COHEN & STEERS EQUITY INCOME FUND INC, N-30D, 1998-08-06

COHEN & STEERS EQUITY INCOME FUND INC
N-30D, 1998-08-06

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COHEN & STEERS EQUITY INCOME FUND, INC.

July 17, 1998

To Our Shareholders:

We are pleased to submit to you the semi-annual report for Cohen & Steers
Equity Income Fund, Inc. for the quarter and six months ended June 30, 1998. The
net asset values per share at that date were $11.73, $11.69, and $11.69 for
Class A, Class B, and Class C shares, respectively. In addition, a dividend of
$0.17 was declared for shareholders of record on June 23, 1998 and paid on June
24, 1998 to all three classes of shares.

INVESTMENT REVIEW

For the quarter ended June 30, 1998, Cohen & Steers Equity Income Fund had
a total return, based on income and change in net asset value, of -3.0% for
Class A shares. Class B and C shares both returned -3.3% for the quarter. This
performance compares favorably to the NAREIT Equity REIT Index total return of
- -4.6%. The Fund's total return for the six months ended June 30, 1998 was -2.0%
for Class A shares handily surpassing the NAREIT Equity REIT Index return of
- -5.0%. This strong relative performance validates the Fund's strategy, which is
focused on investing in real estate companies with above-average current income,
solid earnings prospects and attractive relative valuation levels.

The decline in REIT prices accelerated in the second quarter as investor
sentiment worsened and the gap between REIT returns and those of the stock and
bond markets widened. This sentiment reflects ongoing concern about the
overabundance of capital available for real estate in the private market, the
maturity of the real estate cycle and the potential slowing of earnings growth
for many real estate companies. While these concerns are valid, we believe that
the drop in REIT share prices more than adequately reflects these issues; 1998
is on track to be the worst year of investment performance since 1990, when REIT
prices declined by 15.4%. In that year the real estate bear market began in
earnest with declining occupancies and rental rates, plummeting property prices,
a credit crunch and an economic recession. Prior to 1990, one would have to go
back to 1974 to find a worse year of REIT share price performance. Given the
strength of the economy, rising rents and occupancy levels and only modest
construction activity, we think the market has overstated the negative case for
REITs and real estate.

The performance of REITs has resulted in an absolute and relative valuation
picture that has important implications for the entire real estate industry.
REITs are now trading at price-to-funds from operations ('FFO') ratios that are
at a multi-year low and are generating returns based on share prices that are
well above what can be earned in the private market. Considering that REIT
earnings are growing at about a 15% rate this year, any further decline in
price, over time, would place valuations at a level not seen since 1990. In
addition, the shares of many companies, both large and small, are trading at or
below the net asset values ('NAV') of their real estate. As a result, it is fair
to say that real estate today is cheaper in the public market than in the
private market.

On a relative basis the comparison of REIT valuations is extraordinary.
While the valuation of REITs approaches 1990 levels, the P/E multiple of the
stock market has expanded by nearly 30% and interest rates have declined by 33%.
It seems ironic to us that investor concern about the economic cycle and a
widely anticipated

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COHEN & STEERS EQUITY INCOME FUND, INC.
slowing of earnings growth for corporate America has resulted in record high
stock and bond valuations, while a more modest slowing of prospective earnings
growth for REITs has resulted in a near-record low earnings multiple.

The state of the REIT market has begun to have a material impact on the way
many public companies are operating. Most evident is that equity offerings,
after a record pace during the first quarter, have come to a near-halt, clearly
eliminating the supply pressure that existed earlier in the year. In addition,
by the end of the second quarter, and for the first time in years, the flow of
funds to real estate mutual funds turned negative. Our expectation is that,
given the poor performance and current valuation levels of REITs, neither
issuers nor investors will support continued, heavy equity issuance any time
soon because of the potentially highly dilutive impact on earnings and asset
values.

