<PAGE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
July 20, 1999
To Our Shareholders:
We are pleased to submit to you our semi-annual report for Cohen & Steers
Equity Income Fund for the quarter and six months ended June 30, 1999. The net
asset values per share at that date were $10.55, $10.48, and $10.46 for
Class A, Class B, and Class C shares, respectively. Class I shares had a net
asset value of $10.54. In addition, a regular quarterly dividend of $0.17 per
share was declared for shareholders of record on June 23, 1999 and paid on
June 24, 1999 to all four classes of shares.
MIDYEAR REVIEW
For the three months ended June 30, 1999, Cohen & Steers, Equity Income
Fund had a total return, based on income and change in net asset value, of 11.5%
for Class A shares (without giving effect to sales loads or contingent deferred
sales charges, if any). Class B and C shares returned 11.3% and 11.0%
respectively, for the quarter. Class I shares returned 11.5% for the quarter.
This performance compared favorably to the Fund's benchmark, the NAREIT Equity
REIT Index return of 10.1%. The Fund's total return for the six months ended
June 30, 1999 was 5.9% for Class A shares (before sales charges), surpassing the
NAREIT Equity REIT Index return of 4.8%. Class B shares returned 5.6%, Class C
shares 5.5% and Class I shares 6.1%. We believe the Fund is well positioned
based on its emphasis on companies with above-average current income, consistent
earnings growth, and attractive relative valuation levels.
In the second quarter of 1999 real estate securities posted their strongest
quarterly returns in nearly two years. Following what was a 15-month bear market
that produced a price decline of nearly 28%, REIT share prices appear to have
bottomed out. We believe that their recovery was brought about by renewed
strength in the U.S. economy, solid real estate fundamentals and compelling
valuations. In addition, unlike the prevailing fears last year with respect to
the potential for a global economic recession accompanied by price deflation,
concern has shifted in 1999 to the potential for runaway growth in the economy,
rekindling fears of price inflation.
There were a number of other important developments during the quarter and
first half of this year, which represent a complete reversal of the trends that
prevailed in 1998. For example, last year the Treasury Department pushed for
Congress to adopt several legislative proposals which, if enacted, could have
reigned in the growth rates for REITs. Although the only element to pass was the
elimination of the 'paired share' structure that affected only a handful of
companies, this created a great deal of negative investor sentiment. In
contrast, this year's regulatory environment is extremely accommodative.
Legislation recently proposed in both houses of Congress, and which seems to
have a strong probability of passing, would significantly expand the ability of
REITs to engage in related service businesses. This would enable REITs to
exercise greater control of their operations as well as pursue new avenues of
growth. There are, in addition, a number of other proposals attached to this
legislation that, at the margin, are positive for the REIT industry.
As a result of the bear market as well as the continued rise in property
values, the property acquisition activity by REITs has declined dramatically.
For example, as reported by NAREIT, REIT property acquisitions in the first
quarter of 1999 totaled $4.0 billion, an 80% decline from last year's first
quarter, when REITs acquired $20.1 billion worth of property. In the second
quarter, REIT acquisitions of $2.4 billion represent an 82% decline from last
year's second quarter acquisition pace of $13.3 billion. We also believe that
approximately $4 billion of property sales by REITs took place in the first half
of the year, with more targeted to close in the second half of
- --------------------------------------------------------------------------------
1
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COHEN & STEERS EQUITY INCOME FUND, INC.
the year. This record amount of dispositions by REITs was facilitated by the
exceptionally strong pricing and demand in the private market.
This dramatic reduction acquisition activity has concurrently reduced
REITs' need for capital. According to NAREIT statistics, REITs issued only $2.6
billion in equity in the first half of the year, an 84% decline from the $16.1
billion raised in the first half of 1998. These statistics do not take into
account the actual retirement of stock that took place in the first half of the
year, as approximately 20 companies announced share repurchase programs
encompassing the potential purchase of $500 million of their equity. Unlike a
year ago when most REIT shares were trading at a premium to their net asset
values (NAVs), today they are trading at a discount and most REIT managements
believe that their stock is the most compelling investment opportunity available
to them. So far this year, four companies believe this so strongly that they
have proposed plans to go private.
