COHEN & STEERS ADVANTAGE INCOME FUND INC, N-2, 2000-06-22

COHEN & STEERS ADVANTAGE INCOME FUND INC
N-2, 2000-06-22

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 2000
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)

[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO.
[ ] POST-EFFECTIVE AMENDMENT NO.

AND/OR

[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] AMENDMENT NO.
-------------------
COHEN & STEERS ADVANTAGE INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

757 THIRD AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 832-3232

ROBERT H. STEERS
COHEN & STEERS CAPITAL MANAGEMENT, INC.
757 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 832-3232
(NAME AND ADDRESS OF AGENT FOR SERVICE)

WITH COPIES TO:
<TABLE>
<S> <C>
SARAH E. COGAN, ESQ. [ ]
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
</TABLE>
-------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as
amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):

[x] When declared effective pursuant to section 8(c).

If appropriate, check the following box: [ ] this [post-effective] amendment
designates a new effective date for a previously filed [post-effective
amendment] [registration statement].

[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is .
-------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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<CAPTION>
================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE(2)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 66,666 Shares $15.00 $999,990 $264
================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================

<PAGE>

COHEN & STEERS ADVANTAGE INCOME FUND, INC.

CROSS REFERENCE SHEET

PART A-PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN PART A OF FORM N-2
SPECIFIED IN PROSPECTUS LOCATION IN PROSPECTUS
----------------------- ----------------------
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Item 1. Outside Front Cover................... Cover page
Item 2. Inside Front and Outside Back Cover
Page.................................. Cover Page; Inside Front Cover Page;
Outside Back Cover Page
Item 3. Fee Table and Synopsis................ Fund Expenses
Item 4. Financial Highlights.................. Inapplicable
Item 5. Plan of Distribution.................. Cover Page; Prospectus Summary;
Underwriting
Item 6. Selling Shareholders.................. Inapplicable
Item 7. Use of Proceeds....................... Use of Proceeds; Investment Objective
and Policies
Item 8. General Description of the
Registrant............................ Cover Page; Prospectus Summary; The
Fund; Investment Objective and
Policies; Risk Factors and Special
Considerations
Item 9. Management............................ Prospectus Summary; Investment
Manager; Administrator
Item 10. Capital Stock, Long-Term Debt, and
Other Securities...................... Investment Objective and Policies;
Description of Shares; Taxation
Item 11. Defaults and Arrears on Senior
Securities............................ Inapplicable
Item 12. Legal Proceedings..................... Inapplicable
Item 13. Table of Contents of the Statement of
Additional Information................ Table of Contents of the Statement of
Additional Information
<CAPTION>
PART B-STATEMENT OF ADDITIONAL INFORMATION

LOCATION IN STATEMENT OF
ITEMS IN PART B OF FORM N-2 ADDITIONAL INFORMATION
--------------------------- ----------------------
<S> <C> <C>
Item 14. Cover Page. Cover Page
Item 15. Table of Contents..................... Table of Contents
Item 16. General Information and History....... Inapplicable
Item 17. Investment Objective and Policies..... Investment Objective and Policies;
Investment Restrictions
Item 18. Management............................ Management of the Fund; Compensation
of Directors and Certain Officers
Item 19. Control Persons and Principal Holders
of Securities......................... Management of the Fund
Item 20. Investment Advisory and Other
Services.............................. Investment Advisory and Other Services
Item 21. Brokerage Allocation and Other
Practices............................. Portfolio Transactions and Brokerage;
Determination of Net Asset Value
Item 22. Tax Status............................ Taxation
Item 23. Financial Statements.................. Report of Independent Accountants;
Statement of Assets and Liabilities
<CAPTION>
PART C-OTHER INFORMATION
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Item 24-33. have been answered in Part C of this
Registration Statement
</TABLE>

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JUNE 22, 2000

PROSPECTUS

[COHEN & STEERS LOGO]

COMMON STOCK

Cohen & Steers Advantage Income Fund, Inc., or the Fund, is offering up to
shares of our common stock. We are a recently-organized,
non-diversified, closed-end management investment company. Our investment
objective is high current income through investment in real estate securities.
Capital appreciation is a secondary investment objective. Normally, we will
invest at least 65% of our total assets in common stocks, preferred stocks and
other equity securities issued by real estate companies, such as 'real estate
investment trusts' (REITs). We may also invest up to 35% of our total assets in
debt securities, including high-yield debt securities (commonly known as junk
bonds), issued or guaranteed by real estate and other companies. There can be no
assurance that we will achieve our investment objective.

