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COHEN & STEERS
EQUITY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017 [LOGO]
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QUARTERLY REPORT
MARCH 31, 1998
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COHEN & STEERS EQUITY INCOME FUND, INC.
April 15, 1998
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Equity Income
Fund, Inc. for the quarter ended March 31, 1998. The net asset values per share
at that date were $12.27, $12.26, and $12.26 for Class A, Class B, and Class C
shares, respectively. In addition, a dividend of $0.17 was declared for
shareholders of record on March 23, 1998 and paid on March 24, 1998 to all three
classes of shares.
INVESTMENT REVIEW
For the quarter ended March 31, 1998, Cohen & Steers Equity Income Fund had
a total return of 1.0% for Class A shares. Class B and C shares have returned
0.7% and 1.0% since their commencements of operation on January 15 and January
14, respectively. This performance compares favorably to the NAREIT Equity REIT
Index total return of -0.5%.
The first quarter of 1998 was without question one of the most rewarding
for investors at large, yet the most challenging ever for owners of REIT shares.
The economy continued to defy consensus expectations of a slowdown, growing
steadily while inflation remained nearly nonexistent. Interest rates remained
quite stable, with long-term rates remaining at their lowest levels in decades.
The stock market set record after record, turning in its best first quarter
performance in a decade, with nearly every sector fully participating.
The real estate recovery continued to gather steam and the fundamentals for
REITs remained strong. Industry participants in general posted healthy earnings
growth for the fourth quarter of 1997 with most reporting positive earning
surprises. There are, as well, expectations of continued strong profit growth
for REITs in the first quarter of 1998 and the remainder of the year. In this
ideal environment, however, REITs as a group managed to decline in price,
despite a sharp rally at the end of March. Lagging the S&P 500 Index by nearly
15 percentage points, REITs underperformed the stock market by the widest margin
ever for a single quarter. In a reversal of recent trends, the worst performing
groups were the Office and Hotel sectors, while the best performers were the
more defensive Apartment and Self Storage sectors.
We believe that the poor performance of REITs on both an absolute and
relative basis can be traced to three conditions that, we also believe, have
been favorably resolved. First, there had been an oversupply of shares created
by a surge of equity offerings by many companies, particularly during January
and February. In the quarter, over $5 billion of new equity was sold. With REITs
having committed to a substantial amount of property acquisitions, their need
for equity capital temporarily exceeded the market's demand, causing a decline
in price. However, that decline brought most stocks down to a level where
managements became unwilling to issue equity due to possible dilution. As a
result, the potential near-term supply of equity offerings diminished
significantly, thereby relieving the pressure on prices.
The second issue relates to the introduction of legislation that would have
potentially curtailed the growth of the REIT industry by making corporate or
property acquisitions more costly. The specter of such potential legislation
understandably made many investors wary of this sector. Fortunately, this
situation was largely resolved when the only measure to reach Congress was one
which will affect so-called 'paired share' REITs. Our current understanding is
that this measure will alter the rules under which they operate and require the
five companies that have this structure to adopt alternative strategies with
respect to the structuring of future acquisitions. The
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COHEN & STEERS EQUITY INCOME FUND, INC.
Fund owns shares of one such company, Meditrust Corp. We consider it to be an
excellent value at the current price and we are confident that it will not
experience a significant slowing of its growth rate. Most importantly, the fact
that this was the only measure to be seriously considered by Congress dissipates
a cloud of uncertainty that would have overhung the REIT market for much of
1998.
The third and more complex issue is that there has been a change in
sentiment regarding the state of real estate markets in general and the
prospects for continued strong REIT earnings growth. It is clear that property
prices have risen dramatically in recent years as health has finally been
restored to the real estate industry. While most REITs continue to report
outstanding earnings, many markets have reached equilibrium, whereby rent growth
is likely to moderate and new construction is likely to become more pervasive.
In short, looking past what is shaping up to be a very strong year in 1998, the
market appears to be discounting a slowing of the current unsustainable high
rate of earnings growth in 1999 and beyond. This has precipitated a contraction
of earnings multiples for almost all REITs.
INVESTMENT OUTLOOK
As the real estate, economic and stock market cycles age, securities that
meet the Fund's investment criteria should gain favor. Current income, earnings
predictability, low valuations and stable growth are traits of the companies
held in the Fund, and, in our opinion, they should perform well in the current
environment. The majority of securities in the Fund have current dividend yields
exceeding 7.0%, which compares to the average equity REIT yield of 5.5% and the
S&P 500 yield of 1.6%. We feel these attractive current yields act as a support
level for share prices of many companies in the portfolio.
The Fund's largest sector weighting, the Health Care Sector, highlights
this investment strategy. This group of ten companies primarily owns investments
in retirement housing such as nursing homes and assisted living care facilities.