On the debt side, borrowing by REITs also declined in the first half of the
year. Issuance of secured and unsecured debt declined 57% to $6.9 billion from
$12.2 billion in the first half of 1998. Much of this borrowing was used to
replace bank debt or to refinance maturing obligations. Issuance of CMBS
(commercial mortgage backed securities), by both public and private companies in
the first half declined by 20% to $34.8 billion from $43.4 billion a year ago.
Importantly, in both the unsecured debt and CMBS markets, issuance in the second
quarter was considerably slower than in the first quarter, the result of
drastically reduced borrowing needs, the uptick in interest rates, and less
investor demand.
Finally, the debate about the interest rate-sensitivity of REITs
intensified in the first half of the year. Whereas last year's precipitous
decline in interest rates was accompanied by a dramatic decline in REIT share
prices, this year's rise in interest rates seems to have had the opposite
effect. Although statistical evidence supports a low correlation of interest
rates to REIT share prices, many observers view this year's rise in rates to
have negative implications. We believe that the interest rate picture is
reflective of, not the cause of, current and prospective economic and
fundamental conditions. Those fundamental conditions are currently exceptionally
good for both real estate and REITs, and this should remain the strongest
influence on share prices.
INVESTMENT OUTLOOK
The prospect of a strong economy and rising inflation, while upsetting to
fixed-income and other investors, is a major plus for owners of real estate.
Particularly in light of the prevailing tight markets and low vacancy rates,
real estate seems poised to resume its role as a prime hedge against inflation.
Increasing rental income and replacement cost is further enhancing the asset
values of all property owners. To the extent that underlying asset values at all
influence REIT share prices -- and we believe that they do -- the current
investment environment is nearly ideal.
This attractive real estate investment environment is also ideal for the
equity income strategy. Several key investment themes that we are pursuing
include; 1) seeking out above average current income from companies with sound
business plans, 2) companies in property sectors that have the potential for
above average earnings from internal growth, 3) viable companies that trade at a
steep discount to their underlying asset value.
The Fund's 48 investment securities generated an annualized gross dividend
yield of 8.4% at quarter end (a portion of a REIT's dividend may represent a
return of capital for tax purposes). This is materially higher than the NAREIT
Equity REIT Index dividend yield of 7.3% for the same period. Throughout the
first half of this year we have invested in securities generating a high current
yield while increasing the expected earnings per share growth
- --------------------------------------------------------------------------------
2
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COHEN & STEERS EQUITY INCOME FUND, INC.
of the portfolio's underlying equity securities. The projected rate of earnings
per share growth for the Fund's equity investments has increased to 10.5% from
9.5% at the beginning of the year. This improvement is a result of the Fund
identifying pricing inefficiencies and investing opportunistically in companies
throughout the year. This higher level of earnings growth will, hopefully,
translate into greater share price appreciation and dividend increases.
The property sector with the best core fundamentals, we feel, is central
business district (CBD) office. Minimal levels of construction activity in many
cities throughout the country coupled with continued economic strength has led
to a 'landlord's market'. The office market is one of the few businesses in the
country that has pricing power. We expect internal growth, which is the ability
to grow earnings from raising raise rents and occupancy levels of existing
assets, to be well in excess of inflation in this sector. The Fund's largest
holding is Mack-Cali Realty Corporation, a New Jersey-based owner of office
buildings. We expect double-digit earnings per share growth from this company
over the next three years as it benefits from rent growth from its existing
portfolio. The Office sector is the Fund's largest sector weighting with a 24%
allocation.
The Health Care sector has the potential for outsized returns. Health Care
REITs predominantly own nursing homes and other types of properties catering to
the needs of the elderly. Changes in the level of reimbursement for services
provided at these property types has had a negative impact on the profitability
of nursing home operators. This in turn has caused the health care REIT stocks
to underperform the market. We view this as a buying opportunity. Demand for
elderly housing continues to grow and the population over age 85, typical
nursing home resident age, is increasing three times as fast as younger
Americans. In addition, construction activity has slowed. We also feel that the
federal government has consistently advocated for adequate care for the elderly
and that policy actions are being considered to address the financial viability
of the industry. We have increased our weighting in the Health Care sector to
14%.
