<PAGE>
[COHEN & STEERS EQUITY INCOME FUND]
--------------------------
QUARTERLY REPORT
SEPTEMBER 30, 2000
COHEN & STEERS
EQUITY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
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COHEN & STEERS EQUITY INCOME FUND, INC.
October 20, 2000
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Equity Income
Fund for the quarter and nine months ended September 30, 2000. The net asset
values per share at that date were $10.58, $10.46, and $10.45 for Class A,
Class B, and Class C shares, respectively. Class I shares had a net asset value
of $10.61. In addition, a distribution of $0.17 per share was declared for
shareholders of record on September 21, 2000 and paid on September 22, 2000 to
all four classes of shares.
INVESTMENT REVIEW
For the three months ended September 30, 2000, Cohen & Steers Equity Income
Fund had a total return, based on income and change in net asset value, of 8.1%
for Class A shares. Class B and C shares both returned 7.8% for the quarter.
Class I shares returned 8.4%. This performance compared to the Fund's benchmark,
the NAREIT Equity REIT Index* return of 7.7%. The Fund's total return for the
nine months ended September 30, 2000 was 23.4% for Class A shares. Class B
shares and C shares both returned 22.7%. Class I shares returned 24.2% The
NAREIT Equity REIT Index return was 21.8%. Fund performance information does not
take into account sales loads or contingent deferred sales charges, if any.
It was another extraordinary quarter in what has been an extraordinary year
for the REIT industry. For the first time in many years REITs are outperforming
nearly every market average by an extremely wide margin. We believe that the
major reason for this is that whereas earnings disappointments have become
routine in most areas of corporate America, including the technology sector,
REIT earnings, with very few exceptions, have comfortably exceeded expectations.
We believe these results, which are derived from in-place tenants and rents,
bode well for earnings over the next several quarters and this has encouraged
the entire analyst community to raise estimates of earnings growth rates and net
asset values for most companies. Understandably, this has been a strong catalyst
for rising share prices.
We are pleased with our out-performance in the third quarter. This was
primarily the result of our heavy weighting in the Office and Industrial
sectors, which continue to enjoy the strong fundamentals and high earnings
growth. This is particularly true of companies with properties in major central
business districts where, with vacancy rates at all-time low levels (6.7%, down
from 8.9% a year ago) and little new supply on the horizon, there are shortages
of space in some markets and rents are soaring. Also contributing to our recent
results was our position in the quarter's best performing sector, Health Care,
which was up 22%. At long last, positive changes in the regulatory environment
and the resolution of the fate of many weak operators precipitated greater
investor optimism. In the case of the health care REITs that we own, it became
apparent to the investment community that their dividends were secure, and this
enabled the stocks to return to more rational valuations.
One of the more puzzling aspects of this year's REIT rally is that it has
taken place rather quietly and with only modest inflows into real estate mutual
funds. Net inflows this year have been barely $500 million. While mutual fund
flows are not necessarily related to stock price movement, as evidenced by this
year's performance, it is a valuable indicator of investor psychology. It
appears to us that investors at large either disbelieve the sustainability of
this rally or remain highly distracted with the action of the more volatile
sectors of the market. In addition, it is quite possible that after the two year
bear market of 1998-99, investor confidence in the sector simply has not yet
been restored.
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COHEN & STEERS EQUITY INCOME FUND, INC.
In the quarter, a further shrinkage in the REIT universe took place. Urban
Shopping Centers, Burnham Pacific and First Washington Real Estate proposed to
liquidate or go private, while Grove Property Trust and Western Properties Trust
agreed to be acquired by larger REITs. In addition, a good number of REIT stock
buyback programs continued, albeit at a decelerated pace. Meanwhile, equity
issuance in the quarter was minimal, with only about $100 million in common
stock being publicly offered. In short, by the end of the third quarter, the
supply/demand picture for REIT shares remained quite positive.
INVESTMENT OUTLOOK
The fourth quarter has started with a great deal of financial market
turbulence and it appears that a host of uncertainties with respect to a
possible economic slowdown, politics and the national election, energy prices,
Mid-East peace, Fed policy and worldwide currency turmoil -- not to mention a
bona fide bear market in the NASDAQ market -- appear to have shaken investor
confidence.
In the final analysis, it is how the resolution of these issues affects the
future course of the economy that will determine the health of real estate
markets and, in turn, what will be the appropriate investment strategy. It
appears to us that the two scenarios that are most likely are: 1) a slowing, but
still positive, rate of economic growth (a 'soft landing'), or 2) an outright
recession whereby the economy suffers an actual decline. From our perspective,
either scenario leads us to very similar and straightforward investment
strategies. For example, in either economic environment it is logical to expect
that rent growth and absorption of space will slow. In some markets, there will
actually be rent declines and increases in vacancy rates. Those property sectors
that are most sensitive to short-term swings in the economy will likely suffer
some difficulty.