Fundamentals of these properties remain strong with demand meeting or exceeding
supply in most regions of the country. State regulations governing development
have served to reduce operating volatility in this sector. This positive
fundamental environment has led to very consistent, mid-to-high single digit
earnings growth. The group's current attractive valuation level, coupled with
healthy dividend yields should produce good investment results, in our opinion.
The current valuation level of REITs appears to have discounted a maturing
real estate cycle. REIT valuation levels versus the S&P 500 are at their most
attractive levels ever, as measured by price-to-earnings multiples. Relative
performance for REITs should improve based on their sizable yield advantage as
well as the expectation for healthy dividend growth. Dividend growth is
supported by the combination of double digit earnings per share growth and
payout ratios that are approaching the minimum required by REIT regulations.
Further, the industry's conservative use of leverage by historic norms will
allow for advantageous access to attractively priced debt capital.
Rising real estate property values, coupled with falling REIT share prices,
has led to instances of real estate being cheaper on Wall Street than on Main
Street. As a result, the Fund continues to focus on companies that are trading
at or below their real estate value. In the first quarter alone, two companies
in the portfolio agreed to be acquired by other REITs: Security Capital Atlantic
and Price REIT. Our expectation is that consolidation in the REIT industry will
continue, creating additional shareholder value in the process.
The companies in the Fund continue to have ample internal growth prospects
as well as plentiful acquisition opportunities. In addition, as active portfolio
managers we have the ability to take advantage of the asynchronous
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COHEN & STEERS EQUITY INCOME FUND, INC.
cycles of different property types and geographic regions of the country. We
continue to believe that the transformation of the real estate industry to one
that is dominated by public companies is still in its infancy, and will bring
substantial rewards to investors in the leading companies.
Sincerely,
/s/ MARTIN COHEN /s/ ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
/s/ STEVEN R. BROWN
STEVEN R. BROWN
Senior Vice President
Cohen & Steers Capital Management, Inc.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF DIVIDEND
SHARES VALUE YIELD*
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<S> <C> <C> <C> <C>
EQUITIES 95.42%
COMMON STOCK 89.18%
APARTMENT/RESIDENTIAL 12.13%
Camden Property Trust, $2.25, Series A (Convertible
Preferred)................................................ 56,700 $ 1,438,762 8.87%
Colonial Properties Trust................................... 26,400 839,850 6.92
Security Capital Atlantic, Inc.............................. 87,000 1,827,000 7.62
Summit Properties, Inc...................................... 76,000 1,529,500 8.10
United Dominion Realty Trust................................ 117,800 1,708,100 7.24
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7,343,212
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DIVERSIFIED 8.45%
Capital Automotive REIT........................................ 94,200 1,778,025 5.56
Entertainment Properties Trust.............................. 71,600 1,405,150 8.15
Pacific Gulf Properties..................................... 84,200 1,931,337 7.32
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5,114,512
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HEALTH CARE 22.69%
American Health Properties.................................. 32,600 863,900 8.23
Capstone Capital Corp....................................... 40,000 972,500 7.98
ElderTrust.................................................. 58,800 1,051,050 8.17
Health Care Property Investors.............................. 34,400 1,270,650 6.93
Health Care REIT............................................ 32,800 902,000 7.85
Healthcare Realty Trust..................................... 52,500 1,483,125 7.22
LTC Properties.............................................. 83,600 1,614,525 7.56
Meditrust Corp.............................................. 70,100 2,164,338 7.84
Nationwide Health Properties................................ 53,800 1,345,000 6.72
Omega Healthcare Investors.................................. 53,000 2,067,000 6.87
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13,734,088
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INDUSTRIAL 3.86%
EastGroup Properties........................................ 66,200 1,365,375 6.59
First Industrial Realty Trust............................... 26,900 968,400 5.89
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2,333,775
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OFFICE 9.79%
Brandywine Realty Trust..................................... 47,900 1,140,619 6.22
Cornerstone Properties...................................... 131,700 2,395,294 6.60
Highwoods Properties........................................ 43,800 1,546,687 5.78
Tower Realty Trust.......................................... 34,300 844,638 6.86
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5,927,238
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OFFICE/INDUSTRIAL 6.30%
Prime Group Realty Trust, 144A.............................. 30,000 582,000 6.96
Prime Group Realty Trust.................................... 57,300 1,146,000 6.75
TriNet Corporate Realty Trust............................... 54,500 2,088,031 6.68
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3,816,031
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</TABLE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF DIVIDEND
SHARES VALUE YIELD*
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<S> <C> <C> <C> <C>
SHOPPING CENTER 25.96%
COMMUNITY CENTER 15.47%
Alexander Haagen Properties................................. 103,900 $ 1,740,325 8.60%
Developers Diversified Realty Corp.......................... 27,100 1,107,712 6.41
Federal Realty Investment Trust............................. 70,500 1,731,656 7.00
Glimcher Realty Trust....................................... 84,100 1,839,688 8.78
Pan Pacific Retail Properties............................... 69,600 1,522,500 6.95
Pennsylvania REIT........................................... 10,300 252,350 7.67
Saul Centers................................................ 64,800 1,170,450 8.64
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9,364,681