We continuously review and update the net asset value of the companies in
our investment universe. Companies trading at a steep discount to their real
estate value merit further attention. One investment in the Fund, TriNet
Corporate Realty Trust, was trading at a sizable discount to its net asset
value. During the second quarter it received an acquisition bid from another
REIT and the Fund was able to sell its position at a sizable gain relative to
its price at the beginning of the year. Another investment we are excited about
is SL Green Realty Corp. This New York-based office REIT is trading at a sizable
discount to NAV and is in one of the strongest office markets in the country.
Brandywine Realty Trust, Prime Group Realty Trust and Phillips International all
meet this criteria as well. We continue to feel that the most attractively
priced real estate is in publicly traded REITs and that there will be
consolidation, which the Fund should benefit from.
Recently proposed changes in REIT regulations, if passed, will likely
create additional investment opportunities. The proposed REIT change(s) would
allow REITs to own taxable subsidiaries to engage in real estate related
activities, which are currently very limited. This change would allow companies
to offer various real estate related services to their tenants and/or space
users, i.e. shoppers/office workers. Companies owning large portfolios, which
generate sizable through traffic would be in a good position to generate fee
income for access to their 'customer base'. It would also require minimal
additional capital. We will continue to scrutinize our investment universe for
companies best positioned to take advantage of this.
Strong economic fundamentals coupled with healthy real estate markets make
us optimistic about the future performance of the Fund. The strong performance
in the second quarter, we feel, was long overdue given
- --------------------------------------------------------------------------------
3
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COHEN & STEERS EQUITY INCOME FUND, INC.
fundamentals and relative valuation. Notwithstanding this recent improvement,
the group is still very attractively valued. What REITs offer: low
price-to-earnings multiples, high current income, and pricing power at the
property level, should continue to attract investors rotating into value.
Additionally, we are optimistic the apparent completion of the long REIT bear
market in the first quarter of this year will serve as a signal to investors to
move back into REITs. We believe, based on current valuation levels and on the
portfolio composition, that we are positioned to deliver continued solid
performance.
Sincerely,
<TABLE>
<S> <C>
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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4
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD'D'
--------- ----------- ------------
<S> <C> <C> <C> <C>
EQUITIES 97.85%
COMMON STOCK 85.28%
APARTMENT/RESIDENTIAL 10.11%
Apartment Investment & Management
Co. -- Class A........................ 24,300 $ 1,038,825 5.85%
Charles E. Smith Residential Realty...... 29,000 984,188 6.31
Essex Property Trust..................... 49,800 1,761,675 6.22
Home Properties.......................... 60,500 1,671,312 6.95
Summit Properties........................ 89,900 1,775,525 8.46
-----------
7,231,525
-----------
DIVERSIFIED 2.07%
Anthracite Capital....................... 225,900 1,482,469 17.68
-----------
HEALTH CARE 13.88%
ElderTrust............................... 67,200 684,600 14.33
Health Care Property Investors........... 88,700 2,561,212 9.56
Healthcare Realty Trust.................. 77,800 1,633,800 10.19
Nationwide Health Properties............. 132,600 2,527,688 9.44
Omega Healthcare Investors............... 68,900 1,778,481 10.85
*Ventas.................................. 139,000 747,125 --
-----------
9,932,906
-----------
HOTEL 1.40%
FelCor Lodging Trust..................... 48,300 1,002,225 10.60
-----------
INDUSTRIAL 7.72%
AMB Property Corp........................ 57,300 1,346,550 5.96
First Industrial Realty Trust............ 71,300 1,956,294 8.75
Pacific Gulf Properties.................. 98,200 2,221,775 7.60
-----------
5,524,619
-----------
OFFICE 23.85%
Arden Realty Group....................... 93,000 2,290,125 7.23
Brandywine Realty Trust.................. 125,500 2,486,469 7.87
CarrAmerica Realty Corp.................. 79,500 1,987,500 7.40
Cornerstone Properties................... 90,000 1,428,750 7.56
Crescent Real Estate Equities Co......... 41,100 976,125 9.26
Highwoods Properties..................... 96,000 2,634,000 7.87
Mack-Cali Realty Corp.................... 92,600 2,864,812 7.11
Mission West Properties.................. 72,200 595,650 6.79
SL Green Realty Corp..................... 88,000 1,798,500 6.85
-----------
17,061,931
-----------
</TABLE>
See accompanying notes to financial statements.