While the equity window has been closing, the debt window has never been
open wider, and this has compounded the concerns of equity investors. Long-term,
fixed rate debt at less than a 7% interest rate has become the financing vehicle
of choice in the real estate industry. This has led to a proliferation of
commercial mortgage backed securities ('CMBS'): $43 billion in CMBS was issued
in the first half of 1998, compared to only $15 billion in the first half of
1997, and $44 billion in all of 1997. The market's concern over the abundance of
debt capital began to impact the pricing of real estate debt securities towards
the end of the quarter, as spreads widened considerably. Nonetheless, the
environment remains 'borrower friendly.' Whereas the proclivity to increase
borrowing has caused concern among equity investors that the industry could fall
prey to excessive leverage, REITs have maintained their conservative balance
sheets, with debt-to-assets ratios in the 30%-50% range.

For the first time since the real estate recovery began, many companies are
materially scaling back their acquisition plans in light of limited access to
equity and the higher rate hurdle on new investment that this imposes on them.
Also for the first time, we are beginning to see REITs sell property, often to
private opportunity funds that are willing to pay high prices and finance the
acquisition mostly with debt. Several companies have announced share buyback
programs, viewing their own stock as a more attractive investment than property.
Since the private market seems to be willing to pay a higher price for property
than the public market, many companies are accessing institutional sources of
low cost capital to fund acquisition programs via joint ventures.

Finally, we have begun to see some evidence of at least a stabilization, if
not an increase, in capitalization rates being reported in transactions in many
property markets. This may be indicating that the upward spiral of property
prices is coming to an end. In short, it appears to us at this juncture that the
public market is enforcing the type of discipline that many had desired.
Further, many companies are adopting rational strategies that should enable them
to continue to produce positive results for their shareholders despite what
appear to be temporarily adverse market conditions.

INVESTMENT OUTLOOK

The absolute and relative valuations of REITs have placed them in a
position from which positive relative returns should be achievable in the second
half of the year. In the long run, real estate performance is affected by

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COHEN & STEERS EQUITY INCOME FUND, INC.
the same variables as any other asset class, such as economic growth and fiscal
and monetary policies. Accordingly, a continued widening of the gap between REIT
valuations and other assets would not be logical. We expect that the appeal of
REIT investment attributes, such as high and secure current yield, low
volatility and good defense in uncertain market conditions, will become more
widely appreciated by the investment community.

The Fund is advantageously positioned with its emphasis on above-average
dividend yielding real estate securities. The universe of attractive investments
for the Fund continues to grow, from security issuance and from share price
declines. Preferred stock issuance was heavy in the second quarter, over $1
billion, and many of these issues were hastily distributed thereby creating
after-market investment opportunities for the Fund. The near universal decline
in REIT common stock prices has increased the number of attractive dividend
yielding securities available to the Fund: at mid year, the dividend yield on
the NAREIT Equity REIT Index was 6.1%, up 65 basis points versus year-end 1997.
This will allow the Fund to maintain its yield discipline while most likely
increasing the growth component of the portfolio. Current holdings in the Fund
reflect this abundance of investment choices. REIT common stocks make up 85% of
the portfolio and convertible preferred stocks and perpetual preferred stocks
comprise 9% and 6%, respectively.

The Fund is well-positioned for the balance of the year as a result of a
number of important property sector changes during the quarter. The Office and
Retail sector weightings were increased, while Health Care and Apartment sector
weightings were reduced. The Office sector had the highest price-to-FFO multiple
at the beginning of the year and this sector was the hardest hit by the REIT
correction. Therefore, a number of strong Office companies have become
attractive on a current yield basis -- the first opportunity for attractive
yield in this high growth sector in several years. Arden Realty, Mack-Cali
Realty Corp. and SL Green Realty were added to the portfolio. We believe all
three should deliver solid earnings growth over the next two years, which should
translate to solid dividend growth and capital appreciation.

While the Retail sector was the best performing sector year to date,
several investment opportunities emerged. The Fund initiated positions in
Macerich and Prime Retail and increased its weighting in Pan Pacific. Macerich
is a California-based regional mall company whose shares, at one point, had
declined 7% and represented an excellent income and growth opportunity. Prime
Retail completed a sizable acquisition of another factory outlet center REIT and
during the process became very undervalued with a current yield of over 9%. We
added to our position in Pan Pacific, a California-based shopping center
owner/acquirer, when its shares weakened subsequent to a secondary equity
offering. This company continues to exploit its regional expertise in the
recovering California markets.

