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COHEN & STEERS EQUITY INCOME FUND, INC.
February 3, 1998
To Our Shareholders:
We are pleased to submit to you the annual report for Cohen & Steers Equity
Income Fund, Inc. for the period ended December 31, 1997. The net asset value
per share at that date was $12.32. In addition, a distribution of $0.22 per
share (including a regular $0.17 per share distribution plus a $0.05 per share
extra distribution representing capital gains during the year) was declared for
shareholders of record December 22, 1997 and paid on December 23, 1997.
1997 REVIEW
The year 1997 proved to be very rewarding for nearly every participant in
the real estate securities industry. REIT share prices once again exhibited
stability amid turbulent financial market conditions, demonstrating their low
correlation to other asset classes. Yet, they still provided investment returns
which were well above their historic norm. The Fund had a total return, based on
income and change in net asset value, of 9.5% since its commencement of
operations on September 2, 1997. For the three months ended December 31,
1997 -- its first full quarter of operations -- Cohen & Steers Equity Income
Fund had a total return of 5.5%.
During the year, Wall Street underwrote over $30 billion of REIT
securities, more than double the previous record amount sold in 1993. As a
result, the market capitalization of equity REITs grew by over 60% to $145
billion. The mutual fund industry enjoyed record inflows into real estate funds,
which are now one of the most popular new asset classes.
REITs acquired an unprecedented $50 billion in property in 1997, becoming
the single most important source of capital for the real estate industry. They
grew in number for the first time since 1994, the result of IPO activity which
included some of the financial market's largest initial offerings of the year.
REITs also participated in a record amount of merger and acquisition activity,
including some of the largest, most visible and controversial of 1997. Whereas
several years ago no REIT had a stock market capitalization of more than $1
billion, by year end there were 50.
REITs enjoyed solid earnings growth, averaging approximately 11% per share,
with dividends increasing at a slower, but still respectable, 6% pace. The best
performing sectors in the REIT industry were, for the second year in a row,
owners of hotel and office properties, both of which benefited from supply
shortages resulting from the continued strength of the U.S. economy. It is in
these two sectors that some of the year's biggest and highest profile property
and corporate transactions occurred.
We believe that there were essentially two developments in 1997 that are
responsible for this record-setting activity and which have permanently reshaped
the industry; extraordinary financial market conditions, particularly related to
interest rates, and the emergence of new management strategies by the leading
companies.
We have never been proponents of the notion, and are not now, that REITs
are interest rate sensitive securities. Statistics and our own observations have
proven that there is, in fact, a very low correlation between REIT returns and
interest rates. However, in 1997 we believe that the low interest rate
environment influenced the REIT industry in a number of important ways. Because
the industry is so highly capital intensive, lower market interest rates reduced
the cost of capital to a level which made property acquisitions extremely
advantageous for those companies that could efficiently access the debt markets.
These acquisitions produced higher rates of earnings growth which, in turn,
improved their returns on equity and positively impacted their share prices. The
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COHEN & STEERS EQUITY INCOME FUND, INC.
ability of these REITS to sell additional equity allowed them to expand their
borrowing capacity and expand even further. While at some point this virtuous
cycle must come to an end, we believe that as long as the interest rate
environment remains benign and the availability of acquisitions remains
plentiful, REITs should continue to enjoy unprecedented growth by this means.
The superior current returns available throughout the spectrum of REIT
securities, from common stocks to debt instruments, have attracted a much
expanded investor constituency. In addition, the greater market capitalization
and size of individual issues has made REITs an important target of capital
providers from the smallest to the very largest investors. Importantly, the
terms of debt financing, often with maturities greater than 10 years and at
fixed rates, closely match the investment horizon of the acquired assets. In the
case of some instruments such as perpetual preferred stocks, this debt-like
security has no maturity and thereby represents the closest thing to permanent
financing the real estate industry can attain. Further, the requirement that
companies maintain strong financial ratios to maintain favorable credit ratings
imposes fiscal discipline unlike anything the industry has ever known. This
situation, which has not existed in nearly 30 years, has served to strengthen
equity values across the entire industry.
The result of these developments in the financial market environment is
that the REIT industry has achieved critical mass much sooner than most
expected. Having achieved this milestone, the industry's access to capital
continues to widen, thereby ensuring the stature of REITs as the dominant
participants in the real estate industry for a long time to come.