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5
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD'D'
--------- ----------- ------------
<S> <C> <C> <C> <C>
OFFICE/INDUSTRIAL 5.16%
Liberty Property Trust................... 94,000 $ 2,338,250 7.24%
Prime Group Realty Trust................. 28,500 489,844 7.85
Reckson Associates Realty
Corp. -- Class B...................... 36,261 865,731 9.38
-----------
3,693,825
-----------
SHOPPING CENTER 19.97%
COMMUNITY CENTER 11.63%
Developers Diversified Realty Corp....... 66,500 1,105,562 8.42
Federal Realty Investment Trust.......... 41,800 958,788 7.67
Pan Pacific Retail Properties............ 100,400 1,951,525 8.23
Phillips International Realty Corp....... 127,600 2,153,250 8.39
Regency Realty Corp...................... 98,000 2,149,875 8.95
-----------
8,319,000
-----------
REGIONAL MALL 8.34%
JP Realty................................ 74,700 1,536,019 9.05
Macerich Co.............................. 51,500 1,351,875 7.39
Simon Property Group..................... 67,700 1,717,887 7.96
Taubman Centers.......................... 70,200 925,763 7.28
Urban Shopping Centers................... 13,900 437,850 7.11
-----------
5,969,394
-----------
TOTAL SHOPPING CENTER.................... 14,288,394
-----------
SPECIALTY 1.12%
Entertainment Properties Trust........... 45,300 798,413 9.53
-----------
TOTAL COMMON STOCK (Identified
cost -- $62,560,510)............ 61,016,307
-----------
</TABLE>
See accompanying notes to financial statements.
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6
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF VALUE DIVIDEND
SHARES (NOTE 1) YIELD'D'
--------- ----------- ------------
<S> <C> <C> <C> <C>
PREFERRED STOCK 12.57%
Apartment Investment & Management Co.,
9.00%, Series C....................... 52,000 $ 1,244,750 9.40%
Apartment Investment & Management Co.,
9.375%, Series G...................... 62,400 1,517,100 9.62
Camden Property Trust, $2.25, Series A
(Convertible)......................... 56,700 1,421,043 8.98
Crown American Realty Trust, 11.00%,
Series A.............................. 9,800 461,825 11.67
General Growth Properties, 7.25%,
Series A (Convertible)................ 22,000 528,000 7.54
Liberty Properties Trust, 8.80%,
Series A.............................. 29,600 703,000 9.26
Prime Retail, 8.50%, Series B
(Convertible)......................... 14,100 225,600 13.25
Reckson Associates Realty Corp., 7.625%,
Series A (Convertible)................ 73,900 1,685,844 8.37
SL Green Realty Corp., 8.00%, Series A
(Convertible)......................... 53,100 1,204,706 8.82
-----------
TOTAL PREFERRED STOCK (Identified
cost -- $9,527,224)............. 8,991,868
-----------
TOTAL EQUITIES (Identified
cost -- $72,087,734)............ 70,008,175
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C> <C>
COMMERCIAL PAPER 3.02%
Carolina Power & Light Co., 5.50%, due
7/1/99 (Identified cost -- $2,161,000) $2,161,000 2,161,000
-----------
TOTAL INVESTMENTS (Identified
cost -- $74,248,734) ..................... 100.87% 72,169,175
LIABILITIES IN EXCESS OF OTHER ASSETS ...... (0.87)% (624,632)
------ -----------
NET ASSETS ................................. 100.00% $71,544,543
------ -----------
------ -----------
</TABLE>
- ------------
'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.