We reduced our weighting in the Health Care sector from 23% to 17%,
capturing price appreciation in a sector which defended well in the first half
of this year. Additionally, Capstone Capital was sold due to the price premium
resulting from the announced acquisition by another health care REIT. The
current weighting in Health Care reflects sizable positions in the most
attractive companies. The reduction in the Apartment sector weightings reflects
merger related activity and relative valuations. Security Capital Atlantic was
sold as a result of its merger

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COHEN & STEERS EQUITY INCOME FUND, INC.
with Archstone Communities Trust. Colonial Properties reached our price target
and was eliminated from the portfolio. We remain optimistic that additional
consolidation activity in the Apartment sector will create value for
shareholders; in fact, subsequent to quarter end Merry Land & Investment Co.
announced a merger with Equity Residential, at a solid premium to the market
price.

The Fund, which was fully invested at quarter end, will continue to seek
outstanding income opportunities in the current volatile real estate securities
market. We remain confident that the Fund's focus on above-average current
income, consistent earnings growth and attractive relative valuation should
result in both solid relative and absolute investment returns. Though the first
half of this year has been difficult for real estate securities, the strength of
the economy, the health of many real estate markets and very attractive real
estate stock valuations give us optimism about improved performance through the
balance of the year.

Sincerely,

MARTIN COHEN ROBERT H. STEERS

MARTIN COHEN ROBERT H. STEERS
President Chairman

STEVEN R. BROWN

STEVEN R. BROWN
Senior Vice President
Cohen & Steers Capital Management, Inc.
</TABLE>
COHEN & STEERS IS NOW ONLINE AT WWW.COHENANDSTEERS.COM. VISIT OUR WEBSITE FOR
DAILY NAVS, PORTFOLIO INFORMATION, PERFORMANCE INFORMATION, RECENT NEWS
ARTICLES, LITERATURE AND INSIGHTS ON THE REIT MARKET.

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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD*
--------- ----------- ---------------
<S> <C> <C> <C> <C>
EQUITIES 97.50%
COMMON STOCK 91.77%
APARTMENT/RESIDENTIAL 9.32%
Camden Property Trust, $2.25, Series A
(Convertible Preferred)................................... 56,700 $ 1,502,550 8.49%
Merry Land & Investment Co. ................................. 45,000 947,812 7.79
Summit Properties............................................ 76,000 1,439,250 8.61
United Dominion Realty Trust................................. 107,800 1,495,725 7.57
-----------
5,385,337
-----------
DIVERSIFIED 2.78%
Pacific Gulf Properties...................................... 74,200 1,604,575 7.77
-----------

HEALTH CARE 16.76%
American Health Properties................................... 17,600 440,000 8.72
ElderTrust................................................... 108,800 1,870,000 8.49
Health Care Property Investors............................... 34,400 1,240,550 7.21
Healthcare Realty Trust...................................... 52,500 1,430,625 7.56
Meditrust Corp. ............................................. 44,600 1,246,012 8.73
Nationwide Health Properties................................. 53,800 1,284,475 7.04
Omega Healthcare Investors................................... 61,800 2,170,725 7.63
-----------
9,682,387
-----------
INDUSTRIAL 3.90%
EastGroup Properties......................................... 20,500 411,281 6.78
First Industrial Realty Trust................................ 57,900 1,841,944 6.66
-----------
2,253,225
-----------
OFFICE 13.06%
Arden Realty Group........................................... 23,100 597,712 6.49
Brandywine Realty Trust...................................... 47,900 1,071,763 6.79
Highwoods Properties......................................... 43,800 1,415,288 6.31
Mack-Cali Realty Corp. ...................................... 41,300 1,419,688 5.82
SL Green Realty Corp. ....................................... 24,400 549,000 6.22
SL Green Realty Corp., 8.00%, Series A
(Convertible Preferred)................................... 54,100 1,379,550 7.84
Tower Realty Trust........................................... 49,700 1,112,038 7.55
-----------
7,545,039
-----------
</TABLE>