You must purchase a minimum of 100 of our shares to participate in this
offering. There is currently no public market for our shares. We have applied to
list our shares on the New York Stock Exchange (the NYSE) under the symbol
'[XXX.]' The stock of closed-end investment companies frequently trades at a
discount to net asset value and we cannot assure you that our stock will not
also be discounted in the market. Due to a variety of factors, including [the
risks associated with investing in real estate companies and REITs,] an
investment in our stock involves a high degree of risk. You could lose some or
all of your investment.

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========================================================================================================
PER SHARE TOTAL
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Public offering price $ $
--------------------------------------------------------------------------------------------------------
Sales load $ $
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Proceeds, before expenses, to the Fund $ $
========================================================================================================
</TABLE>

SEE 'RISK FACTORS AND SPECIAL CONSIDERATIONS' ON PAGES 13 TO 16 FOR FACTORS
THAT YOU SHOULD CONSIDER BEFORE INVESTING IN SHARES OF OUR COMMON STOCK.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

The underwriters may purchase up to [ ] additional shares at the
public offering price, less sales load, solely to cover over-allotments, if any.
If this option is exercised in full, the total public offering price, sales load
and proceeds before expenses to the Fund will be $ , $ and
$ , respectively.

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

[ ]

June , 2000

<PAGE>

Cohen & Steers Capital Management, Inc. is the Fund's investment manager and
administrator. The telephone number for shareholder services is .
The Fund's address is 757 Third Avenue, New York, New York 10017, and our
telephone number is (212) 832-3232.

This prospectus contains important information about the Fund. You should
read the prospectus before deciding whether to invest and retain it for future
reference. A statement of additional information, dated , 2000
(the SAI), containing additional information about the Fund, has been filed with
the Securities and Exchange Commission and is incorporated by reference in its
entirety into this prospectus. You can review the table of contents of the SAI
on page of this prospectus. You may request a free copy of the SAI by calling
( ) - . You may also obtain the SAI and other information regarding the
Fund on the Securities and Exchange Commission web site (http://www.sec.gov).

<PAGE>

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. THE
FUND HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE
FUND IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS
NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.

TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 4

Fund Expenses............................................... 9

The Fund.................................................... 10

Use of Proceeds............................................. 10

Investment Objective and Policies........................... 10

Risk Factors and Special Considerations..................... 13

Investment Manager.......................................... 18

Dividends and Distributions................................. 19

Closed-End Structure........................................ 20

Possible Conversion to Open-End Status...................... 21

Repurchase of Shares........................................ 21

Taxation.................................................... 22

Description of Shares....................................... 22

Certain Provisions of the Articles of Incorporation and
By-laws................................................... 23

Underwriting................................................ 25

Custodian, Transfer Agent, Dividend Disbursing Agent and
Registrar................................................. 26

Reports to Shareholders..................................... 26

Validity of the Shares...................................... 26

Table of Contents of the Statement of Additional
Information............................................... 27
</TABLE>

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

UNTIL , 2000 ALL DEALERS THAT BUY, SELL OR TRADE THE SHARES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

<PAGE>

PROSPECTUS SUMMARY

This is only a summary. This summary may not contain all of the information
that you should consider before investing in our shares. You should review the
more detailed information contained in this prospectus and in the statement of
additional information, especially the information set forth under the heading
'Risk Factors and Special Considerations.'

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The Fund..................................... Cohen & Steers Advantage Income Fund, Inc. (the
Fund) is a recently-organized, non-diversified,
closed- end management investment company.

The Offering................................. We are offering shares of common stock
through a group of underwriters led by
[ ]. You must purchase at
least 100 shares ($1,500). The underwriters have
been granted an option to purchase up to
additional shares solely to cover
over-allotments, if any. The initial public
offering price is $15.00 per share. See
'Underwriting.'

Investment Objective and Policies............ Our investment objective is high current income
through investment in real estate securities.
Capital appreciation is a secondary investment
objective. We may change our investment
objective without shareholder approval, although
we have no current intention of doing so.

