.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________

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COHEN & STEERS EQUITY INCOME FUND, INC.
CROSS REFERENCE SHEET
(AS REQUIRED BY 404(c))
<TABLE>
<CAPTION>
N-1A ITEM LOCATION IN PROSPECTUS
- -------------- ------------------------------------
(CAPTION)
<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
Item 7. Purchase of Securities Being Offered......................... Determination of Net Asset Value;
Purchase of Shares
Item 8. Redemption or Repurchase..................................... Redemption of Shares
Item 9. Pending Legal Proceedings.................................... Not Applicable

<CAPTION>
LOCATION IN STATEMENT OF
PART B ADDITIONAL INFORMATION (CAPTION)
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<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>

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[Logo]

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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.

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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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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
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FEE TABLE
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Shareholder Transaction Expenses

<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price)(1)........................... 4.50%
Maximum sales load imposed on reinvested dividends (and other
distributions)................................................... 0%
Maximum deferred sales load(2)...................................... 0%
</TABLE>

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(1) Sales charges are reduced for larger purchases.

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

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

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

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* 12b-1 expenses may not exceed 0.25% per annum of the Fund's average net
assets. 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.

`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):

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<S> <C>
1 year............................................................. $60
3 years............................................................ $91
</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.

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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 Fund's average net assets until December 31, 1998.
As long as this temporary expense limitation continues, it may lower the Fund's
expenses and increase its total return. After December 31, 1998, the expense
limitation may be terminated or revised at any time, at which time the Fund's
expenses may increase and its total return may be reduced depending on the
total assets of the Fund. Without the expense reimbursement, it is estimated
that the Fund's total operating expenses for the current fiscal year would have
amounted to [ ]% of the Fund's average net assets for the period.

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INVESTMENT OBJECTIVES AND POLICIES
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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. 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.

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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

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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.

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DEBT SECURITIES

The Fund may invest a maximum of 35% of its net 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.

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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

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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.

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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.

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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

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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.

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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 increase in interest
rates. The value of securities of companies which service the real estate
business sector may also be affected by such risks. Thus, the value of the
Fund's shares may change at different rates compared to the value of shares of a
mutual fund with investments in many different industries.

Because the Fund may invest a substantial portion of its assets in REITs, the
Fund may also be subject to certain risks associated with direct investments in
REITs. REITs may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants. Furthermore, REITs are
dependent upon specialized management skills, have limited diversification and
are, therefore, subject to risks inherent in financing a limited number of
projects. In certain cases, the organizational documents of a REIT may grant to
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 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.

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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.

Under these investment requirements, the Fund must invest in at least twelve
securities positions. Ten of the positions may not exceed 5% of total assets
each at the time of purchase; the remaining two positions could each comprise
25% of total assets at the time of purchase. Generally, it is anticipated that
the portfolio will consist of more than twelve positions. 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% in 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
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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

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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.

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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.

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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

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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.

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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.

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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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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.

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 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 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 transac-

<PAGE>

<PAGE>
tions 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 .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 prospectus and statement of additional information, for the
purpose of filings with the Securities and Exchange Commission and state
securities administrators and monitoring and maintaining the effectiveness of
such filings, as appropriate; (v) supervising preparation of quarterly reports
to the Fund's shareholders, notices of dividends, capital gains distributions
and tax credits, and attending to routine correspondence and other
communications with individual shareholders; (vi) supervising the daily pricing
of the Fund's investment portfolio and the publication of the net asset value of
the Fund's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to the Fund, including the
custodian, transfer agent and printers; (viii) providing trading desk facilities
for the Fund; (ix) supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations thereunder, maintaining books
and records for the Fund (other than those maintained by the custodian and
transfer agent) and preparing and filing of tax reports other than the Fund's
income tax returns; and (x) providing executive, clerical and secretarial help
needed to carry out these responsibilities. For its services under the
Administration Agreement, the Adviser receives a monthly fee from the Fund at
the annual rate of .02% of the Fund's average daily net assets.

<PAGE>

<PAGE>
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 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 Mutual Fund Services Agreement, the Fund pays Chase a
monthly fee at the annual rate of .08% on the first $500 million of the Fund's
average daily net assets and at lower rates on 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 a rate not to exceed 0.25% of the average
daily value of the Fund's net assets. 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 of up to 0.10% of the average daily net assets of the Fund 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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value per share will be determined on each day the New York Stock
Exchange is open for trading and on each other day on which there is a
sufficient degree of trading in the Fund's investments to affect the net asset
value, as of the close of trading on the New York Stock Exchange by adding the
market value of all securities in the Fund's portfolio and other assets,
subtracting liabilities (incurred or accrued) and dividing by the total number
of the Fund's shares then outstanding.

For purposes of determining the Fund's net asset value, readily marketable
portfolio securities listed on the New York Stock Exchange are valued, except as
indicated below, at the last sale price reflected on the consolidated tape at
the close of the New York Stock Exchange on the business day as of which such
value is being determined. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices on such day. If no
bid or asked prices are quoted on such day, then the security is valued by such
method as the Directors shall determine in good faith to reflect its fair market
value. Readily marketable securities not listed on the New York Stock Exchange
but listed on other domestic or foreign securities exchanges or admitted to
trading on the National Association of Securities Dealers Automated Quotations,
Inc. ('NASDAQ') National List are valued in a like manner. Portfolio securities
traded on more than one securities exchange are valued at the last sale price on
the business day as of which such value is being determined as reflected on the
tape at the close of the exchange representing the principal market for such
securities.

Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Adviser to be over-
the-counter, but excluding securities admitted to trading on the NASDAQ National
List, are valued at the mean of the current bid and asked prices as reported by
NASDAQ or, in the case of securities not quoted by NASDAQ, the National
Quotation Bureau or such other comparable sources as the Directors deem
appropriate to reflect their fair market value. 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 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.

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

The minimum initial investment to open a shareholder account is $1,000. The
minimum amount for subsequent investments is $500. 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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------

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.

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

AUTOMATIC INVESTMENT PLAN

The Fund's automatic investment 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 program, please refer to the automatic investment plan
application 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.

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

A sales charge may apply, as described below, when purchasing Fund shares. Sales
charges may be reduced for larger purchases as indicated below.

<TABLE>
<CAPTION>
SALES CHARGE AS
INVESTMENT A PERCENTAGE OF
DEALER
CONCESSION
NET AS % OF
OFFERING AMOUNT OFFERING
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>

<PAGE>

<PAGE>
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 THESE ACCOUNTS. 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 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:

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. 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

<PAGE>

<PAGE>
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. Either the shareholder or the Fund may
cancel the arrangement at will.