Nevertheless, at this stage of the economic cycle the current strong health
of the real estate markets is a noteworthy anomaly that must be appreciated. In
periods immediately prior to nearly every economic slowdown in the past, real
estate markets have tended to be substantially overbuilt, with vacancy rates
running at historically high levels, only to go even higher when economic
activity actually slows. Today, in contrast, vacancy rates are hovering at
historically low levels in nearly every property type and geographic region.
Ironically, whereas in prior cycles real estate was a victim of the slowing
economy, in this cycle shortages of space and soaring rents may actually be
impairing the growth of the economy by either imposing limits on, or increasing
the cost of, business expansion. As a result, while a slowdown in economic
growth would clearly not be positive for real estate fundamentals, it may not be
as negative as it has in the past. In fact, compared to other sectors of the
economy, real estate may actually fare quite well and continue to register above
average profit growth.
Other effects of an economic slowdown could actually be positive for REITs.
We would expect to see the cancellation or postponement of most real estate
development activity that can no longer be justified. Yield spreads between
government and corporate debt securities are rising, and this is increasing the
yield on commercial mortgage securities as well. A higher cost of borrowing
further discourages new development by raising required returns. A restrained
development situation should bode well for reduced downward pressure on
occupancies and rents. This is particularly the case in the Office sector where
there is the further protection of long lease terms. Notwithstanding the
bankruptcy of many 'new economy' companies, mainstream class A office users
rarely, if ever, default on their leases. For this reason, we are continuing to
overweight this sector. Similarly, apartment markets in which there are barriers
to entry, such as in the Northeast, remain our favorites due to our expectations
for continued strong demand for rental housing under almost any foreseeable
economic conditions. The same
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COHEN & STEERS EQUITY INCOME FUND, INC.
holds true for our holdings in the Health Care sector. Finally, as we have
emphasized for some time, dividend yield -- the hallmark of REIT investing,
since REITs must payout nearly all of their earnings as dividends -- is likely
to become more desirable as investors' overall return expectations diminish.
Since an economic slowdown should eventually precipitate strength in the bond
market, the resulting lower interest rate environment may bring increased
attention to the merits of diversification and the role that REITs can play in a
portfolio.
On the negative side of the ledger, the Retail sector may still present some
investment risk due its economic sensitivity. While we are under-weighted in the
Retail sector we are paying strict attention to valuations, and are ready to
increase our holdings at prices that would appear to discount investors' worst
expectations. One of our overriding concerns, irrespective of property type or
regional orientation, is financial liquidity. It would be natural to expect a
contraction in credit to occur, at least in the early stages of a slowdown, and
certainly for riskier borrowers. Real estate continues to be viewed as a higher
risk proposition, and those companies that have near-term maturities of debt, or
have reached their limits on new borrowing, are likely to be highly
disadvantaged in a more challenging economic climate. Thus, maintenance of
strict discipline and thorough risk analysis remain paramount in our investment
process.
We believe that the performance of REITs this year has been a major step
towards the restoration of investor confidence in them. It will still be a slow
process, however, made all the more difficult by the challenges of a less robust
economic environment. We have long argued that the most important byproduct of
the securitization of real estate would be significantly less volatility in real
estate fundamentals and the real estate cycle. Notwithstanding the volatility of
REIT share prices, this has so far been the case. An economic slowdown, should
it occur, would certainly present an important test of this belief. Nonetheless,
if REITs continue to display resilience both from an earnings and stock price
standpoint, as we believe they can, returns should continue to be rewarding.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
STEVEN R. BROWN
Portfolio Manager
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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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* The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly-traded REITs that invest predominately in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER DIVIDEND
OF SHARES VALUE YIELD*
--------- ----------- ------------
<S> <C> <C> <C> <C>
EQUITIES 93.89%
COMMON STOCK 85.04%
APARTMENT/RESIDENTIAL 18.58%
Apartment Investment & Management
Co. -- Class A............................ 49,300 $ 2,270,881 6.08%