See accompanying notes to financial statements.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD*
--------- ----------- ---------------
<S> <C> <C> <C> <C>
OFFICE/INDUSTRIAL 7.11%
Prime Group Realty Trust..................................... 30,000 $ 513,750 7.88%
Reckson Associates Realty Corp., 7.625%, Series A
(Convertible Preferred)................................... 73,900 1,741,269 8.11
TriNet Corporate Realty Trust................................ 54,500 1,853,000 7.53
-----------
4,108,019
-----------
SHOPPING CENTER 34.27%
COMMUNITY CENTER 17.40%
Alexander Haagen Properties.................................. 142,200 2,141,888 9.56
Federal Realty Investment Trust.............................. 70,500 1,696,406 7.15
Glimcher Realty Trust........................................ 84,100 1,634,694 9.88
Pan Pacific Retail Properties................................ 105,800 2,049,875 7.85
Pennsylvania REIT............................................ 50,300 1,116,031 8.47
Saul Centers................................................. 81,800 1,416,162 9.01
-----------
10,055,056
-----------
FACTORY OUTLET CENTER 5.29%
Prime Retail................................................. 136,989 1,635,300 9.88
Prime Retail, 8.50%, Series B (Convertible Preferred)........ 14,100 289,050 10.34
Tanger Factory Outlet Centers................................ 35,800 1,134,413 6.94
-----------
3,058,763
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REGIONAL MALL 11.58%
CBL & Associates Properties.................................. 68,700 1,665,975 7.67
JP Realty.................................................... 74,700 1,760,119 7.64
Macerich Co. ................................................ 55,000 1,612,187 6.28
The Mills Corp. ............................................. 68,700 1,648,800 8.13
-----------
6,687,081
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TOTAL SHOPPING CENTER........................................ 19,800,900
-----------

SPECIALTY 4.57%
Capital Automotive REIT...................................... 94,200 1,336,462 4.79
Entertainment Properties Trust............................... 71,600 1,306,700 8.77
-----------
2,643,162
-----------
TOTAL COMMON STOCK (Identified cost -- $54,597,177).... 53,022,644
-----------
</TABLE>

See accompanying notes to financial statements.
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6

TOTAL INVESTMENTS (Identified cost -- $57,931,459) .............. 97.50% 56,332,119
OTHER ASSETS IN EXCESS OF LIABILITIES ........................... 2.50% 1,442,845
NET ASSETS ..................................................... 100.00% $57,774,964
------ -----------
------ -----------
</TABLE>

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* Dividend yield is computed by dividing the security's current annual dividend
rate by the last sale price on the principal exchange, or market, on which
such security trades.

See accompanying notes to financial statements.
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7

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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $57,931,459) (Note 1).................... $56,332,119
Cash............................................................................................. 11,542
Receivable for investment securities sold........................................................ 744,711
Dividends receivable............................................................................. 541,286
Receivable for fund shares sold.................................................................. 167,402
Receivable from investment adviser............................................................... 105,827
Unamortized organization costs and other assets (Note 1)......................................... 101,709
-----------
Total Assets................................................................................ 58,004,596
-----------
LIABILITIES:
Payable for fund shares redeemed................................................................. 61,966
Payable for distribution fees.................................................................... 50,750
Payable for shareholder service fees............................................................. 30,630
Payable to sub-administrator..................................................................... 27,025
Payable to directors............................................................................. 445
Other liabilities................................................................................ 58,816
-----------
Total Liabilities........................................................................... 229,632
-----------
NET ASSETS............................................................................................ $57,774,964
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4).................................................................. $59,772,131
Distributions in excess of net investment income................................................. (43,058)
Accumulated net realized loss on investments sold................................................ (354,769)
Net unrealized depreciation on investments....................................................... (1,599,340)
-----------
$57,774,964
-----------
-----------
CLASS A SHARES:
NET ASSETS....................................................................................... $40,519,808
Shares issued and outstanding ($0.001 par value common stock outstanding) (Note 4)............... 3,455,557
-----------
Net Asset Value and Redemption Price Per Share'D'................................................ $ 11.73
-----------
-----------
Maximum Offering Price Per Share ($11.73[div]0.955)'DD'.......................................... $ 12.28
-----------
-----------
CLASS B SHARES*:
NET ASSETS....................................................................................... $ 9,044,569
Shares issued and outstanding ($0.001 par value common stock outstanding) (Note 4)............... 773,444
-----------
Net Asset Value and Redemption Price Per Share'D'................................................ $ 11.69
-----------
-----------
CLASS C SHARES*:
NET ASSETS....................................................................................... $ 8,210,587
Shares issued and outstanding ($0.001 par value common stock outstanding) (Note 4)............... 702,199
-----------
Net Asset Value and Redemption Price Per Share'D'................................................ $ 11.69
-----------
-----------
</TABLE>

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'D' Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
'DD' On investments of $100,000 or more, the offering price is reduced.
* Initial offering of Class B and Class C shares began on January 15 and 14,
1998, respectively.