Sales at Net Asset Value. 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. 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 shares at net
asset value in connection with the acquisition of, or merger or consolidation
with, another investment company. The sales of 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 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.

- --------------------------------------------------------------------------------
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 on certain redemptions
made within 12 months following purchases without a 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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------

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 ((617) 557-8000 for Massachusetts residents)
and requesting that the proceeds be directed as indicated in the Subscription
Agreement. Requests for redemption made by telephone will be accepted if a
proper redemption request is received prior to 4:00 p.m., Eastern time. Shares
will be redeemed at the net asset value determined as of the 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

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

<PAGE>

<PAGE>
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 gain (net long-term capital gain
in excess of net short-term capital loss), if any, is 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 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 at a constant rate,
which may be adjusted from time to time by the Fund's Board of Directors,
although there can be no assurance that it will be able to

<PAGE>

<PAGE>
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.'

- --------------------------------------------------------------------------------
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.

<PAGE>

<PAGE>
cations, 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 , 1997 as a Maryland corporation and is authorized
to issue 50,000,000 shares of common stock, $.001 par value (the 'Common
Stock'). The Fund's Board of Directors may, without shareholder approval,
increase or decrease the number of authorized but unissued shares of the Fund's
Common Stock. Each of the Fund's shares has equal dividend, distribution,
liquidation and voting rights. There are no conversion or preemptive rights in
connection with any shares of the Fund. All shares of the Fund when 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 part in
deciding the Fund's investment policies or which securities are to be purchased
or sold for the Fund's portfolio.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

The fiscal year of the Fund ends on December 31 of each year. The Fund sends to
its shareholders, at least semi-annually, reports showing the investments and
other information (including unaudited financial statements). An annual report,
containing financial statements audited by the Fund's independent accountants,
is sent to shareholders each year.

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, the Fund may advertise its 'average annual total return' over
various periods of time. This total return figure shows the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period to the ending date of the measuring period. The figure reflects
changes in the price of the Fund's shares and assumes that any income dividends
and/or capital gains distributions made by the Fund during the period are
reinvested in shares of the Fund. Figures will be given for recent one-, five-
and ten-year periods (when applicable), and may be given for other periods as
well (such as from commencement of the Fund's operations, or on a year-by-year
basis). When considering 'average' total return figures for periods longer than
one year, investors should note that the Fund's annual total return for any one
year in the period might have been greater or less than the average for the
entire period. The Fund also may use 'aggregate' total return figures for
various periods, representing the cumulative change in value of an investment in
the Fund for the specific period (again reflecting changes in the Fund's share
price and assuming reinvestment of dividends and distributions). Aggregate total
returns may be shown by means of schedules, charts or graphs, and may indicate
subtotals of the various components of total return (that is, the change in
value of initial investment, income dividends and capital gains distributions).
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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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).

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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.

<PAGE>

<PAGE>
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.

<PAGE>

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[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

<PAGE>
==================================== ===================================

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
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<S> <C>
Fee Table..................................................................................................... 2
Investment Objectives and Policies............................................................................ 3
Investment Techniques......................................................................................... 7
Management of the Fund........................................................................................ 10
Determination of Net Asset Value.............................................................................. 13
Purchase of Shares............................................................................................ 13
Sales Charges................................................................................................. 14
Redemption of Shares.......................................................................................... 16
Dividends and Distributions................................................................................... 18
Taxation...................................................................................................... 19
Organization and Description of Capital Stock................................................................. 20
Custodian and Transfer and Dividend Disbursing Agent.......................................................... 20
Reports to Shareholders....................................................................................... 21
Performance Information....................................................................................... 21
Additional Information........................................................................................ 22
Appendix A Description of Bond Ratings........................................................................ 23
</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

==================================== ===================================

<PAGE>

<PAGE>
[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.
- --------------------------------------------------------------------------------

<PAGE>

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Investment Restrictions and Policies........................................................ 1

Investment Techniques....................................................................... 2

Management of the Fund...................................................................... 6

Determination of Net Asset Value............................................................ 11

Redemption of Shares........................................................................ 11

Portfolio Transactions and Brokerage........................................................ 12

Taxation.................................................................................... 13

Organization and Description of Capital Stock............................................... 19

Principal Underwriter....................................................................... 20

Custodian and Transfer and Dividend Disbursing Agent........................................ 20

Performance Information..................................................................... 20

Counsel and Independent Accountants......................................................... 22
</TABLE>

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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

<PAGE>

<PAGE>
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

<PAGE>

<PAGE>
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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------

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.

<PAGE>

<PAGE>
The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the changes in value of the Fund's security holdings being
hedged.

The Fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. Similarly, the Fund may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.

There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.

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

FOREIGN CURRENCY CONTRACTS AND CURRENCY HEDGING TRANSACTIONS

In order to hedge against foreign currency exchange rate risks, the Fund may
enter into forward foreign currency exchange contracts and foreign currency
futures contracts, as well as purchase put or call options on foreign
currencies, as described below. The Fund may also conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.

The Fund may enter into forward foreign currency exchange contracts ('forward
contracts') to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to 'lock in' the U.S.
dollar price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell an amount of the
former foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as 'cross-hedging.' Because in connection with the
Fund's foreign currency forward transactions an amount of the Fund's assets
equal to the amount of the purchase will be held aside or segregated to be used
to pay for the commitment, the Fund will always have cash or other liquid assets
available sufficient to cover any commitments under these contracts or to limit
any

<PAGE>

<PAGE>
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., the
757 Third Avenue and Secretary Fund's investment adviser. Chairman and President of
New York, New York Cohen & Steers Securities, Inc.
Age: 44
</TABLE>

<PAGE>

<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

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

Adam Derechin ................... Vice President and
757 Third Avenue Assistant Treasurer
New York, New York
Age: 32
</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. 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.

<TABLE>
<CAPTION>
COMPENSATION TABLE
FISCAL YEAR ENDED DECEMBER 31, 1997
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL FROM REGISTRANT
COMPENSATION ACCRUED AS BENEFITS AND FUND
FROM PART OF FUND UPON COMPLEX PAID TO
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- --------------------------------------------------- ------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Martin Cohen**, Director, President and Treasurer.. $0 N/A N/A $ 0(5)
Robert H. Steers**, Director, Chairman and
Secretary........................................ 0 N/A N/A 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.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------

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 .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 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

<PAGE>

<PAGE>
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 .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 .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

<PAGE>

<PAGE>
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.