Normally, we will invest at least 65% of our
total assets in common stocks, preferred stocks
and other equity securities issued by real
estate companies, such as 'real estate
investment trusts' (REITs). These equity
securities generally will include a combination
of common stocks and preferred stocks. The
actual percentage of common and preferred stocks
in our investment portfolio may vary over time
based on the Investment Manager's assessment of
current market conditions.

<PAGE>

<TABLE>
<S> <C>
income distributed to shareholders provided they
comply with the requirements of the Internal
Revenue Code of 1986, as amended (the Code). We
may also invest up to 35% of our total assets in
debt securities, including high-yield debt
securities (commonly known as junk bonds),
issued or guaranteed by real estate and other
companies.

There can be no assurance that our investment
objective will be achieved. See 'Investment
Objective and Policies.'

Investment Manager........................... Cohen & Steers Capital Management, Inc. (the
Investment Manager) is our investment manager.
The Investment Manager, which was formed in
1986, is a leading firm specializing in the
management of real estate securities portfolios
and as of May 31, 2000 had approximately $4.2
billion in assets under management. Its clients
include pension plans, endowment funds and
mutual funds. All of the Investment Manager's
client accounts are invested principally in real
estate securities. The Investment Manager also
will have responsibility for providing
administrative services, and assisting us with
operational needs. The Investment Manager will
engage a third party to assist in these services
(at no additional cost to the Fund). See
'Investment Manager.'

Fees and Expenses............................ We will pay the Investment Manager a monthly fee
computed at the annual rate of % of our
average weekly net assets. The fees payable to
the Investment Manager are higher than the
management fees paid by many investment
companies, but are comparable to fees paid by
many recently-organized, publicly-offered,
closed-end management investment companies with
comparable investment objectives and
organizational structures.

Listing and Symbol........................... The shares have been approved for listing,
subject to notice of issuance, on the New York
Stock Exchange (the NYSE) under the symbol
' .'

Dividends and Distributions.................. We will declare and pay dividends from our
investment income monthly. We intend to
distribute net capital gains, if any, at least
once each year, normally in December. Your
dividends and distributions will automatically
be invested in additional shares of the Fund
unless you elect to have them paid to you in
cash. See 'Dividends and Distributions.'
</TABLE>

<PAGE>

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Dividend Reinvestment Plan................... Shareholders will receive their dividends in
additional shares purchased in the open market
through the Fund's Dividend Reinvestment Plan
unless they elect to have their dividends and
other distributions from the Fund paid in cash.
Shareholders whose shares are held in the name
of a broker or nominee should contact the broker
or nominee to confirm that the reinvestment
service is available. See 'Dividends and
Distributions' and 'Taxation.'

Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar............... will act as custodian,
transfer agent, dividend disbursing agent and
registrar for the Fund. See 'Custodian, Transfer
Agent, Dividend Disbursing Agent and Registrar.'

Risk Factors and Special Considerations...... We are a non-diversified, closed-end management
investment company designed primarily as a
long-term investment and not as a trading
vehicle. The Fund is not intended to be a
complete investment program and, due to the
uncertainty inherent in all investments, there
can be no assurance that we will achieve our
investment objective. As a recently-organized
entity, we have no operating history. See 'The
Fund.'

Investment Risk. An investment in the Fund is
subject to investment risk, including the
possible loss of the entire principal amount
that you invest.

Stock Market Risk. Your investment in Fund
shares represents an indirect investment in the
REIT shares and other real estate securities
owned by the Fund. The value of these equity
securities, like other stock market investments,
may move up or down, sometimes rapidly and
unpredictably. Preferred stocks are generally
more sensitive to changes in interest rates than
common stocks. When interest rates rise, the
market value of preferred stocks generally will
fall. Your Fund shares at any point in time may
be worth less than what you invested, even after
taking into account the reinvestment of Fund
dividends and distributions.

Real Estate Markets and REIT Risk. Additionally,
since we concentrate our assets in the real
estate industry, your investment in the Fund
will be closely linked to the performance of the
real estate markets. Property values may fall
due to increasing vacancies or declining rents
resulting from unanticipated economic, legal,
</TABLE>

<PAGE>

<TABLE>
<S> <C>
cultural or technological development. REIT
prices also may drop because of the failure of
borrowers to pay their loans and poor
management. See 'Risk Factors and Special
Considerations -- General Risks of Securities
Linked to the Real Estate Market.'