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FACTORY OUTLET CENTER 1.52%
Tanger Factory Outlet Centers............................... 31,500 917,438 7.55
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REGIONAL MALL 8.97%
CBL & Associates Properties................................. 58,700 1,438,150 7.59
JP Realty................................................... 54,500 1,382,937 7.09
Taubman Centers............................................. 95,500 1,247,469 7.20
The Mills Corp.............................................. 52,000 1,361,750 7.45
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5,430,306
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TOTAL SHOPPING CENTER....................................... 15,712,425
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TOTAL COMMON STOCK (Identified cost -- $53,387,540).... 53,981,281
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PREFERRED STOCK 6.24%
Apartment Investment & Management Co., 9.00%, Series C...... 40,000 1,005,000 9.75
Colonial Properties Trust, 8.75%, Series A.................. 30,000 759,375 8.65
Crown American Realty Trust, 11.00%, Series A............... 9,800 526,138 10.24
Liberty Properties Trust, 8.80%, Series A................... 29,600 762,200 8.54
Winston Hotels, 9.25%, Series A............................. 29,000 725,906 9.22
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TOTAL PREFERRED STOCK (Identified cost -- $3,769,667)..... 3,778,619
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TOTAL EQUITIES (Identified cost -- $57,157,207)........ 57,759,900
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PRINCIPAL
AMOUNT
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<S> <C> <C> <C>
COMMERCIAL PAPER 2.56%
Leggett & Platt, 5.90%, 4/1/98 (Identified
cost -- $1,551,000)....................................... $1,551,000 1,551,000
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TOTAL INVESTMENTS (Identified cost -- 58,708,207)............. 97.98% 59,310,900
OTHER ASSETS IN EXCESS OF LIABILITIES......................... 2.02% 1,224,987
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NET ASSETS................................................... 100.00% $60,535,887
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
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<S> <C>
CLASS A
Net Assets.................................................. $48,224,262
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Shares of capital stock outstanding......................... 3,930,060
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Net asset value and redemption value per share.............. $12.27
Maximum offering price per share ($12.27[div]0.955)'D'...... $12.85
CLASS B
Net Assets.................................................. $ 6,410,555
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Shares of capital stock outstanding......................... 522,997
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Net asset value and redemption value per share'DD'.......... $12.26
CLASS C
Net Assets.................................................. $ 5,901,070
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Shares of capital stock outstanding......................... 481,447
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Net asset value and redemption value per share'DD'.......... $12.26
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* Dividend yield is computed by dividing the security's current annual
dividend rate by the last sale price on the principal exchange, or
market, on which such security trades.
'D' On investments of $100,000 or more, the offering price is reduced.
'DD' Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
FINANCIAL HIGHLIGHTS*
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
NET ASSETS PER SHARE
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CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
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<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/97**...................... $34,621,545 $0 $0 $ 12.32 $ 12.35 $ 12.31
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Net investment income........................... $ 546,075 $ 52,750 $ 44,373 $ 0.14 $ 0.12 $ 0.11
Net realized and unrealized gain on
investments................................... (89,274) (15,365) (11,061) (0.02) (0.04) 0.01
Distributions from net investment income........ (658,189) (81,455) (72,689) (0.17) (0.17) (0.17)
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(201,388) (44,070) (39,377) (0.05) (0.09) (0.05)
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Capital stock transactions:
Sold....................................... 15,479,958 6,479,597 5,959,980
Distributions reinvested................... 216,423 439 919
Redeemed................................... (1,892,276) (25,411) (20,452)
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Net increase in net assets........................... 13,602,717 6,410,555 5,901,070
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End of period: 3/31/98............................... $48,224,262 $6,410,555 $5,901,070 $ 12.27 $ 12.26 $ 12.26
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</TABLE>
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* Financial information included in this report has been taken from the
records of the Fund without examination by independent accountants.
** Commencement of Operations for Classes B and C were January 15 and 14, 1998,
respectively.
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COHEN & STEERS EQUITY INCOME FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Willard H. Smith Jr.
Director
Elizabeth O. Reagan
Vice President
Adam Derechin
Vice President and
Assistant Treasurer
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
FUND ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, MA 02108
(800) 437-9912
CUSTODIAN
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
NASDAQ Symbol: CSEIX (Class A Shares Only)
Net asset value (NAV) can be found in the daily mutual fund listings in the
financial section of most major newspapers under Cohen & Steers.
This report is authorized for delivery only to shareholders of Cohen & Steers
Equity Income Fund, Inc. unless accompanied or preceded by the delivery of a
currently effective prospectus setting forth details of the Fund.
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STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as.................................... `D'
The double dagger symbol shall be expressed as.............................`DD'