The second major development of 1997 was the emergence of new operating
strategies that heretofore were never contemplated by participants in the REIT
industry. Historically, REITs operated as passive owners of property, often
confined by the tax rules that governed the industry, but often more confined by
conservative management styles and narrow vision. This began to change in the
early 1990s when some older REITs took advantage of extraordinary property
acquisition opportunities and newer REITs came public with more entrepreneurial
management teams. With ready access to both capital and investment
opportunities, REITs have now begun to aggressively pursue a vastly wider range
of assets and businesses. For example, the handful of so-called 'paired-share'
REITs (two companies whose shares trade together, one a REIT which owns
property, the other a taxpaying company which can actively operate businesses)
have led the way towards revolutionizing the entire structure of the hotel
industry.
Other REITs, however, have established subsidiary companies or related
entities to allow management to operate businesses outside of the mainstream of
the sponsoring company. In some cases, the operation of these businesses is not
permissible under the REIT regulations and they are therefore required to reside
in a taxable corporation. In other cases, some REITs have begun to separate or
spin off assets which possess various different risk/return characteristics or
represent property types that are best suited to be held in a distinctly
different entity or structure.
There are several investment implications of this emerging trend. REITs can
no longer be viewed as passive holders of property or mere financial partners.
More than ever, they now are in firm control of their assets and their
destinies. Further, the range of business opportunities available to REITs is
vastly greater, and limited only by the imagination of their management. This
new opportunity set is enabling REITs to attract a very high caliber of
executive at every level of responsibility. Moreover, the pursuit of these
opportunities is boosting both the current and prospective growth rates of these
companies. Perhaps most importantly, this is being reflected in an expansion
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COHEN & STEERS EQUITY INCOME FUND, INC.
of share prices and P/E multiples which are providing shareholders with
considerable returns, as evidenced by the investment results in 1997.
INVESTMENT OUTLOOK
We expect the investment environment in 1998 to continue to be quite
favorable for certain sectors of the real estate and REIT market. We believe
that further growth of the U.S. economy, albeit at a slower rate than in 1997,
will enable the ongoing real estate recovery to continue. We expect that
interest rates and inflation will remain tame, perhaps even declining from
year-end levels. This would sustain the highly accommodative financial market
conditions that REITs benefited from last year. It is our expectation that,
barring any unusual developments, REIT earnings will grow at an even faster rate
than last year due to healthy internal growth as well as the high level of
acquisitions and refinancing activity in 1997 that will contribute to financial
results in 1998. A consensus of Wall Street analysts is currently forecasting
average earnings per share growth in the 13-15% range for the industry in 1998.
Dividend growth, in our opinion, will also exceed last year's pace due to an
industry-wide bottoming of payout ratios. In short, we see no reason why REITs
should not post mid-teen returns in the coming year, in line with their
long-term track record.
We believe that the major risk in our (and the consensus) outlook is that a
severe economic slowdown may occur which causes unpredictable dislocations and
financial market turmoil. Whether this happens or not, an environment of slowing
economic growth could precipitate some changes in leadership among the REIT
sectors. The Hotel sector, which is the most economically sensitive, could
suffer the most. Similarly, some segments of the Retail sector might suffer. We
are concerned that despite the strong economy of the past several years this
sector has experienced only average profit growth; in a slowing economy we would
expect a diminishing profit picture.
We believe that what some have described as a 'shortage of yield' will
favor REITs in 1998. With government deficits nearly absent and the
unprecedented high level of liquidity in corporate America, investors have begun
looking for investments that can provide current returns that are higher than
the risk-free rate. As was the case in 1997, REITs remain among the highest
yielding common stocks, and other securities issued by REITs offer yields that
are superior to comparable securities issued by non-real estate companies. The
Fund's portfolio of high yielding investments and its focus on REITs have it
advantageously positioned.
Increased real estate securitization should offer further investment
opportunities. The growing acceptance of the REIT structure and the public
markets as the appropriate medium for real estate investment has attracted many
owners of non-traditional real estate. Owners of prisons, timber, Fortune 500
companies, gaming, entertainment, retail and other commercial businesses are all
considering the REIT structure. While it is possible that some of these entities
will prove to be flawed, it is likely that some worthwhile and profitable
concepts will come public. Additionally, there is growing interest on the part
of established REITs in spinning off their mature properties into an income
REIT. If structured properly, this could afford an opportunity to invest in a
`new' company with an experienced management team that will have strong growth
as well as income prospects.