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

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 an annual rate of .25% of
the average net asset value of the shares. 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 assis-

<PAGE>

<PAGE>
tance 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.

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

Net asset value per share is determined by the Fund on each day the New York
Stock Exchange is open for trading, and on any other day during which there is a
sufficient degree of trading in the investments of the Fund to affect materially
the Fund's net asset value. The New York Stock Exchange is closed on Saturdays,
Sundays, and on New Years' Day, Martin Luther King, Jr. Day (the third Monday
in January), Presidents' Day (the third Monday in February), Good Friday,
Memorial Day (the last Monday in May), Independence Day, Labor Day (the first
Monday in September), Thanksgiving Day and Christmas Day (collectively, the
'Holidays'). When any Holiday falls on a Saturday, the Exchange is closed the
preceding Friday, and when any holiday falls on a Sunday, the Exchange is closed
the following Monday. No redemptions will be made on Martin Luther King Day
(the third Monday in January), Columbus Day (the second Monday in October) and
Veteran's Day, nor on any of the Holidays.

For purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by a major bank which is a regular
participant in the institutional foreign exchange markets or on the basis of a
pricing service which takes into account the quotes provided by a number of such
major banks.

- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------

Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected in the discretion of the Board of Directors
of the Fund and taken at their value used in determining the Fund's net asset
value per share as described in the Prospectus under 'Determination of Net Asset
Value' less any applicable contingent deferred sales charge on certain
redemptions made within 12 months following purchases without a sales charge),
or partly in cash and partly in portfolio securities.

<PAGE>

<PAGE>
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. [The
Fund has filed a formal election with the Securities and Exchange Commission
pursuant to which the Fund will only effect a redemption in portfolio securities
where the particular stockholder of record is redeeming more than $250,000 or
1% of the Fund's total net assets, whichever is less, during any 90-day period.
In the opinion of the Adviser, however, the amount of a redemption request would
have to be significantly greater than $250,000 or 1% of total net assets before
a redemption wholly or partly in portfolio securities was made.]

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

<PAGE>

<PAGE>
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; or (b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (namely (i) stock or securities, (ii)
options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) held less than 3 months; (c) diversify
its 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

<PAGE>

<PAGE>
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

<PAGE>

<PAGE>
the amount of income which the Fund must distribute to maintain its status as
a regulated investment company and to avoid the payment of federal income tax
and the 4% excise tax. In addition, if the Fund invests in certain high yield
original issue discount securities issued by corporations, a portion of the
original issue discount accruing on any such obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations if so designated by the Fund in a written notice to shareholders.

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

MARKET DISCOUNT BONDS

Gain derived by the Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price) held by the Fund will be taxed as ordinary
income to the extent of the accrued market discount of the bonds, unless the
Fund elects to include the market discount in income as it accrues.

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

OPTIONS AND HEDGING TRANSACTIONS

The taxation of equity options and over-the-counter options on debt securities
is governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium 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

<PAGE>

<PAGE>
taxable year in which the losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences to
the Fund of engaging in hedging transactions are not entirely clear. Hedging
transactions may increase the amount of short-term capital gain realized by the
Fund which is taxed as ordinary income when distributed to shareholders.

The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to shareholders, and
which will be taxed to them as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such hedging
transactions.

The 30% limitation described above and the diversification requirements
applicable to the Fund's assets may limit the extent to which the Fund will be
able to engage in transactions in options, future contracts and forward
contracts.

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

CURRENCY FLUCTUATIONS -- 'SECTION 988' GAINS OR LOSSES

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain options, futures and foreign
currency contracts, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as 'section 988' gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

A Fund will not realize gain or loss on a short sale of a security until it
closes the transaction by delivering the borrowed security to the lender. All or
a portion 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. A recent budget proposal, if enacted,
would in many cases require the Fund to recognize gain (but not loss) upon
entering into a short sale with respect to an appreciated security that the Fund
owns, as though the Fund constructively sold the security at the time of
entering into the short sale.

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

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
Treasury regulations that have not yet been issued, but may apply retroactively,
a portion of the Fund's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an 'excess inclusion')
will be subject to federal income tax in all events. These regulations

<PAGE>

<PAGE>
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 be eligible to elect to mark to market its foreign investment company
stock, resulting in the stock being treated as sold at fair market value on the
last business day of each taxable year. Any resulting gain would be reported as
ordinary income, and any resulting loss would not be recognized. If this
election were made, the special rules described above with respect to excess
distributions and dispositions would still apply.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------

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 foreign shareholder
is a nonresident alien individual, any gain such shareholder realizes upon the
sale or exchange of such shareholder's shares of the Fund in the United States
will ordinarily be exempt from U.S. tax unless (i) the gain is U.S. source
income and such shareholder is physically present in the United States for more
than 182 days during the taxable year and meets certain other requirements, or
is otherwise considered to be a resident alien of the United States, or (ii) at
any time during the shorter of the period during which the foreign shareholder
held shares of the Fund and the five year period

<PAGE>

<PAGE>
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 , 1997 as a Maryland corporation and is
authorized to issue 50,000,000 shares of Common Stock, $.001 par value. The
Fund's shares have no preemptive, conversion. exchange or redemption rights.
Each share has equal voting, dividend, distribution and liquidation rights. All
shares of the Fund, when duly issued, will be fully paid and nonassessable.
Shareholders are entitled to one vote per share. All voting rights for the
election of directors are noncumulative, which means that the holders of more
than 50% of the shares can elect 100% of the Directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in the Fund's Articles of
Incorporation and By-Laws.

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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. The Fund's performance
will vary from time to time depending upon market conditions, the composition of
its portfolio and its operating expenses. Consequently, any given performance
quotation should not be considered representative of the Fund's performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in the Fund
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Fund's performance with that of
other mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.

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

AVERAGE ANNUAL TOTAL RETURN

The Fund's 'average annual total return' figures described in the Prospectus are
computed according to a formula prescribed by the SEC. The formula can be
expressed as follows:

P(1 + T)'pp'n = ERV

<PAGE>

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at
the beginning of a 1-, 5-, or 10-year period at the end of a 1-,
5-, or 10-year period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.

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

AGGREGATE TOTAL 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

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
reinvestment of all dividends and distributions.

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

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

Where: a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.