Smaller Companies. Even the larger REITs in the
industry tend to be small to medium-sized
companies in relation to the equity markets as a
whole. REIT shares, therefore, can be more
volatile than, and perform differently from,
larger company stocks. There may be less trading
in a smaller company's stock, which means that
buy and sell transactions in that stock could
have a larger impact on the stock's price than
is the case with larger company stocks. Further,
smaller companies may have fewer business lines;
changes in any one line of business, therefore,
may have a greater impact on a smaller company's
stock price than is the case for a larger
company.

As of [May 31, 2000,] the market capitalization
of REITs ranged in size from approximately [$4.5
million to $6.5 billion.]

Debt Securities Risk. High yield securities may
be more susceptible to real or perceived adverse
economic and competitive industry conditions
than higher grade securities. It is reasonable
to expect that any adverse economic conditions
could disrupt the market for high yield
securities, have an adverse impact on the value
of those securities, and adversely affect the
ability of the issuers of those securities to
repay principal and interest on those
securities. See 'Risk Factors and Special
Considerations -- Risks of Investment in Debt
Securities.'

Borrowing and Leverage. We have reserved the
right to borrow for investment purposes in an
amount up to 33% of our total assets, which
constitutes a form of leverage. Leverage tends
to exaggerate the effect on the Fund's net
assets of movements in the market prices of our
investment assets and may require liquidation of
portfolio positions when it is not advantageous
to do so. See 'Investment Objective and
Policies -- Borrowings and Leverage' and 'Risk
Factors and Special Considerations -- Use of
Leverage' for additional information.
</TABLE>

<PAGE>

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Non-Diversified Status. Because we, as a
non-diversified investment company, may invest
in a smaller number of individual issuers than a
diversified investment company, an investment in
the Fund may, under certain circumstances,
present greater risk to you than an investment
in a diversified company. We intend to comply
with the diversification requirements of the
Code applicable to regulated investment
companies. See 'Risk Factors and Special
Considerations -- Non-Diversified Status' and
'Taxation' in the SAI.

Market Price Discount From Net Asset Value.
Shares of closed-end investment companies
frequently trade at a discount from their net
asset value. This characteristic is a risk
separate and distinct from the risk that our net
asset value could decrease as a result of our
investment activities and may be greater for
investors expecting to sell their shares in a
relatively short period following completion of
this offering. We cannot predict whether the
shares will trade at, above or below net asset
value. The value of our portfolio will fluctuate
depending upon market factors. Changes in the
value of securities held by the Fund may affect
our net asset value and the market price of the
shares. See 'Risk Factors and Special
Considerations -- Market Price Discount From Net
Asset Value.'

Anti-Takeover Provisions. Certain provisions of
our Articles of Incorporation and By-Laws could
have the effect of limiting the ability of other
entities or persons to acquire control of the
Fund or to modify our structure. The provisions
may have the effect of depriving you of an
opportunity to sell your shares at a premium
over prevailing market prices and may have the
effect of inhibiting our conversion to an
open-end investment company. See 'Certain
Provisions of the Articles of Incorporation and
By-Laws.'

Given the risks described above, an investment
in the shares may not be appropriate for all
investors. You should carefully consider your
ability to assume these risks before making an
investment in the Fund.
</TABLE>

<PAGE>

FUND EXPENSES

The following tables are intended to assist you in understanding the various
costs and expenses associated with investing in the Fund.

SHAREHOLDER TRANSACTION EXPENSES

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Sales Load Paid By You (as a percentage of offering
price).................................................... %
Dividend Reinvestment Plan Fees............................. None

ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)*

Management Fees............................................. %
Interest Payments on Borrowed Funds......................... None
Total Annual Expenses....................................... %
------
------
</TABLE>
---------
* 'Other Expenses' have been estimated for the current fiscal year.

EXAMPLE

You would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming (i) a 5% annual return and (ii) reinvestment of
all dividends and distributions at net asset value:

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ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
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$ $ $ $
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This 'Example' assumes that the percentage amounts listed under Annual
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission applicable to all investment companies. THE
ASSUMED 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF WHICH
MAY VARY. For more complete descriptions of certain of the Fund's costs and
expenses, see 'Investment Manager.'