Our research department continues to seek out REITs that are being
overlooked by investors. The continued growth of the REIT market to over 200
companies has resulted in a two-tiered environment, with the dynamic, growth
oriented REITs having market capitalizations in excess of $1 billion each and
sizable analyst coverage. The remaining REITs trade at substantial valuation
discounts and are a large potential investment pool for the Fund. It is expected
that the Fund's performance will continue to benefit from consolidation activity
through its investment in REITs trading at or below their net asset values.
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COHEN & STEERS EQUITY INCOME FUND, INC.
As we begin the new year, our investment strategy is to focus on
above-average yielding securities of real estate companies with healthy
fundamentals and prudent financial structures. The Fund has a sizable weighting
in the health care sector. These companies, primarily made up of nursing home
owners, continue to benefit from strong core fundamentals as incremental demand
outpaces supply growth. The nursing home industry is uniquely protected from
overbuilding as a result of restrictive state guidelines governing the
construction and certification of nursing homes. This sector also has one of the
highest average dividend yields in the REIT universe as well as a history of
consistent dividend increases. Every health care REIT held in the Fund increased
its dividend last year.
Another important sector weighting in the Fund is the community shopping
center sector. Consisting primarily of owners of grocery-store-anchored shopping
centers, this property type defends well in a softening economic environment as
demand for its necessity oriented products is need driven. Non-grocer anchored
centers owned by the REITs in the portfolio include dominant retailers such as
Wal-Mart, Target and Home Depot as anchor tenants. This group also has an above
average dividend yield as a result of its 'low risk/low growth' orientation
falling out of favor over the last few years.
Consistent with our expectation of falling interest rates is our meaningful
weighting in the REIT preferred sector. This sector should perform well given
the current dividend yields ranging from 8.4%-10.5% on securities owned. The
Fund's holdings in this sector will likely grow in 1998. Continued heavy
issuance of these securities in the fourth quarter of 1997 has materially
increased the number of issues and range of investment options, which will allow
the Fund to further capitalize on its research expertise.
Performance of the Fund has thus far met our expectations. We are confident
in our ability to achieve satisfactory investment returns in 1998 given the
breadth of investment opportunities in the real estate securities universe.
Additionally, it is expected that the Fund will continue to maintain its current
high level of diversification by property type and geographic region. This
diversification allows it to benefit from our research efforts while seeking out
the most favorable income and return opportunities.
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.
PERFORMANCE REVIEW
The investment objective of Cohen & Steers Equity Income Fund, Inc. is to
achieve high current income through investment in real estate securities.
Capital appreciation is a secondary objective. The Fund's investment adviser
anticipates that the Fund's equity investments in real estate companies will
primarily be in securities that pay high dividends relative to the stock market
as a whole.
The Fund's investment performance in the fourth quarter of 1997 (its first
full period) exceeded its benchmarks and the stock market in general. Real
estate securities (and the Fund) performed well in general in 1997, in the
adviser's view, due to the strong growth of the economy, and the continued good
health of many real estate markets. In comparison to real estate securities
benchmarks, the Fund's outperformance is attributable to its heavier than
average weighting in Health Care sector.
The performance of the Fund for the period September 2, 1997 (commencement
of operations) through December 31, 1997 has comfortably exceeded that of its
benchmarks and the stock market in general.
Total Returns
For Periods Ended Dec. 31, 1997
Since Inception (9/27/97)
-------------------------------
Fund 9.46%
NAREIT All ** 9.13%
S&P 500 8.51%
[GRAPH]
9/2/97* 9/30/97 12/31/97
Cohen & Steers Equity Income Fund $10,000 $10,375 $10,946
NAREIT All REIT Index'D'** $10,000 $10,799 $10,913
S&P 500'D' $10,000 $10,548 $10,851
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate. When shares are redeemed, they may be worth
more or less than the original cost.
* Commencement of operations.
'D' The Comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the Fund's performance. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
NAREIT Index of All REITs is comprised of 210 real estate investment trusts.
The S&P 500 Index is an unmanaged list of common stocks that is frequently
used as a general measure of stock market performance. For more information,
including charges and expenses, please read the prospectus carefully before
you invest.