Camden Property Trust....................... 138,500 4,293,500 7.26
Colonial Properties Trust................... 98,300 2,525,081 9.34
Gables Residential Trust.................... 122,600 3,333,188 8.35
Home Properties of New York................. 109,500 3,271,312 7.10
Summit Properties........................... 87,800 2,112,688 7.27
United Dominion Realty Trust................ 324,200 3,525,675 9.84
-----------
21,332,325
-----------
HEALTH CARE 9.98%
Health Care Property Investors.............. 127,400 3,774,225 9.99
Healthcare Realty Trust..................... 174,600 3,688,425 10.60
Nationwide Health Properties................ 207,100 3,300,656 11.55
Ventas...................................... 139,000 695,000 --
-----------
11,458,306
-----------
HOTELS 7.84%
FelCor Lodging Trust........................ 103,600 2,395,750 9.51
Host Marriott Corp. ........................ 170,000 1,912,500 7.47
Innkeepers USA.............................. 149,000 1,527,250 10.93
MeriStar Hospitality Corp. ................. 156,500 3,169,125 9.98
-----------
9,004,625
-----------
INDUSTRIAL 5.48%
First Industrial Realty Trust............... 154,200 4,741,650 8.07
Pacific Gulf Properties..................... 57,900 1,548,825 6.58
-----------
6,290,475
-----------
OFFICE 17.84%
Arden Realty Group.......................... 143,200 3,839,550 6.41
Brandywine Realty Trust..................... 223,700 4,529,925 8.89
CarrAmerica Realty Corp. ................... 18,600 562,650 7.54
Crescent Real Estate Equities Co. .......... 170,600 3,806,512 8.69
Highwoods Properties........................ 142,600 3,368,925 5.71
Mack-Cali Realty Corp. ..................... 155,300 4,377,519 8.44
-----------
20,485,081
-----------
</TABLE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER DIVIDEND
OF SHARES VALUE YIELD*
--------- ----------- ------------
<S> <C> <C> <C> <C>
OFFICE/INDUSTRIAL 12.35%
Duke-Weeks Realty Corp. .................... 99,700 $ 2,405,263 7.13%
Kilroy Realty Corp. ........................ 3,600 96,075 6.74
Liberty Property Trust...................... 170,600 4,691,500 8.29
Prentiss Properties Trust................... 126,200 3,296,975 7.43
Prime Group Realty Trust.................... 17,000 267,750 8.57
Reckson Associates Realty Corp. --
Class B................................... 132,000 3,415,500 9.20
-----------
14,173,063
-----------
SELF STORAGE 0.77%
Storage USA................................. 29,100 887,550 9.05
-----------
SHOPPING CENTER 12.20%
COMMUNITY CENTER 3.84%
First Washington Realty Trust...............
Kimco Realty Corp.. ........................ 15,000 633,750 6.44
Pan Pacific Retail Properties............... 63,100 1,262,000 9.10
Philips International Realty Corp. ......... 145,500 2,509,875 8.75
-----------
4,405,625
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REGIONAL MALL 8.36%
CBL & Associates Properties................. 16,400 411,025 8.14
JP Realty................................... 132,800 2,398,700 10.63
Macerich Co. ............................... 112,400 2,388,500 9.60
Simon Property Group........................ 84,900 1,989,844 8.62
Taubman Centers............................. 208,600 2,411,938 5.41
-----------
9,600,007
-----------
TOTAL SHOPPING CENTER 14,005,632
-----------
TOTAL COMMON STOCK (Identified
cost -- $92,108,074)................. 97,637,057
-----------
</TABLE>
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER DIVIDEND
OF SHARES VALUE YIELD*
--------- ----------- ------------
<S> <C> <C> <C> <C>
PREFERRED STOCK 8.85%
Apartment Investment & Management Co.,
9.00%, Series C........................... 52,000 $ 1,111,500 10.53%
Apartment Investment & Management Co.,
9.375%, Series G.......................... 64,000 1,380,000 10.85
Camden Property Trust, $2.25, Series A
(Convertible)............................. 56,600 1,411,462 9.02
CarrAmerica Realty Corp., 8.57%, Series B... 54,000 1,161,000 9.95
Colonial Property Trust, 8.75%, Series A.... 78,700 1,687,131 10.22
Crown American Realty Trust, 11.00%,
Series A.................................. 9,800 377,300 14.29
Liberty Properties Trust, 8.80%, Series A... 25,700 578,250 9.78
Taubman Centers, 8.30%, Series A............ 76,700 1,390,188 17.99
United Dominion Realty Trust, 9.25%,
Series A.................................. 42,950 1,063,012 9.33
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TOTAL PREFERRED STOCK (Identified
cost -- $10,296,248)................. 10,159,843
-----------
TOTAL EQUITIES (Identified
cost -- $102,404,322)................ 107,796,900
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ------------
<S> <C> <C> <C>
CORPORATE BOND 1.16%
#Macerich Co. 144A, Convertible, 7.25%, due
12/15/02 (Identified cost -- $1,313,838).. $1,520,000 $ 1,333,800
------------
COMMERCIAL PAPER 3.96%
International Lease Finance Corp., 6.51%,
due 10/2/00
(Identified cost -- $4,549,177)........... 4,550,000 4,549,177
------------
TOTAL INVESTMENTS
(Identified cost -- $108,267,337).. 99.01% 113,679,877
OTHER ASSETS IN EXCESS OF LIABILITIES.......... 0.99%
1,138,025
------------
NET ASSETS................................... 100.00%
$114,817,902
------------
------------
</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.