See accompanying notes to financial statements.
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8

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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income............................................................................... $ 1,994,811
Interest income............................................................................... 67,910
-----------
Total Income............................................................................ 2,062,721
-----------
Expenses:
Investment advisory fees (Note 2)............................................................. 202,331
Distribution fees -- Class A (Note 2)......................................................... 51,531
Distribution fees -- Class B (Note 2)......................................................... 21,230
Distribution fees -- Class C (Note 2)......................................................... 19,070
Registration and filing fees.................................................................. 62,050
Administration and transfer agent fees (Note 2)............................................... 58,004
Professional fees............................................................................. 57,852
Shareholder servicing fees -- Class A (Note 2)................................................ 21,604
Shareholder servicing fees -- Class B (Note 2)................................................ 7,077
Shareholder servicing fees -- Class C (Note 2)................................................ 6,357
Reports to shareholders....................................................................... 29,375
Directors' fees and expenses (Note 2)......................................................... 15,623
Amortization of organization expenses (Note 1)................................................ 12,046
Custodian fees and expenses................................................................... 10,698
Miscellaneous................................................................................. 3,884
-----------
Total Expenses.......................................................................... 578,732
Reduction of expenses (Note 2)................................................................ (139,142)
-----------
Net Expenses............................................................................ 439,590
-----------
Net Investment Income............................................................................... 1,623,131
-----------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments.............................................................. (430,910)
Net change in unrealized appreciation (depreciation) on investments........................... (2,634,407)
-----------
Net realized and unrealized loss on investments......................................... (3,065,317)
-----------
Net Decrease in Net Assets Resulting from Operations................................................ $(1,442,186)
-----------
-----------
</TABLE>

See accompanying notes to financial statements.
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9

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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS ENDED SEPTEMBER 2, 1997'D'
JUNE 30, 1998* THROUGH
(UNAUDITED) DECEMBER 31, 1997
---------------- --------------------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income....................................... $ 1,623,131 $ 688,957
Net realized loss on investments............................ (430,910) (85,230)
Net change in unrealized appreciation
(depreciation) on investments............................ (2,634,407) 1,035,067
---------------- -------------
Net increase (decrease) in net assets
resulting from operations.......................... (1,442,186) 1,638,794
---------------- -------------
Dividends and Distributions to Shareholders from (Note 1):
Net investment income
Class A............................................... (1,267,787) (457,116)
Class B............................................... (209,230) --
Class C............................................... (189,172) --
Net realized gain on investments (Class A).................. -- (70,470)
Tax return of capital (Class A)............................. -- (63,976)
---------------- -------------
Total dividends and distributions to shareholders..... (1,666,189) (591,562)
---------------- -------------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund share transactions......... 26,261,794 33,474,313
---------------- -------------
Total increase in net assets.......................... 23,153,419 34,521,545
Net Assets:
Beginning of period......................................... 34,621,545 100,000
---------------- -------------
End of period (including distributions in excess of net
investment income of $43,058 at June 30, 1998)........... $ 57,774,964 $ 34,621,545
---------------- -------------
---------------- -------------
</TABLE>

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* Initial offering of Class B and Class C shares began on January 15 and 14,
1998, respectively.
'D' Commencement of Operations.

See accompanying notes to financial statements.
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10

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COHEN & STEERS EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS

The following table includes selected data for a share outstanding
throughout each 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>
Class A Class B Class C
---------------------------------- -------------- --------------
For the For the Period For the Period
Six Months For the Period January 15* January 14*
Ended September 2'D' through through
June 30, 1998 through June 30, 1998 June 30, 1998
PER SHARE OPERATING PERFORMANCE (Unaudited) December 31, 1997 (Unaudited) (Unaudited)
- ------------------------------------------------------ ------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 12.32 $ 11.46 $ 12.35 $ 12.31
------------- ------- ------- -------
Income from investment operations
Net investment income............................. 0.34 0.25 0.31 0.30
Net realized and unrealized gain (loss) on
investments.................................... (0.59) 0.83 (0.63) (0.58)
------------- ------- ------- -------
Total from investment operations............. (0.25) 1.08 (0.32) (0.28)
------------- ------- ------- -------
Less dividends and distributions to shareholders from:
Net investment income............................. (0.34) (0.17) (0.34) (0.34)
Net realized gain on investments.................. -- (0.03) -- --
Tax return of capital............................. -- (0.02) -- --
------------- ------- ------- -------
Total dividends and distributions to
shareholders............................... (0.34) (0.22) (0.34) (0.34)
------------- ------- ------- -------
Net asset value, end of period........................ $ 11.73 $ 12.32 $ 11.69 $ 11.69
------------- ------- ------- -------
------------- ------- ------- -------
Total investment return(1)............................ (2.04)%(2) 9.46%(2) (2.61)%(2) (2.29)%(2)
------------- ------- ------- -------
------------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (in millions)........... $40.520 $34.622 $ 9.045 $ 8.211
------------- ------- ------- -------
------------- ------- ------- -------
Ratios of expenses to average daily net assets
(before expense reduction)..................... 1.99%(3) 3.49%(3) 2.76%(3) 2.76%(3)
------------- ------- ------- -------
------------- ------- ------- -------
Ratios of expenses to average
daily net assets (net of expense reduction).... 1.50%(3) 1.50%(3) 2.15%(3) 2.15%(3)
------------- ------- ------- -------
------------- ------- ------- -------
Ratio of net investment income to
average daily net assets (before expense
reduction)..................................... 5.42%(3) 9.47%(3) 5.84%(3) 5.81%(3)
------------- ------- ------- -------
------------- ------- ------- -------
Ratio of net investment income to
average daily net assets (net of expense
reduction)..................................... 5.91%(3) 11.46%(3) 6.45%(3) 6.42%(3)
------------- ------- ------- -------
------------- ------- ------- -------
Portfolio turnover rate........................... 51.47%(2) 87.20%(2) 51.47%(2) 51.47%(2)
------------- ------- ------- -------
------------- ------- ------- -------
</TABLE>

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

'D' Commencement of operations.
* Initial offering of shares.
(1) Total investment return would have been lower had certain fees not been
reimbursed by the Adviser.
(2) Not annualized.
(3) Annualized.

See accompanying notes to financial statements.
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11

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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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 authorized shares of the Fund
are divided into three classes designated Class A, Class B and Class C shares.
Class A shares are sold with an initial sales charge of up to 4.50% on
investments of less than $1 million. Investments of $1 million or more are sold
with no initial sales charge and a contingent deferred sales charge of 1.0% on
redemptions made within one year of purchase. Class B shares are sold with a
contingent deferred sales charge (expressed as a percentage of the lesser of the
current net asset value or original cost) on redemptions made within six years
of purchase, which declines annually from 5.0% for redemptions made in year one,
down to 0.0% in year seven. Class B shares will automatically convert to Class A
shares after the eighth year following purchase. Class C shares are sold at net
asset value with a contingent deferred sales charge of 1.0% on redemptions made
within one year of purchase. Each of the Fund's shares has equal dividend,
liquidation and voting rights (except for matters relating to distribution and
shareholder servicing of such shares). 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

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12

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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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.
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.
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 net investment
income are declared and paid quarterly. A portion of the Fund's dividends may
consist of amounts in excess of net investment income derived from non-taxable
components of the dividends from the Fund's portfolio investments. 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
ex-dividend 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.
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.
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 six months ended June 30, 1998, the Fund amortized $12,046 in organization
costs.

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 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 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 six months
ended June 30, 1998, the Fund incurred $202,331 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 of the Fund