** The NAREIT All REIT Index is published monthly. Total returns and cumulative
values of a $10,000 investment are calculated from August 29, 1997, the date
nearest the Fund's inception for which comparable performance data exist.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD'D'
--------- ----------- ---------------
<S> <C> <C> <C> <C>
EQUITIES 91.84%
COMMON STOCK 83.46%
APARTMENT/RESIDENTIAL 6.73%
Associated Estates Realty Corp............................... 16,600 $ 393,212 7.85 %
Colonial Properties Trust.................................... 26,400 795,300 6.90
Equity Residential Properties Trust.......................... 2,700 136,519 5.30
Merry Land & Investment Co................................... 20,700 473,513 6.82
Oasis Residential, $2.25, Series A (Convertible Preferred)... 20,700 530,438 8.78
-----------
2,328,982
-----------
DIVERSIFIED 7.51%
Entertainment Properties Trust............................... 30,000 581,250 8.26
Pacific Gulf Properties...................................... 74,200 1,762,250 7.07
*Trammell Crow Co.............................................. 10,000 257,500 0.00
-----------
2,601,000
-----------
HEALTH CARE 20.19%
American Health Properties................................... 19,600 540,225 7.62
Health Care REIT............................................. 27,400 770,625 7.61
Healthcare Realty Trust...................................... 36,100 1,044,644 6.98
LTC Properties............................................... 28,000 581,000 7.04
Meditrust Corp............................................... 45,200 1,655,450 6.58
Nationwide Health Properties................................. 53,800 1,371,900 6.12
Omega Healthcare Investors................................... 26,600 1,027,425 6.68
-----------
6,991,269
-----------
INDUSTRIAL 9.66%
EastGroup Properties......................................... 66,200 1,431,575 6.29
First Industrial Realty Trust................................ 24,400 881,450 6.87
Meridian Industrial Trust.................................... 40,500 1,032,750 4.55
-----------
3,345,775
-----------
OFFICE 4.51%
Brandywine Realty Trust...................................... 21,300 535,162 5.89
Highwoods Properties......................................... 5,200 193,375 5.49
Tower Realty Trust........................................... 33,800 832,325 6.86
-----------
1,560,862
-----------
OFFICE/INDUSTRIAL 3.01%
Prime Group Realty Trust..................................... 28,100 569,025 6.67
TriNet Corporate Realty Trust................................ 12,200 471,988 6.62
-----------
1,041,013
-----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD'D'
--------- ----------- ---------------
<S> <C> <C> <C> <C>
SHOPPING CENTER 31.85%
COMMUNITY CENTER 19.71%
Alexander Haagen Properties.................................. 75,400 $ 1,314,788 8.26%
Developers Diversified Realty Corp........................... 19,000 726,750 6.59
Federal Realty Investment Trust.............................. 16,600 427,450 6.68
Glimcher Realty Trust........................................ 74,100 1,671,881 8.52
Pan Pacific Retail Properties................................ 12,500 267,187 6.58
Pennsylvania REIT............................................ 10,300 252,994 7.65
Price REIT................................................... 24,000 982,500 7.08
Saul Centers................................................. 64,800 1,178,550 8.58
-----------
6,822,100
-----------
FACTORY OUTLET CENTER 2.09%
Tanger Factory Outlet Centers................................ 23,700 724,331 7.20
-----------
REGIONAL MALLS 10.05%
CBL & Associates Properties.................................. 23,700 585,094 7.17
JP Realty.................................................... 39,400 1,021,937 6.94
Taubman Centers.............................................. 65,000 845,000 7.23
The Mills Corp............................................... 42,000 1,029,000 7.71
-----------
3,481,031
-----------
TOTAL SHOPPING CENTER........................................ 11,027,462
-----------
TOTAL COMMON STOCK (Identified cost -- $27,840,552).... 28,896,363
-----------
PREFERRED STOCK 8.38%
Colonial Properties Trust, 8.75%, Series A................... 24,000 600,000 8.76
Crown American Realty Trust, 11.00%, Series A................ 9,800 512,050 10.53
Liberty Properties Trust, 8.80%, Series A.................... 20,600 524,013 8.65
Taubman Center, 8.30%, Series A.............................. 26,400 648,450 8.45
Winston Hotels, Inc., 9.25%, Series A........................ 24,500 615,562 9.20
-----------
TOTAL PREFERRED STOCK (Identified cost -- $2,920,819)..... 2,900,075
-----------
TOTAL EQUITIES (Identified cost -- $30,761,371)........ 31,796,438
-----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- -----------
<S> <C> <C> <C>
COMMERCIAL PAPER 2.28%
Agway Finance, 6.10%, 1/2/98
(Identified cost -- $788,866)............................. $789,000 $ 788,866
-----------
TOTAL INVESTMENTS (Identified cost -- $31,550,237) .............. 94.12% 32,585,304
OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 5.88% 2,036,241
------- -----------
NET ASSETS (Equivalent to $12.32 per share based on
2,810,443 shares of capital stock outstanding) .............. 100.00% $34,621,545
------- -----------
------- -----------
</TABLE>
- ------------
* Non-income producing security.