* Non-income producing security.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified
cost -- $74,248,734) (Note 1)......................... $72,169,175
Cash................................................... 33
Dividends receivable................................... 644,848
Receivable for fund shares sold........................ 191,666
Receivable for investment securities sold.............. 13,580
Unamortized organization costs and other assets
(Note 1).............................................. 75,130
-----------
Total Assets...................................... 73,094,432
-----------
LIABILITIES:
Payable for investment securities purchased............ 1,339,955
Payable for distribution fees.......................... 60,695
Payable to investment adviser.......................... 42,938
Payable for shareholder service fees................... 39,384
Payable for fund shares redeemed....................... 35,159
Payable to administrator............................... 1,145
Other liabilities...................................... 30,613
-----------
Total Liabilities................................. 1,549,889
-----------
NET ASSETS.................................................. $71,544,543
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)........................ $78,393,136
Distributions in excess of net investment income....... (83,678)
Accumulated net realized loss on investments sold...... (4,685,356)
Net unrealized depreciation on investments............. (2,079,559)
-----------
$71,544,543
-----------
-----------
CLASS A SHARES:
NET ASSETS............................................. $33,217,365
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 4)........................... 3,149,091
-----------
Net asset value and redemption value per share'D'...... $ 10.55
-----------
-----------
Maximum offering price per share
($10.55[div]0.955)'DD'................................ $ 11.05
-----------
-----------
CLASS B SHARES:
NET ASSETS............................................. $14,071,088
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 4)........................... 1,343,004
-----------
Net asset value and redemption value per share'D'...... $ 10.48
-----------
-----------
CLASS C SHARES:
NET ASSETS............................................. $22,609,862
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 4)........................... 2,160,542
-----------
Net asset value and redemption value per share'D'...... $ 10.46
-----------
-----------
CLASS I SHARES:
NET ASSETS............................................. $ 1,646,228
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 4)........................... 156,211
-----------
Net asset value and redemption value per share......... $ 10.54
-----------
-----------
</TABLE>
- ------------
'D' Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge which varies with length of
time shares are held.
'DD' On investments of $100,000 or more, the offering price is reduced.
See accompanying notes to financial statements.
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8
<PAGE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income....................................... $ 2,458,448
Interest income....................................... 59,024
-----------
Total Income.................................... 2,517,472
-----------
Expenses:
Investment advisory fees (Note 2)..................... 216,467
Distribution fees -- Class A (Note 2)................. 36,131
Distribution fees -- Class B (Note 2)................. 41,695
Distribution fees -- Class C (Note 2)................. 57,956
Shareholder servicing fees -- Class A (Note 2)........ 15,280
Shareholder servicing fees -- Class B (Note 2)........ 13,898
Shareholder servicing fees -- Class C (Note 2)........ 19,319
Reports to shareholders............................... 39,191
Professional fees..................................... 37,081
Registration and filing fees.......................... 29,644
Directors' fees and expenses (Note 2)................. 15,860
Amortization of organization expenses (Note 1)........ 12,046
Administration and transfer agent fees (Note 2)....... 5,772
Custodian fees and expenses........................... 6,581
Miscellaneous......................................... 5,973
-----------
Total Expenses.................................. 552,894
-----------
Reduction of expenses (Note 5)........................ (6,581)
-----------
Net Expenses.................................... 546,313
-----------
Net Investment Income....................................... 1,971,159
-----------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized loss on investments...................... (2,487,887)
Net change in unrealized appreciation/(depreciation)
on investments....................................... 3,927,559
-----------
Net realized and unrealized gain/(loss) on
investments.................................... 1,439,672
-----------
Net Increase in Net Assets Resulting from Operations........ $ 3,410,831
-----------
-----------
</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
SIX MONTHS ENDED FOR THE
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998*
---------------- ------------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income................ $ 1,971,159 $ 3,469,184
Net realized loss on investments..... (2,487,887) (3,215,018)
Net change in unrealized
appreciation/(depreciation)
on investments.................... 3,927,559 (7,042,185)
----------- -----------
Net increase/(decrease) in net
assets resulting from
operations.................. 3,410,831 (6,788,019)
----------- -----------
Dividends and Distributions to Shareholders
from (Note 1):
Net investment income................