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13

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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
attributable to Class A shares and 2.15% of the average daily net assets of the
Fund attributable to Class B and Class C shares until December 31, 1998. 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. For the six months ended
June 30, 1998, the Adviser waived advisory fees of $139,142.
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. For the six months ended June 30, 1998, the Fund has paid the
Adviser $5,396 in fees under this administrative agreement.
In addition, the Fund has entered into a fund accounting and
sub-administration agreement with Chase Manhattan Bank ('Chase') for performing
administration functions for the Fund. Chase receives a monthly sub-
administration fee at the annual rate of 0.08% on the first $500 million of the
Fund's average daily net assets and at lower rates on the Fund's average daily
net assets in excess of that amount.
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 attributable to the Class A shares and 0.75% of the
average daily net assets attributable to the Class B and Class C shares. For the
six months ended June 30, 1998, the Fund has paid $91,831 in fees under the
Plan.
Shareholder Servicing Fees: 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. For
these services, the Fund may pay the shareholder servicing agent a fee at an
annual rate of up to 0.10% of the average daily net asset value of the Fund's
Class A shares and up to 0.25% of the average daily net asset value of the
Fund's Class B and Class C shares. For the six months ended June 30, 1998, the
Fund paid $35,038 under the shareholder servicing plan.
Directors' Fees: Certain directors and officers of the Fund are also
directors, officers and/or employees of the Adviser. None of the directors and
officers so affiliated received compensation for their services as directors of
the Fund. Fees and related expenses accrued for non-affiliated directors totaled
$15,623 for the six months ended June 30, 1998.

NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the six months ended June 30, 1998 totaled $53,231,755 and $25,682,682,
respectively.

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14

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COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

At June 30, 1998, the cost and unrealized appreciation or depreciation in
value of the investments owned by the Fund are as follows:

<TABLE>
<S> <C>
Aggregate cost............................................................. $ 57,931,459
Gross unrealized appreciation.............................................. $ 992,241
Gross unrealized depreciation.............................................. $ (2,591,581)
------------
Net unrealized depreciation................................................ $ (1,599,340)
------------
------------
</TABLE>

NOTE 4. CAPITAL STOCK
The Fund is authorized to issue 200 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
FOR THE SEPTEMBER 2, 1997'D'
SIX MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
CLASS A:
Sold.................................... 1,585,019 $ 19,454,015 2,794,623 $ 33,387,806
Issued as reinvestment of dividends..... 58,767 691,087 13,834 167,116
Redeemed................................ (998,672) (11,942,804) (6,740) (80,609)
--------- ------------ --------- ------------
Net increase............................ 645,114 $ 8,202,298 2,801,717 $ 33,474,313
--------- ------------ --------- ------------
--------- ------------ --------- ------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 15, 1998*
THROUGH
JUNE 30, 1998
------------------------
SHARES AMOUNT
--------- ------------
<S> <C> <C>
CLASS B:
Sold.................................... 772,063 $ 9,450,121
Issued as reinvestment of dividends..... 6,857 79,282
Redeemed................................ (5,476) (65,462)
--------- ------------
Net increase............................ 773,444 $ 9,463,941
--------- ------------
--------- ------------
</TABLE>

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15

- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 14, 1998*
THROUGH
JUNE 30, 1998
------------------------
SHARES AMOUNT
--------- ------------
<S> <C> <C>
CLASS C:
Sold.................................... 710,541 $ 8,697,722
Issued as reinvestment of dividends..... 7,435 85,923
Redeemed................................ (15,777) (188,090)
--------- ------------
Net increase............................ 702,199 $ 8,595,555
--------- ------------
--------- ------------
</TABLE>

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

'D' Commencement of operations.

* Initial offering of shares.

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.

NOTE 6. BORROWINGS

The Fund, in conjunction with Cohen & Steers Realty Shares, Inc. and Cohen
& Steers Special Equity Fund, Inc., has entered into a Line of Credit Agreement
with Chase Manhattan Bank for $250,000,000. During the six months ended June 30,
1998, the Fund did not have any loans outstanding. The loan, if used, will be
collateralized by the Fund's portfolio.

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16

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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

William Goodwin
Assistant Secretary

KEY INFORMATION

INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232

FUND SUB-ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, MA 02108
(800) 437-9912

CUSTODIAN
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081

LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112

NASDAQ Symbol: Class A - CSEIX
Website: www.cohenandsteers.com

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.
17

[LOGO]
COHEN & STEERS
EQUITY INCOME FUND

SEMI-ANNUAL REPORT
JUNE 30, 1998

COHEN & STEERS
EQUITY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017

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First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
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STATEMENT OF DIFFERENCES
------------------------

The dagger symbol shall be expressed as............................... 'D'
The double dagger symbol shall be expressed as........................ 'DD'
The division sign shall be expressed as............................... [div]