'D' 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. These dividend yields have not been audited
by Coopers & Lybrand L.L.P.
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $31,550,237) (Note 1)................. $32,585,304
Cash.......................................................................................... 446
Receivable for investment securities sold..................................................... 2,808,300
Receivable for fund shares sold............................................................... 500,386
Dividends receivable.......................................................................... 430,544
Receivable from investment adviser............................................................ 99,921
Other assets.................................................................................. 114,001
-----------
Total Assets............................................................................ 36,538,902
-----------
LIABILITIES:
Payable for investment securities purchased................................................... 1,807,067
Payable for distribution fees................................................................. 12,746
Payable to administrator...................................................................... 12,586
Payable to directors.......................................................................... 3,367
Payable for organization costs (Note 1)....................................................... 2,169
Payable for fund shares redeemed.............................................................. 203
Other liabilities............................................................................. 79,219
-----------
Total Liabilities....................................................................... 1,917,357
-----------
NET ASSETS applicable to 2,810,443 shares of $0.001 par value common stock outstanding (Note 4)..... $34,621,545
-----------
-----------
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE:
($34,621,545[div]2,810,443 shares outstanding)................................................... $ 12.32
-----------
-----------
MAXIMUM OFFERING PRICE PER SHARE ($12.32[div]0.955)................................................. $ 12.90
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................... $33,510,337
Undistributed net realized gain on investments sold........................................... 76,141
Net unrealized appreciation on investments.................................................... 1,035,067
-----------
$34,621,545
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 2, 1997'D' THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
Investment Income:
Dividend income................................................................................ $ 752,548
Interest income................................................................................ 26,574
-----------
Total Income............................................................................. 779,122
-----------
Expenses:
Investment advisory fees (Note 2).............................................................. 45,083
Administration and transfer agent fees (Note 2)................................................ 21,168
Directors' fees and expenses (Note 2).......................................................... 12,700
Distribution fees (Note 2)..................................................................... 13,370
Registration and filing fees................................................................... 53,375
Professional fees.............................................................................. 26,500
Reports to shareholders........................................................................ 15,033
Custodian fees and expenses.................................................................... 11,186
Amortization of organization expenses (Note 1)................................................. 8,053
Miscellaneous.................................................................................. 3,436
-----------
Total Expenses........................................................................... 209,904
Reduction of expenses.......................................................................... (119,739)
-----------
Net Expenses............................................................................. 90,165
-----------
Net Investment Income................................................................................ 688,957
-----------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized loss on investments............................................................... (85,230)
Net change in unrealized appreciation on investments........................................... 1,035,067
-----------
Net realized and unrealized gain on investments.......................................... 949,837
-----------
Net Increase in Net Assets Resulting from Operations................................................. $ 1,638,794
-----------
-----------
</TABLE>
- ------------
'D' Commencement of operations.
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 2, 1997'D' THROUGH
DECEMBER 31, 1997
----------------------------------
<S> <C>
Change in Net Assets:
From Operations:
Net investment income................................................... $ 688,957
Net realized loss on investments........................................ (85,230)
Net change in unrealized appreciation on investments.................... 1,035,067
-------------
Net increase in net assets resulting from operations.............. 1,638,794
-------------
Dividends and Distributions to shareholders from (Note 1):
Net investment income................................................... (457,116)
Net realized gain on investments........................................ (70,470)
Tax return of capital................................................... (63,976)
-------------
Total dividends and distributions to shareholders................. (591,562)
-------------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund share transactions..................... 33,474,313
-------------
Total increase in net assets...................................... 34,521,545
Net Assets:
Beginning of period..................................................... 100,000
-------------
End of period........................................................... $ 34,621,545
-------------
-------------
</TABLE>
- ------------
'D' Commencement of operations.