In reports or other communications to shareholders of the Fund or in advertising
materials, the Fund may compare its performance with that of (i) other mutual
funds listed in the rankings prepared by Lipper Analytical Services, Inc.,
publications such as Barrons, Business Week, Forbes, Fortune, Institutional
Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values,
The New York Times, The Wall Street Journal and USA Today or other industry or
financial publications or (ii) the Standard and Poor's Index of 500 Stocks, the
Dow Jones Industrial Average and other relevant indices and industry
publications. The Fund may also compare the historical volatility of its
portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole -- the beta -- or in absolute terms -- the standard
deviation.)

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
COUNSEL AND INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

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. [Dechert Price & Rhoads has relied on the opinion of
21201, for matters relating to Maryland
law.]

Coopers & Lybrand L.L.P., 1301 Ave of the Americas, New York, New York 10019
have been appointed as independent accountants for the Fund.

<PAGE>

<PAGE>
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. (A) Form of Investment Advisory Agreement

(B) Form of Administration Agreement*

6. Underwriting Agreement*

7. Not Applicable

8. Form of Custodian Agreement*

9. (A) Form of Transfer Agency Agreement*

(B) Shareholder Service Plan*

10. Opinion and Consent of Dechert Price & Rhoads*

11. Consent of Independent Accountants*

12. Not Applicable

13. Investment Representation Letter*

14. Not Applicable

15. Distribution Plan*

16. Not Applicable

17. Not Applicable

18. Powers of Attorney*
- ------------

* To be filed in a pre-effective amendment.

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

None. The Registrant is a recently organized corporation and has no
outstanding shares of common stock.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

None. The Registrant is a recently organized corporation and has not issued
any securities as of the date of this Registration Statement.

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 of Cohen
& Steers Capital Management, Inc., the Registrant's investment adviser (the
'Adviser'), for

C-1

<PAGE>

<PAGE>
any loss suffered by the Registrant or its shareholders is set forth in Section
of the Investment Advisory Agreement, filed as Exhibit 5 to this Registration
Statement. The liability of Cohen & Steers Capital Management, Inc., the
Registrant's administrator, for any loss suffered by the Registrant or its
shareholders is set forth in Section of the Administration Agreement, filed
as Exhibit 9 to this Registration Statement.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT 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, N.Y., N.Y.
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.................. Senior 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

<PAGE>

<PAGE>
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 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
9th day of July, 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 Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
1. Acting Principal Executive Officer:

/s/ MARTIN COHEN President July 9, 1997
.........................................
(MARTIN COHEN)

2. Principal Financial and
Accounting Officer:

/s/ MARTIN COHEN Treasurer July 9, 1997
.........................................
(MARTIN COHEN)

By /s/ ROBERT H. STEERS July 9, 1997
.........................................
(ROBERT H. STEERS)
</TABLE>

C-3

<PAGE>

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTON OF EXHIBIT PAGE
- ------- ------------------------------------------------------------------------------------------------- ------
<C> <S> <C>
1. -- Articles of Incorporation.....................................................................
2. -- By-Laws.......................................................................................
5.(A) -- Form of Investment Advisory Agreement.........................................................
</TABLE>

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

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

<PAGE>

ARTICLES OF INCORPORATION

COHEN & STEERS EQUITY INCOME FUND, INC.

FIRST: (1) The name of the incorporator is Jennifer A. Olvey.

(2) The incorporator's post office address is 30 Rockefeller
Plaza, New York, New York 10112.

(3) The incorporator is over eighteen years of age.

(4) The incorporator is forming the corporation named in
these Articles of Incorporation under the general laws of the State of Maryland.

SECOND: The name of the corporation (hereinafter called the
"Corporation") is Cohen & Steers Equity Income Fund, Inc.

THIRD: (1) The purpose for which the Corporation is formed is to
conduct, operate and carry on the business of an investment company registered
under the Investment Company Act of 1940.

(2) The Corporation may engage in any other business and
shall have all powers conferred upon or permitted to corporations by the
Maryland General Corporation Law.

FOURTH: The post office address of the principal office of the
Corporation within the State of Maryland is 32 South Street, Baltimore, Maryland
21202 in care of The Corporation Trust, Incorporated; and the resident agent of
the Corporation in the State of Maryland is The Corporation Trust, Incorporated,
32 South Street, Baltimore, Maryland 21202.

FIFTH: (1) The total number of shares of stock of all classes which
the Corporation shall have authority to issue is fifty million (50,000,000), all
of which shall be Common Stock having a par value of one-tenth of one cent
($.001) per share and an aggregate par value of fifty thousand dollars
($50,000). Such shares and the holders thereof shall be subject to the following
provisions:

(a) Each holder of Common Stock may require the Corporation
to redeem all or any part of the Common Stock owned by that holder, upon request
to the Corporation or its designated agent, at the net asset value of the shares
of Common Stock next determined following

<PAGE>

receipt of the request in a form approved by the Corporation and accompanied by
surrender of the certificate or certificates for the shares, if any. The Board
of Directors may establish procedures for redemption of Common Stock. The right
of a holder of Common Stock redeemed by the Corporation to receive dividends
thereon and all other rights with respect to the shares shall terminate at the
time as of which the redemption price has been determined, except the right to
receive the redemption price and any dividend or distribution to which that
holder had become entitled as the record stockholder on the record date for that
dividend.

(b) (i) The term "Minimum Amount" when used herein shall
mean ten thousand dollars ($10,000) unless otherwise fixed by the Board of
Directors from time to time, provided that the Minimum Amount may not in
any event exceed one hundred thousand dollars ($100,000). The Board of
Directors may establish differing Minimum Amounts for categories of holders
of Common Stock based on such criteria as the Board of Directors may deem
appropriate.

(ii) If the net asset value of the shares of Common Stock
held by a stockholder shall be less than the Minimum Amount then in effect
with respect to the category of holders in which the stockholder is
included, the Corporation may redeem all of those shares, upon notice given
to the holder in accordance with paragraph (iii) of this subsection (b), to
the extent that the Corporation may lawfully effect such redemption under
the laws of the State of Maryland.

(iii) The notice referred to in paragraph (ii) of this
subsection (b) shall be in writing personally delivered or deposited in the
mail, at least thirty days (or such other number of days as may be
specified from time to time by the Board of Directors) prior to such
redemption. If mailed, the notice shall be addressed to the stockholder at
his post office address as shown on the books of the Corporation, and sent
by first class mail, postage prepaid. The price for shares acquired by the
Corporation pursuant to this subsection (b) shall be an amount equal to the
net asset value of such shares.