# Security is restricted subject to Rule 144A and trades infrequently. The Fund
prices this security by obtaining a bid and ask price from two market makers
on weekly basis. The average of the bid and ask prices is used as the
security's price.
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COHEN & STEERS EQUITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CLASS A SHARES:
NET ASSETS............................................. $44,856,137
-----------
Shares issued and outstanding ($0.001 par value common
stock outstanding).................................. 4,241,338
-----------
Net asset value and redemption value per share'D'...... $ 10.58
-----------
-----------
Maximum offering price per share
($10.58[div]0.955)'DD'.............................. $ 11.08
-----------
-----------
CLASS B SHARES:
NET ASSETS............................................. $24,748,576
-----------
Shares issued and outstanding ($0.001 par value common
stock outstanding).................................. 2,366,771
-----------
Net asset value and offering price per share'D'........ $ 10.46
-----------
-----------
CLASS C SHARES:
NET ASSETS............................................. $32,436,162
-----------
Shares issued and outstanding ($0.001 par value common
stock outstanding).................................. 3,104,324
-----------
Net asset value and offering price per share'D'........ $ 10.45
-----------
-----------
CLASS I SHARES:
NET ASSETS............................................. $12,777,027
-----------
Shares issued and outstanding ($0.001 par value common
stock outstanding).................................. 1,204,006
-----------
Net asset value, offering and redemption value per
share............................................... $ 10.61
-----------
-----------
</TABLE>
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'D' Redemption price per share is equal to the net asset value per share
less any applicable deferred sales charge which varies with the length
of time shares are held.
'DD' On investments of $100,000 or more, the offering price is reduced.
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COHEN & STEERS EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS*
SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
NET ASSETS PER SHARE
----------------------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
----------- ----------- ----------- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period:
12/31/99................... $25,954,600 $15,139,498 $19,649,851 $ 2,759,141 $ 9.03 $ 8.98 $ 8.97 $ 9.00
----------- ----------- ----------- ----------- ------ ------ ------ ------
Net investment income.... $ 1,872,553 $ 930,630 $ 1,262,513 $ 517,480 $ 0.49 $ 0.47 $ 0.48 $ 0.56
Net realized and
unrealized gain on
investments............ 6,731,120 3,459,214 4,714,630 1,666,941 1.57 1.52 1.51 1.56
Distributions from net
investment income...... (1,944,361) (1,020,778) (1,348,367) (461,359) (0.51) (0.51) (0.51) (0.51)
------ ------ ------ ------
Capital stock
transactions:
Sold................. 20,862,477 8,185,095 12,278,387 8,125,880
Distributions
reinvested......... 544,843 70,849 134,799 336,572
Redeemed............. (9,165,095) (2,015,932) (4,255,651) (167,628)
----------- ----------- ----------- -----------
Net increase in net asset
value...................... 18,901,537 9,609,078 12,786,311 10,017,886 1.55 1.48 1.48 1.61
----------- ----------- ----------- ----------- ------ ------ ------ ------
End of period: 9/30/00....... $44,856,137 $24,748,576 $32,436,162 $12,777,027 $10.58 $10.46 $10.45 $10.61
----------- ----------- ----------- ----------- ------ ------ ------ ------
----------- ----------- ----------- ----------- ------ ------ ------ ------
</TABLE>
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* Financial information included in this report has been taken from the records
of the Fund without examination by independent accountants.
-------------------
AVERAGE ANNUAL TOTAL RETURNS -- CLASS A
(PERIODS ENDED SEPTEMBER 30, 2000) (UNAUDITED)
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION (9/2/97)
-------------------------- --------------------------
INCLUDING EXCLUDING INCLUDING EXCLUDING
SALES CHARGE SALES CHARGE SALES CHARGE SALES CHARGE
------------ ------------ ------------ ------------
<S> <C> <C> <C>
14.69% 20.09% 2.87% 4.41%
</TABLE>
Returns on the Fund's other share classes will vary because of differing
expense ratios and sales charges.
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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
Lawrence B. Stoller
Assistant Secretary
KEY INFORMATION
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
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
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
DISTRIBUTOR
Cohen & Steers Securities, Inc.
757 Third Avenue
New York, NY 10017
NASDAQ Symbol: Class A - CSEIX
Class B - CSBIX
Class C - CSCIX
Class I - CSDIX
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.
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9
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]