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout the period and other performance information derived from the
Financial Statements. It should be read in conjunction with the Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
For the Period
September 2, 1997'D' through
PER SHARE OPERATING PERFORMANCE December 31, 1997
- --------------------------------------------------------------------------------------- ---------------------------------
<S> <C>
Net asset value, beginning of period................................................... $ 11.46
--------
Income from investment operations
Net investment income............................................................ 0.25
Net realized and unrealized gains on investments................................. 0.83
--------
Total from investment operations........................................... 1.08
--------
Less dividends and distributions to shareholders from:
Net investment income............................................................ (0.17)
Realized gains on investments.................................................... (0.03)
Tax return of capital............................................................ (0.02)
--------
Total dividends and distributions to shareholders.......................... (0.22)
--------
Net asset value, end of period......................................................... $ 12.32
--------
--------
Total investment return(1)............................................................. 9.46%(2)
--------
--------
Ratios/Supplemental Data:
Net assets, end of period (in millions).......................................... $34.622
--------
--------
Ratios of expenses to average daily net assets (before expense reduction)........ 3.49%(3)
--------
--------
Ratios of expenses to average daily net assets (net of expense reduction)........ 1.50%(3)
--------
--------
Ratio of net investment income to average daily net assets (net of expense
reduction)...................................................................... 11.46%(3)
--------
--------
Ratio of net investment income to average daily net assets (before expense
reduction)...................................................................... 9.47%(3)
--------
--------
Portfolio turnover rate.......................................................... 87.20%(2)
--------
--------
Average Commission Rate(4)....................................................... $0.0445
--------
--------
</TABLE>
- ------------
'D' Commencement of operations.
(1) Total investment return would have been lower had certain fees not been
reimbursed by the Adviser.
(2) Not Annualized.
(3) Annualized.
(4) Represents average commission rate per share charged to Fund on purchases
and sales of investments subject to such commissions during the period.
See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Equity Income Fund, Inc. (the 'Fund') was incorporated under
the laws of the State of Maryland on July 3, 1997 and is registered under the
Investment Company Act of 1940, as amended (the '1940 Act'), as an open-end,
non-diversified management investment company. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected 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
for the day.
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
Market System are valued in a similar manner. 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, the National Quotation Bureau or such other comparable
sources as the Board of Directors deems appropriate to reflect their fair market
value. Fixed income securities are stated on the basis of valuations provided by
a pricing service when such prices are believed by the Board of Directors to
reflect the fair market value of such 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.
Short-term debt securities, which have a maturity value of 60 days or less,
are valued at amortized cost which approximates value.
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13
<PAGE>
<PAGE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date. Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized using the effective
yield basis over their respective lives.
Dividends and Distributions to Shareholders: Dividends from investment
company taxable income are declared and paid quarterly. A portion of the Fund's
dividends may consist of amounts in excess of investment company taxable income
derived from non-taxable components of the dividends from the Fund's portfolio
investments. As a result, the Fund had a return of capital of $63,976 ($0.02 per
share), for the period ended December 31, 1997, which has been deducted from
paid-in capital. Net realized capital gains, unless offset by any available
capital loss carryforward, are distributed to shareholders annually.
Distributions to shareholders are recorded on the ex-dividend date.
Dividends will automatically be reinvested in full and fractional shares of
the Fund based on the net asset value per share at the close of business on the
payable date unless the shareholder has elected to have them paid in cash.
Dividends from net investment income and capital gain distributions are
determined in accordance with U.S. Federal income tax regulations which may
differ from generally accepted accounting principles. During the period ended
December 31, 1997, the Fund decreased undistributed net investment income by
$231,841 and increased undistributed net realized gain on investments sold by
$231,841. These differences are primarily due to return of capital and capital
gain distributions received by the Fund on portfolio securities.
Organization Costs: All costs incurred in connection with organizing and
establishing the Fund are being amortized on the straight-line basis over a
period of five years from the date on which the Fund commenced operations. For
the period September 2, 1997 (commencement of operations) through December 31,
1997, the Fund amortized $8,053 in organization costs.
Federal Income Taxes: It is the policy of the Fund to qualify as a
regulated investment company, if such qualification is in the best interest of
the shareholders, by complying with the requirements of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, and by
distributing substantially all of its taxable earnings to its shareholders.
Accordingly, no provision for federal income or excise tax is necessary.
NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
'Adviser') serves as the Fund's Investment Adviser pursuant to an investment
advisory agreement (the 'Advisory Agreement'). Under the terms of
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14
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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Advisory Agreement, the Adviser provides the Fund with the day-to-day
investment decisions and generally manages the Fund's investments in accordance
with the stated policies of the Fund, subject to the general supervision of the
Fund's Board of Directors. For the services provided to the Fund, the Adviser
receives a monthly management fee in an amount equal to 1/12th of 0.75% of the
average daily net assets of the Fund (approximately 0.75% on an annual basis).