Class A........................ (1,028,814) (1,727,901)
Class B........................ (401,015) (384,680)
Class C........................ (600,116) (407,655)
Class I........................ (24,892) (7,540)
Tax return of capital................
Class A........................ -- (779,461)
Class B........................ -- (172,568)
Class C........................ -- (178,553)
Class I........................ -- (3,383)
----------- -----------
Total dividends and
distributions to
shareholders.......... (2,054,837) (3,661,741)
----------- -----------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund
share transactions................ 15,050,457 30,966,307
----------- -----------
Total increase in net assets... 16,406,451 20,516,547
Net Assets:
Beginning of period.................. 55,138,092 34,621,545
----------- -----------
End of period (including
distributions in excess of net
investment income of $83,678 at
June 30, 1999).................... $71,544,543 $55,138,092
----------- -----------
----------- -----------
</TABLE>
- ------------
* Initial offering of Class B, Class C and Class I shares began on January 15,
1998, January 14, 1998 and July 15, 1998, respectively.
See accompanying notes to financial statements.
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10
<PAGE>
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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
--------------------------------------------------- ------------------------------
FOR THE
PERIOD FOR THE
SEPTEMBER 2, FOR THE PERIOD
FOR THE SIX FOR THE 1997'D' SIX MONTHS JANUARY 15*
MONTHS ENDED YEAR ENDED THROUGH ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
PER SHARE OPERATING PERFORMANCE (UNAUDITED) 1998 1997 (UNAUDITED) 1998
- ------------------------------- --------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $10.31 $ 12.32 $11.46 $10.27 $ 12.35
------ ------- ------ ------ -------
Income from investment operations:
Net investment income............. 0.36 0.73 0.25 0.31 0.64
Net realized and unrealized
gain/(loss) on investments...... 0.22 (2.00) 0.83 0.24 (2.01)
------ ------- ------ ------ -------
Total from investment
operations................. 0.58 (1.27) 1.08 0.55 (1.37)
------ ------- ------ ------ -------
Less dividends and distributions to
shareholders from:
Net investment income............. (0.34) (0.51) (0.17) (0.34) (0.49)
Net realized gain on
investments..................... -- -- (0.03) -- --
Tax return of capital............. -- (0.23) (0.02) -- (0.22)
------ ------- ------ ------ -------
Total dividends and
distributions to
shareholders............... (0.34) (0.74) (0.22) (0.34) (0.71)
------ ------- ------ ------ -------
Net asset value, end of period......... $10.55 $ 10.31 $12.32 $10.48 $ 10.27
------ ------- ------ ------ -------
------ ------- ------ ------ -------
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return................ 5.90%(2) - 10.56%(1) 9.46%(1)(2) 5.62%(2) - 11.37%(1)(2)
------ ------- ------ ------ -------
------ ------- ------ ------ -------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period
(in millions).............. $ 33.2 $ 31.6 $ 34.6 $ 14.1 $ 10.1
------ ------- ------ ------ -------
------ ------- ------ ------ -------
Ratios of expenses to average daily
net assets (before expense
reduction)................. 1.61%(3) 1.92% 3.49%(3) 2.29%(3) 2.60%(3)
------ ------- ------ ------ -------
------ ------- ------ ------ -------
Ratios of expenses to average daily
net assets (net of expense
reduction)................. 1.60%(3) 1.49% 1.50%(3) 2.25%(3) 2.16%(3)
------ ------- ------ ------ -------
------ ------- ------ ------ -------
Ratio of net investment income to
average daily net assets (before
expense reduction)......... 7.04%(3) 5.89% 9.47%(3) 6.40%(3) 5.99%(3)
------ ------- ------ ------ -------
------ ------- ------ ------ -------
Ratio of net investment income to
average daily net assets (net of
expense reduction)......... 7.05%(3) 6.32% 11.46%(3) 6.44%(3) 6.43%(3)
------ ------- ------ ------ -------
------ ------- ------ ------ -------
Portfolio turnover rate...... 34.14%(2) 96.47% 87.20%(2) 34.14%(2) 96.47%(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.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS I
------------------------------ ----------------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE SIX JANUARY 14* FOR THE SIX JULY 15*
MONTHS ENDED THROUGH MONTHS ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