(c) Payment for shares of Common Stock redeemed by the
Corporation shall be made by the Corporation within seven business days of such
surrender out of the funds legally available therefor, provided that the
Corporation may suspend the right of the stockholders to redeem shares of Common
Stock and may postpone the right of those holders to receive

<PAGE>

payment for any shares when permitted or required to do so by applicable
statutes or regulations. Payment of the aggregate price of shares surrendered
for redemption may be made in cash or, at the option of the Corporation, wholly
or partly in such portfolio securities of the Corporation as the Corporation
shall select.

(d) Shares of Common Stock shall be entitled to dividends or
distributions, in cash, in property or in shares of Common Stock, as may be
declared from time to time by the Board of Directors, acting in its sole
discretion, out of the assets lawfully available therefor. The Board of
Directors may provide that dividends shall be payable only with respect to those
shares of Common Stock that have been held of record continuously by the
stockholder for a specified period, not to exceed 72 hours, prior to the record
date of the dividend.

(e) On each matter submitted to a vote of the stockholders,
each holder of Common Stock shall be entitled to one vote for each share
standing in his name on the books of the Corporation. All holders of shares of
stock shall vote as a single class except with respect to any matter which
affects only one or more classes of stock, in which case only the holders of
shares of the class or classes affected shall be entitled to vote.

(f) The Board of Directors is authorized to classify or to
reclassify, from time to time, any unissued shares of stock of the Corporation,
whether now or hereafter authorized, by setting, changing or eliminating the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms and conditions of or rights
to require redemption of the stock.

(g) The Corporation may issue shares of Common Stock in
fractional denominations to the same extent as its whole shares, and shares in
fractional denominations shall be shares of stock having proportionately to the
respective fractions represented thereby all the rights of whole shares,
including without limitation, the right to vote, the right to receive dividends
and distributions, and the right to participate upon the liquidation of the
Corporation, but excluding the right to receive a stock certificate representing
fractional shares.

(2) No stockholder shall be entitled to any preemptive right
other than as the Board of Directors may establish.

SIXTH: The number of directors of the Corporation shall be two. The
number of directors of the Corporation may be changed pursuant to the By-Laws of
the Corporation. The

<PAGE>

names of the initial directors, each of whom shall serve until the first annual
meeting or until his successor is duly chosen and qualifies, are Robert H.
Steers and Martin Cohen.

SEVENTH: The following provisions are inserted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the Board
of directors and stockholders.

(a) In addition to its other powers explicitly or implicitly
granted under these Articles of incorporation, by law or otherwise, the
Board of Directors of the Corporation:

(i) is expressly authorized to make, alter, amend or repeal
the By-Laws of the Corporation;

(ii) may from time to time determine whether, to what extent
at what times and places, and under what conditions and regulations the
accounts and books of the Corporation, or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
inspect any account, book or document of the Corporation except as
conferred by statute or as authorized by the Board of Directors of the
Corporation;

(iii) is empowered to authorize, without stockholder
approval, the issuance and sale from time to time of shares of stock of the
Corporation whether now or hereafter authorized;

(iv) is authorized to adopt procedures for determination of
the net asset value of shares of any class of the Corporation's stock; and

(v) is authorized to declare dividends out of funds legally
available therefor on shares of each class of stock of the Corporation
payable in such amounts and at such times as it determines, including
declaration by means of a formula or similar method and including dividends
declared or payable more frequently than meetings of the Board of
Directors.

(b) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of the votes of
the Corporation's stock entitled to be cast in order to take or authorize any
action, any such action may be taken or authorized upon the concurrence of a
majority of the aggregate number of votes entitled to be cast thereon.

(c) The presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of the

<PAGE>

stockholders, except with respect to any matter which, under applicable statutes
or regulatory requirements, requires approval by a separate vote of one or more
classes of stock, in which case the presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes entitled to be cast on
the matter shall constitute a quorum.

(d) Any determination made in good faith by or pursuant to
the direction of the Board of Directors, as to the amount of the assets, debts,
obligations, or liabilities of the Corporation, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating such reserves or charges, as to the use, alteration or cancellation of
any reserves or charges (whether or not any debt, obligation, or liability for
which such reserves or charges shall have been created shall be then or
thereafter required to be paid or discharged), as to the value of or the method
of valuing any investment owned or held by the Corporation, as to market value
or fair value of any investment or fair value of any other asset of the
Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, redemption or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.

EIGHTH: (1) To the full extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not that person is a director or officer at the
time of any proceeding in which liability is asserted.

(2) The Corporation shall indemnify and advance expenses to
its currently acting and its former directors to the full extent that
indemnification of directors is permitted by

<PAGE>

the Maryland General Corporation Law. The Corporation shall indemnify and
advance expenses to it officers to the same extent as its directors and may do
so to such further extent as is consistent with law. The Board of Directors may
by By-Law, resolution or agreement make further provision for indemnification of
directors, officers, employees and agents to the full extent permitted by the
Maryland Corporation Law.

(3) No provision of the Article shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its stockholders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.

(4) References to the Maryland General Corporation Law in
this Article are to that law as from time to time amended. No amendment to the
charter of the Corporation shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the amendment.

NINTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorporation or in any
amendment hereto in the manner now or hereafter prescribed by the laws of the
State of Maryland, including any amendment which alters the contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
stock, and all rights conferred upon stockholders herein are granted subject to
this reservation.

IN WITNESS WHEREOF, the undersigned, being the incorporator of the
Corporation, has adopted and signed these Articles of Incorporation and does
hereby acknowledge that the adoption and signing are her act.

--------------------------------
Jennifer A. Olvey
Incorporator

Dated: July 3, 1997

<PAGE>

BY-LAWS

COHEN & STEERS EQUITY INCOME FUND, INC.

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

ARTICLE I

Offices

Section 1. Principal Office in Maryland. The Corporation shall
have a principal office in the City of Baltimore, State of Maryland.

Section 2. Other Offices. The Corporation may have offices also
at such other places within and without the State of Maryland as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.

ARTICLE II

Meetings of Stockholders

Section 1. Place of Meeting. Meetings of stockholders shall be
held at such place, either within the State of Maryland or at such other place
within the United States, as shall be fixed from time to time by the Board of
Directors.

Section 2. Annual Meetings. The Corporation shall not be required
to hold an annual meeting of stockholders in any year in which the election of
directors is not required to be acted on by stockholders under the Investment
Company Act of 1940. If the Corporation is required to hold a meeting of
stockholders to elect directors, the meeting shall be designated as the annual
meeting of stockholders for that year and shall be held no later than 120 days
after the occurrence of the event requiring the meeting. Any business may be
considered at an annual meeting of stockholders without the purpose of the
meeting having been specified in the notice.