For the period September 2, 1997 (commencement of operations) through December
31, 1997, the Fund incurred $45,083 in advisory fees.
The Adviser has voluntarily agreed to limit the total expenses of the Fund
(excluding interest, taxes, brokerage, and extraordinary expenses) to an annual
rate of 1.50% of the average daily net assets. As long as this expense cap
continues, it may lower the Fund's expenses and increase its total return. If
the expense limitation is terminated or revised at any time, the Fund's expenses
may increase and its total return may be reduced depending on the total assets
of the Fund.
Administration Fees: The Fund has entered into an administrative agreement
with the Adviser under which the Adviser performs certain administrative
functions for the Fund and receives a fee of 0.02% of the Fund's average daily
net assets. The Fund has paid the Adviser $1,196 in fees under this
administrative agreement.
Distribution Fees: Cohen & Steers Securities, Inc. (the 'Distributor'), a
wholly-owned subsidiary of Cohen & Steers Capital Management, Inc., distributes
the shares of the Fund.
The Fund has adopted a Distribution Plan (the 'Plan') on behalf of the Fund
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan,
the Fund may not incur distribution fees which exceed an annual rate of 0.25% of
the average daily net assets. The Fund has paid $13,370 in fees under the Plan.
Directors' Fees: Certain directors of the Fund are also directors, officers
and/or employees of the Adviser. None of the directors so affiliated received
compensation for their services as directors of the Fund. Fees and related
expenses accrued for non-affiliated directors totaled $12,700 for the period
September 2, 1997 (commencement of operations) through December 31, 1997.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the period September 2, 1997 (commencement of operations) through December 31,
1997 totaled $48,506,727 and $17,660,126, respectively.
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15
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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a federal income
tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost.............................................................. $31,451,444
-----------
Gross unrealized appreciation............................................... $ 1,275,251
Gross unrealized depreciaiton............................................... $ (141,391)
-----------
Net unrealized appreciation................................................. $ 1,133,860
-----------
-----------
</TABLE>
NOTE 4. CAPITAL STOCK
The Fund is authorized to issue 50 million shares of capital stock, par
value $0.001 per share. The Board of Directors of the Fund may increase or
decrease the aggregate number of shares of common stock that the Fund has
authority to issue. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the Period
September 2, 1997'D'
through
December 31, 1997
-------------------------
Shares Amount
--------- -----------
<S> <C> <C>
Sold......................................................... 2,794,623 $33,387,806
Issued as reinvestment of dividends.......................... 13,834 167,116
Redeemed..................................................... (6,740) (80,609)
--------- -----------
Net increase................................................. 2,801,717 $33,474,313
--------- -----------
--------- -----------
</TABLE>
- ------------
'D' Commencement of operations.
NOTE 5. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1997, the Fund had a capital loss carryforward of $22,652
expiring in 2005.
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16
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COHEN & STEERS EQUITY INCOME FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors of
Cohen & Steers Equity Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Cohen & Steers Equity Income Fund,
Inc., as of December 31, 1997, and the related statement of operations, the
statement of changes in net assets, and the financial highlights for the period
September 2, 1997 (commencement of operations) through December 31, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Cohen & Steers Equity Income Fund, Inc. as of December 31, 1997, the results of
its operations, the changes in its net assets, and the financial highlights for
the period September 2, 1997 (commencement of operations) through December 31,
1997, in conformity with generally accepted accounting principles.
New York, New York COOPERS & LYBRAND L.L.P.
February 3, 1998
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17
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<PAGE>
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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.
3 Chase MetroTech Center
Brooklyn, NY 11245
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
NASDAQ Symbol: CSEIX
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 to other than shareholders of Cohen &
Steers Equity Income Fund, Inc. only when accompanied or preceded by the
delivery of a currently effective prospectus setting forth details of the Fund.
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18
<PAGE>
<PAGE>
[Graphic of an open door in a field with
buildings visible through door.]
COHEN & STEERS
EQUITY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
COHEN & STEERS
EQUITY INCOME FUND
ANNUAL REPORT
DECEMBER 31, 1997
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as .......................... 'D'
The division sign shall be expressed as ........................... [div]