PER SHARE OPERATING PERFORMANCE (UNAUDITED) 1998 (UNAUDITED) 1998
- ------------------------------- -------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $10.26 $12.31 $10.28 $ 11.99
------ ------ ------ -------
Income from investment operations
Net investment income............ 0.30 0.64 0.32 0.35
Net realized and unrealized
gain/(loss) on investments..... 0.24 (1.97) 0.28 (1.62)
------ ------ ------ -------
Total from investment
operations................ 0.54 (1.33) 0.60 (1.27)
------ ------ ------ -------
Less dividends and distributions to
shareholders from:
Net investment income............ (0.34) (0.49) (0.34) (0.20)
Net realized gain on
investments.................... -- -- -- --
Tax return of capital............ -- (0.23) -- (0.24)
------ ------ ------ -------
Total dividends and
distributions to
shareholders.............. (0.34) (0.72) (0.34) (0.44)
------ ------ ------ -------
Net asset value, end of period........ $10.46 $10.26 $10.54 $ 10.28
------ ------ ------ -------
------ ------ ------ -------
- ------------------------------------------------------------------------------------------------------------------------
Total investment return............... 5.53%(2) 11.08%(1)(2) 6.11%(2) - 10.59%(1)(2)
------ ------ ------ -------
------ ------ ------ -------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period
(in millions).................. . $ 22.6 $ 13.2 $ 1.6 $ 0.3
------ ------ ------ -------
------ ------ ------ -------
Ratios of expenses to average daily
net assets (before expense
reduction)...................... 2.27%(3) 2.59%(3) 1.22%(3) 1.54%(3)
------ ------ ------ -------
------ ------ ------ -------
Ratios of expenses to average daily
net assets (net of expense
reduction)...................... 2.25%(3) 2.16%(3) 1.22%(3) 1.16%(3)
------ ------ ------ -------
------ ------ ------ -------
Ratio of net investment income to
average daily net assets (before
expense reduction)............... 6.63%(3) 6.13%(3) 7.58%(3) 7.48%(3)
------ ------ ------ -------
------ ------ ------ -------
Ratio of net investment income to
average daily net assets (net of
expense reduction)............... 6.65%(3) 6.56%(3) 7.58%(3) 7.86%(3)
------ ------ ------ -------
------ ------ ------ -------
Portfolio turnover rate........... 34.14%(2) 96.47%(2) 34.14%(2) 96.50%(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.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
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 four classes designated Class A, Class B, Class C and Class I
shares. 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 Cohen & Steers
Capital Management, Inc. 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 market 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.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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. These differences are
primarily due to return of capital and capital gain distributions received by
the Fund on portfolio securities.
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, 1999, 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. For the six months ended June 30, 1999, the Fund incurred
$216,467 in advisory fees.
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, 1999, the Fund has paid the
Adviser $5,772 in fees under this administration agreement.
In addition, Cohen & Steers Equity Income Fund, Inc., Cohen & Steers Realty
Shares, Inc., Cohen & Steers Special Equity Fund, Inc. and Cohen & Steers Realty
Income Fund, Inc. (the 'Funds') have entered into a fund accounting, transfer
agency and sub-administration agreement with Chase Manhattan Bank ('Chase')
pursuant to which an affiliate of Chase performs administration functions for
the Fund. Chase receives a monthly
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
sub-administration fee at the annual rate of 0.08% on the first $500 million of
the Funds' average daily net assets and at lower rates on the Funds' 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 1940 Act. 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, 1999, the Fund has paid $135,782 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, 1999, the
Fund paid $48,497 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. For the six months ended June 30, 1999, fees and related expenses
accrued for non-affiliated directors totaled $15,860.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the six months ended June 30, 1999 totaled $34,442,317 and $19,378,037,
respectively.