Section 3. Notice of Annual Meeting. Written or printed notice of
the annual meeting, stating the place, date and hour thereof, shall be given to
each stockholder entitled to vote thereat and each other shareholder entitled to
notice thereof not less than ten nor more than ninety days before the date of
the meeting.

Section 4. Special Meetings. Special meetings of stockholders may
be called by the chairman, the president or by the Board of Directors and shall
be called by the secretary upon the written request of holders of shares
entitled to cast not less than twenty-five percent of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. In the case of
such request for a special

<PAGE>

meeting, upon payment by such stockholders to the Corporation of the estimated
reasonable cost of preparing and mailing a notice of such meeting, the secretary
shall give the notice of such meeting. The secretary shall not be required to
call a special meeting to consider any matter which is substantially the same as
a matter acted upon at any special meeting of stockholders held within the
preceding twelve months unless requested to do so by holders of shares entitled
to cast not less than a majority of all votes entitled to be cast at such
meeting. Notwithstanding the foregoing, to the extent required by the Investment
Company Act of 1940, special meetings of stockholders for the purpose of voting
upon the question of removal of any director or directors of the Corporation
shall be called by the secretary upon the written request of holders of shares
entitled to cast not less than ten percent of all the votes entitled to be cast
at such meeting.

Section 5. Notice of Special Meeting. Written or printed notice
of a special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat and each other shareholder entitled to notice thereof not less than ten
nor more than ninety days before the date fixed for the meeting.

Section 6. Business of Special Meetings. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice thereof.

Section 7. Quorum. The holders of shares entitled to cast
one-third of the votes entitled to be cast thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except with respect to any matter
which, under applicable statutes or regulatory requirements or the Corporation's
charter, requires approval by a separate vote of one or more classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast on the matter shall
constitute a quorum. A meeting of stockholders convened on the date for which it
is called may be adjourned from time to time without further notice to a date
not more than 120 days after the record date.

Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast by stockholders entitled to
vote on the matter, shall decide any question brought before such meeting
(except that directors may be elected by the affirmative vote of a plurality of
the votes cast), unless the question is one upon which by express provision of
the Investment Company Act of 1940, as from time to time in effect, or other
statutes or rules or orders of the Securities and Exchange Commission or any
successor thereto or of the Articles of Incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.

<PAGE>

Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to vote in person or by written proxy signed by the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be voted
after eleven months from its date, unless otherwise provided in the proxy.

Section 10. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall be not more than ninety days and, in the case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. In lieu of
fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period, but not to exceed, in any case,
twenty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) The record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
notice of the meeting of stockholders is mailed or the day thirty days before
the meeting, whichever is the closer date to the meeting; and (2) The record
date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on the
day on which the resolution of the Board of Directors, declaring the dividend or
allotment of rights, is adopted, provided that the payment or allotment date
shall not be more than sixty days after the date of the adoption of such
resolution. If a record date has been fixed for the determination of
stockholders entitled to vote at a meeting, only the stockholders of record on
the record date shall be entitled to vote at the meeting and such stockholders
shall be entitled to vote at the meeting notwithstanding the subsequent transfer
or redemption of the shares owned of record on such date.

Section 11. Inspectors of Election. The directors, in advance of
any meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person residing at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an

<PAGE>

inspector fails to appear or act, the vacancy may be filled by appointment made
by the directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, if any, before entering upon the discharge of
his duties, may be required to take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors, if any, shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting or any stockholder, the inspector or
inspectors, if any, shall make a report in writing of any challenge, question or
matter determined by him or them and execute a certificate of any fact found by
him or them.

Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.

ARTICLE III

Board of Directors

Section 1. Number of Directors. The number of directors
constituting the entire Board of Directors (which initially was fixed at one in
the Corporation's Articles of Incorporation) may be increased or decreased from
time to time by the vote of a majority of the entire Board of Directors within
the limits permitted by law but at no time may be more than twenty, but the
tenure of office of a director in office at the time of any decrease in the
number of directors shall not be affected as a result thereof. The directors
shall be elected to hold offices at the annual meeting of stockholders and each
director shall hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies. Any director may resign at any
time upon written notice to the Corporation. Any director may be removed, either
with or

<PAGE>

without cause, at any meeting of stockholders duly called and at which a quorum
is present by the affirmative vote of the majority of the votes entitled to be
cast thereon, and the vacancy in the Board of Directors caused by such removal
may be filled by the stockholders at the time of such removal. Directors need
not be stockholders.

Section 2. Vacancies and Newly-Created Directorships. Any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of directors may be filled by a majority of the remaining
members of the Board of Directors although such majority is less than a quorum.
Any vacancy occurring by reason of an increase in the number of directors may be
filled by a majority of the entire Board of Directors. A director elected by the
Board of Directors to fill a vacancy shall be elected to hold office until the
next annual meeting of stockholders or until his successor is elected and
qualifies.

Section 3. Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
By-Laws conferred upon or reserved to the stockholders.

Section 4. Meetings. The Board of Directors of the Corporation or
any committee thereof may hold meetings, both regular and special, either within
or without the State of Maryland. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall from time to time
be determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the chairman, the president or by two or more
directors. Notice of special meetings of the Board of Directors shall be given
by the secretary to each director at least three days before the meeting if by
mail or at least 24 hours before the meeting if given in person or by telephone
or by telegraph. The notice need not specify the business to be transacted.

Section 5. Quorum and Voting. During such times when the Board of
Directors shall consist of more than one director, a quorum for the transaction
of business at meetings of the Board of Directors shall consist of one-third of
the entire Board of Directors, but in no event less than two directors. The
action of a majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.

<PAGE>

Section 6. Committees. The Board of Directors may appoint from
among its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may delegate to such committees any of the
powers of the Board of Directors except those which may not by law be delegated
to a committee. Such committee or committees shall have the name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
Unless the Board of Directors designates one or more directors as alternate
members of any committee, who may replace an absent or disqualified member at
any meeting of the committee, the members of any such committee present at any
meeting and not disqualified from voting may, whether or not they constitute a
quorum, appoint another member of the Board of Directors to act at the meeting
in the place of any absent or disqualified member of such committee. At meetings
of any such committee, a majority of the members or alternate members of such
committee shall constitute a quorum for the transaction of business and the act
of a majority of the members or alternate members present at any meeting at
which a quorum is present shall be the act of the committee.

Section 7. Minutes of Committee Meetings. The committees shall
keep regular minutes of their proceedings.