At June 30, 1999, 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..................................... $74,248,734
-----------
Gross unrealized appreciation...................... $ 1,661,312
Gross unrealized depreciation...................... $(3,740,871)
-----------
Net unrealized depreciation........................ $(2,079,559)
-----------
-----------
</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:
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
CLASS A:
Sold........................ 736,530 $ 7,480,310 2,253,885 $ 26,810,260
Issued as reinvestment of
dividends................ 30,919 305,485 84,674 960,259
Redeemed.................... (682,246) (6,930,283) (2,085,114) (23,575,022)
-------- ----------- ---------- ------------
Net increase................ 85,203 $ 855,512 253,445 $ 4,195,497
-------- ----------- ---------- ------------
-------- ----------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 15, 1998*
SIX MONTHS ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, 1998
-------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- -----------
<S> <C> <C> <C> <C>
CLASS B:
Sold.......................... 438,545 $4,500,884 1,078,288 $12,729,525
Issued as reinvestment of
dividends.................. 3,183 31,424 9,109 102,701
Redeemed...................... (83,235) (833,625) (102,886) (1,076,867)
------- ---------- --------- -----------
Net increase.................. 358,493 $3,698,683 984,511 $11,755,359
------- ---------- --------- -----------
------- ---------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 14, 1998*
SIX MONTHS ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS C:
Sold......................... 1,059,484 $10,950,961 1,425,149 $16,222,303
Issued as reinvestment of
dividends................. 5,419 53,799 9,712 109,331
Redeemed..................... (186,380) (1,858,756) (152,842) (1,632,255)
--------- ----------- --------- -----------
Net increase................. 878,523 $ 9,146,004 1,282,019 $14,699,379
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 15, 1998*
SIX MONTHS ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS I:
Sold......................... 145,042 $ 1,509,806 26,796 $ 308,430
Issued as reinvestment of
dividends................. 723 7,364 959 9,946
Redeemed..................... (17,086) (166,912) (223) (2,304)
--------- ----------- --------- -----------
Net increase................. 128,679 $ 1,350,258 27,532 $ 316,072
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
- ------------
* Initial offering of shares.
NOTE 5. DIRECTED BROKERAGE ARRANGEMENTS
The Adviser has directed certain portfolio trades to brokers who paid a
portion of the Fund's expenses. For the six months ended June 30, 1999, the
Fund's expenses were reduced by $6,581 under this arrangement.
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. The loan, if used, will be
collateralized by the Fund's portfolio to the extent of the loan outstanding.
During the six months ended June 30, 1999, the Fund did not have any loans
outstanding.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS EQUITY INCOME FUND, INC.
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark SUB-ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
73 Tremont Street
George Grossman Boston, MA 02108
Director (800) 437-9912
Jeffrey H. Lynford CUSTODIAN
Director The Chase Manhattan Bank
One Chase Manhattan Plaza
Willard H. Smith, Jr. New York, NY 10081
Director
LEGAL COUNSEL
Elizabeth O. Reagan Simpson Thacher & Bartlett
Vice President 425 Lexington Avenue
New York, NY 10017
Adam Derechin
Vice President and Assistant Treasurer NASDAQ Symbol: Class A - CSEIX
Class B - CSBIX
Lawrence B. Stoller Class C - CSCIX
Assistant Secretary 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. Past
performance is of course no guarantee
of future results and your investment
may be worth more or less at the time
you sell.
- --------------------------------------------------------------------------------
18
<PAGE>
COHEN & STEERS
EQUITY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
[LOGO COHEN & STEERS
EQUITY INCOME FUND]
SEMI-ANNUAL REPORT
JUNE 30, 1999
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]