Section 8. Informal Action by Board of Directors and Committees.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee, provided,
however, that such written consent shall not constitute approval of any matter
which pursuant to the Investment Company Act of 1940 and the rules thereunder
requires the approval of directors by vote cast in person at a meeting.

Section 9. Meeting by Conference Telephone. The members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and such participation shall
constitute presence in person at such meeting, provided, however, that such
participation shall not constitute presence in person with respect to matters
which pursuant to the Investment Company Act of 1940 and the rules thereunder
require the approval of directors by vote cast in person at a meeting.

<PAGE>

Section 10. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors, a stated
salary as director or such other compensation as the Board of Directors may
approve. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.

ARTICLE IV

Notices

Section 1. General. Notices to directors and stockholders mailed
to them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.

Section 2. Waiver of Notice. Whenever any notice is required to
be given under the provisions of the statutes, of the Articles of Incorporation
or of these By-Laws, each person entitled to said notice waives notice if,
before or after the meeting he signs a written waiver of notice and such waiver
is filed with the records of the meeting. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.

ARTICLE V

Officers

Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a chairman of the Board of
Directors, a president, a secretary and a treasurer. The Board of Directors may
choose also such vice presidents and additional officers or assistant officers
as it may deem advisable. Any number of offices, except the offices of president
and vice president and chairman and vice president, may be held by the same
person. No officer shall execute, acknowledge or verify any instrument in more
than one capacity if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.

Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.

<PAGE>

Section 3. Tenure of Officers. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors. Each officer shall
hold his office until his successor is elected and qualifies or until his
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Corporation. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors when, in its
judgment, the best interests of the Corporation will be served thereby. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors.

Section 4. Chairman of the Board of Directors. The chairman of
the Board of Directors shall preside at all meetings of the stockholders and of
the Board of Directors. Unless otherwise determined by the Board of Directors,
he shall be the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall be ex
officio a member of all committees designated by the Board of Directors except
as otherwise determined by the Board of Directors. He shall have authority to
execute instruments and contracts on behalf of the Corporation except where
required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation.

Section 5. President. The president shall act under the direction
of the chairman and in the absence or disability of the chairman shall perform
the duties and exercise the powers of the chairman. Unless otherwise determined
by the Board of Directors, he shall be the chief operating officer and shall
perform such other duties and have such other powers as the chairman or the
Board of Directors may from time to time prescribe. He shall have authority to
execute instruments and contracts on behalf of the Corporation except where
required by law to be otherwise signed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.

Section 6. Vice Presidents. The vice presidents shall act under
the direction of the chairman and the president and in the absence or disability
of the president shall perform the duties and exercise the powers of the
president. They shall perform such other duties and have such other powers as
the chairman, the president or the Board of Directors may from time to time
prescribe. The Board of Directors may designate one or more executive vice
presidents or may otherwise specify the order of seniority of the vice
presidents and, in that event, the duties and powers of the president shall
descend to the vice presidents in the specified order of seniority.

<PAGE>

Section 7. Secretary. The secretary shall act under the direction
of the chairman and the president. Subject to the direction of the chairman and
the president he shall attend all meetings of the Board of Directors and all
meetings of stockholders and record the proceedings in a book to be kept for
that purpose and shall perform like duties for the committees designated by the
Board of Directors when required. He shall give, or cause to be given, notice of
all meetings of stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the chairman or the
Board of Directors. He shall keep in safe custody the seal of the Corporation
and shall affix the seal or cause it to be affixed to any instrument requiring
it.

Section 8. Assistant Secretaries. The assistant secretaries in
the order of their seniority, unless otherwise determined by the chairman, the
president or the Board of Directors, shall, in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary. They
shall perform such other duties and have such other powers as the chairman, the
president or the Board of Directors may from time to time prescribe.

Section 9. Treasurer. The treasurer shall act under the direction
of the chairman and the president. Subject to the direction of the chairman and
the president he shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the chairman, the president or the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the chairman, the president and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as treasurer and of the financial condition of the Corporation.

Section 10. Assistant Treasurers. The assistant treasurers in the
order of their seniority, unless otherwise determined by the chairman, the
president or the Board of Directors, shall, in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer. They
shall perform such other duties and have such other powers as the chairman, the
president or the Board of Directors may from time to time prescribe.

<PAGE>

ARTICLE VI

Certificates of Stock

Section 1. General. Every holder of stock of the Corporation who
has made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the chairman, the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an assistant secretary
of the Corporation, certifying the number of whole shares of each class of stock
owned by him in the Corporation.

Section 2. Fractional Share Interests. The Corporation may issue
fractions of a share of stock. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares.

Section 3. Signatures on Certificates. Any of or all the
signatures on a certificate may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before such certificate is issued, it may be issued
with the same effect as if he were such officer at the date of issue. The seal
of the Corporation or a facsimile thereof may, but need not, be affixed to
certificates of stock.

Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.

Section 5. Transfer of Shares. Upon request by the registered
owner of shares, and if a certificate has been issued to represent such shares
upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the

<PAGE>

By-Laws and of the law regarding the transfer of shares have been duly complied
with, to record the transaction upon its books, issue a new certificate to the
person entitled thereto upon request for such certificate, and cancel the old
certificate, if any.

Section 6. Registered Owners. The Corporation shall be entitled
to recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including voting and dividends, and the
Corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Maryland.

ARTICLE VII

Miscellaneous

Section 1. Reserves. There may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may modify or abolish any such reserve.

Section 2. Dividends. Dividends upon the stock of the Corporation
may, subject to the provisions of the Articles of Incorporation and of
applicable law, be declared by the Board of Directors at any time. Dividends may
be paid in cash, in property or in shares of the Corporation's stock, subject to
the provisions of the Articles of Incorporation and of applicable law.

Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.

Section 4. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.

Section 5. Fiscal Year. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.

Section 6. Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Maryland." The seal

<PAGE>

may be used by causing it or a facsimile thereof to be impressed or affixed or
in another manner reproduced or by placing the word "(seal)" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.

ARTICLE VIII

Indemnification

Section 1. Indemnification of Directors and Officers. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. The Corporation
shall indemnify its directors and officers who while serving as directors or
officers also serve at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").

Section 2. Advances. Any current or former director or officer of
the Corporation seeking indemnification within the scope of this Article shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with the matter as to which he is seeking
indemnification without requiring a preliminary determination of ultimate
entitlement to indemnification except as provided below, to the fullest extent
permissible under the Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such advance
if it should ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons"

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as defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended, nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.

Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party directors or (ii) an independent legal counsel in a written opinion.

Section 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.

Section 5. Other Rights. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise. The
rights provided to any person by this Article shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.

Section 6. Amendments. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall effect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.

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ARTICLE IX

Amendments

The Board of Directors shall have the power to make, alter and
repeal by-laws of the Corporation.

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INVESTMENT ADVISORY AGREEMENT

COHEN & STEERS EQUITY INCOME FUND, INC.
757 Third Avenue
New York, New York 10017

_______, 1997

COHEN & STEERS CAPITAL MANAGEMENT, INC.
757 Third Avenue
New York, New York 10017

Dear Sirs:

We, the undersigned Cohen & Steers Equity Income Fund, Inc., herewith
confirm our agreement with you as follows:

1. We are an open-end, non-diversified management investment company
registered under the Investment Company Act of 1940 (the "Act"). We are
currently authorized to issue separate classes of shares and our Directors are
authorized to reclassify and issue any unissued shares to any number of
additional classes or series (portfolios) each having its own investment
objective, policies and restrictions, all as more fully described in the
prospectus and the statement of additional information constituting parts of the
Registration Statement filed on our behalf under the Securities Act of 1933 and
the Act. We propose to engage in the business of investing and reinvesting our
assets in securities of the type and in accordance with the limitations
specified in our Articles of Incorporation, By-Laws, Registration Statement
filed and affecting our portfolio and on your own initiative will furnish us
from time to time with such information as you may believe appropriate for this
purpose, whether concerning the individual issuers whose securities are included
in our portfolio, the industries in which they engage, or the conditions
prevailing in the economy generally. You will also furnish us with such
statistical and analytical information with respect to our portfolio securities
as you may believe appropriate or as we reasonably may request. In making such
purchases and sales of our portfolio securities, you will bear in mind the
policies set from time to time by our Board of Directors as well as the
limitations imposed by our Articles of Incorporation and in our Registration
Statement under the Act and the Securities Act

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of 1933, the limitations in the Act and of the Internal Revenue Code of 1986,
as amended, in respect of regulated investment companies.

2. It is understood that you will from time to time employ or associate
with yourselves such persons as you believe to be particularly fitted to assist
you in the execution of your duties hereunder, the cost of performance of such
duties to be borne and paid by you. No obligation may be incurred on our behalf
in any such respect. During the continuance of this agreement at our request you
will provide us persons satisfactory to our Board of Directors to serve as our
officers.

3. We hereby confirm that we shall be responsible and hereby assume the
obligation for payment of all our expenses, including: (a) payment of the fee
payable to you under paragraph 5 hereof; (b) charges and expenses of our
administrator, sub-administrator, custodian, transfer, and dividend disbursing
agent; (c) fees of directors who are not your affiliated persons; (d) legal and
auditing expenses; (e) compensation of our officers, Directors and employees who
do not devote any part of their time to your affairs or the affairs of your
affiliates other than us; (f) costs of printing our prospectuses and stockholder
reports; (g) costs of proxy solicitation; (h) cost of maintenance of corporate
existence; (i) interest charges, taxes, brokerage fees and commissions; (j)
costs of stationery and supplies; (k) expenses and fees related to registration
and filing with the Securities and Exchange commission and with state regulatory
authorities; and (l) upon the approval of the Board of Directors, costs of your
personnel or your affiliates rendering clerical, accounting and other office
services.

4. We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to

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protect, or purport to protect, you against any liability to us or to our
security holders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties
hereunder, or by reason of your reckless disregard of your obligations and
duties hereunder.

5. In consideration of the foregoing we will pay you a monthly fee at an
annualized rate of .90 of 1% of our average daily net assets. Such fee shall be
payable in arrears on the last day of each calendar month for services performed
hereunder during such month. If our initial Registration Statement is declared
effective by the Securities and Exchange Commission after the beginning of a
month or this agreement terminates prior to the end of a month, such fee shall
be prorated according to the proportion which such portion of the month bears to
the full month.

6. This agreement shall become effective on the date on which our
pending Registration Statement on Form N-1A relating to our shares becomes
effective and shall remain in effect until the first meeting of our shareholders
held after such date and, if approved by the vote of a majority of the
outstanding voting securities, as defined in the Act, at such meeting, continue
in effect until December 31, 1998 and may be continued for successive
twelve-month periods (computed from each January 1) with respect to each
portfolio provided that such continuance is specifically approved at least
annually by the Board of Directors or by majority vote of the holders of the
outstanding voting securities of such portfolio (as defined in the Act), and, in
either case, by a majority of the Board of Directors who are not interested
persons as defined in the Act, of any party to this agreement (other than as
Directors of our corporation), provided further, however, that if the
continuation of this agreement is not approved, you may continue to render the
services described herein in the manned to the extent permitted by the Act and
the rules and regulations thereunder. Upon the effectiveness of this agreement,
it shall supersede all previous agreements between us covering the subject
matter hereof. This agreement may be terminated at any time,

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without the payment of any penalty, by vote of a majority of the outstanding
voting securities (as so defined) or by a vote of a majority of the Board of
Directors on 60 days' written notice to you, or by you on 60 days' written
notice to us.

7. This agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by you and this agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and any
interpretation thereof contained in rules or regulations promulgated by the
Securities and Exchange Commission thereunder.

8. Except to the extent necessary to perform your obligations hereunder,
nothing herein shall be deemed to limit or restrict your right, or the right of
any of your officers, directors or employees, who may also be a Director,
officer or employee of ours, or persons otherwise affiliated with us (within the
meaning of the Act) to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
trust, corporation, firm, individual or association.

9. If you cease to act as our investment adviser, or, in any event, if
you so request in writing, we agree to take all necessary action to change our
name to a name not including the term "Cohen & Steers". You may from time to
time make available without charge to us for our use such marks or symbols owned
by you, including marks or symbols containing the term "Cohen & Steers" or any
variation thereof, as you may consider appropriate. Any such marks or symbols so
made available will remain your property and you shall have the right, upon
notice in writing, to require us to cease the use of such mark or symbol at any
time.

10. This agreement shall be construed in accordance with the laws of the
State of New

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York, provided, however, that nothing herein shall be construed as being
inconsistent with the Act.

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<PAGE>

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If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.

Very truly yours,

COHEN & STEERS EQUITY INCOME FUND, INC.

By: ______________________________
Name:
Title:

Agreed to and accepted
as of the date first set
forth above

COHEN & STEERS CAPITAL MANAGEMENT, INC.

By: ___________________________
Name:
Title:

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