<PAGE>

THE FUND

Cohen & Steers Advantage Income Fund, Inc. is a recently-organized,
non-diversified, closed-end management investment company. We were organized as
a Maryland corporation on June 21, 2000 and are registered as an investment
company under the Investment Company Act of 1940 (the 1940 Act). As a
recently-organized entity, we have no operating history. Our principal office is
located at 757 Third Avenue, New York, New York 10017, and our telephone number
is (212) 832-3232.

USE OF PROCEEDS

The net proceeds of this offering, after deducting organization and offering
expenses (estimated to be $ or $ , assuming exercise of the
over-allotment option in full), will be invested in accordance with the policies
set forth under 'Investment Objective and Policies'. [A portion of the
organization and offering expenses of the Fund has been advanced by the
Investment Manager and will be repaid by the Fund upon closing of this
offering.]

We estimate that the net proceeds of this offering will be fully invested in
accordance with our investment objective and policies within [six months] of the
initial public offering. Pending such investment, the proceeds may be invested
in U.S. Government securities or high quality, short-term money market
instruments. See 'Investment Objective and Policies.'

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

Our investment objective is high current income through investment in real
estate securities. Capital appreciation is a secondary investment objective. We
may change our investment objective without shareholder approval, although we
have no current intention of doing so. Normally, we will invest at least 65% of
our total assets in common stocks, preferred stocks and other equity securities
issued by real estate companies, such as 'real estate investment trusts'
(REITs). These equity securities generally will include a combination of common
stocks and preferred stocks. The actual percentage of common and preferred
stocks in our investment portfolio may vary over time based on the Investment
Manager's assessment of current market conditions.

A real estate company generally derives at least 50% of its revenue from
real estate or has at least 50% of its assets in real estate. A REIT is a
company dedicated to owning, and usually operating, income producing real
estate, or to financing real estate. Our investment portfolio will include
shares of Equity REITs, which are companies that invest the majority of their
assets directly in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. REITs are not taxed on income distributed to
shareholders provided they comply with the requirements of the Code. We may also
invest up to 35% of our total assets in debt securities, including high-yield
debt securities (commonly known as junk bonds), issued or guaranteed by real
estate and other companies. There can be no assurance that our investment
objective will be achieved. All of our policies, other than the fundamental
investment limitations described in the SAI under 'Investment Restrictions,' may
be changed by the Board of Directors without shareholder approval.

<PAGE>

INVESTMENT STRATEGIES

In making investment decisions on behalf of the Fund, the Investment Manager
relies on a fundamental analysis of each company. The Investment Manager reviews
each company's potential for success in light of the company's current financial
condition, its industry position, and economic and market conditions. The
Investment Manager evaluates a number of factors, including growth potential,
earnings estimates and the quality of management.

The following are our principal investment strategies. A more detailed
description of our investment policies and restrictions and more detailed
information about our investments are contained in the SAI.

Real Estate Companies. For purposes of our investment policies, a real
estate company is one that:

derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential
real estate; or

has at least 50% of its assets in such real estate.

Under normal circumstances, we will invest at least 65% of our total assets
in the equity securities of real estate companies. These equity securities can
consist of:

common stocks (including REIT shares);

rights or warrants to purchase common stocks;

securities convertible into common stocks where the conversion feature
represents, in the Investment Manager's view, a significant element of the
securities' value; and

preferred stocks.

Real Estate Investment Trusts. We may invest without limit in shares of
REITs. REITs pool investors' funds for investment primarily in income producing
real estate or real estate-related loans or interests. A REIT is not taxed on
income distributed to shareholders if, among other things, it distributes to its
shareholders substantially all of its taxable income (other than net capital
gains) for each taxable year. As a result, REITs tend to pay relatively higher
dividends than other types of companies and we intend to use these REIT
dividends in an effort to meet the current income goal of our investment
objective.

Preferred Stocks. Preferred stocks pay a fixed stream of income to
investors, and have a 'preference' over common stock in the payment of dividends
and the liquidation of a company's assets. This means that a company must pay
dividends on preferred stock before paying any dividends on its common stock.
Preferred stockholders usually have no right to vote for corporate directors or
on other matters.

Types of REITs. REITs can generally be classified as Equity REITs and
Mortgage REITs. Equity REITs, which invest the majority of their assets directly
in real property, derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments. We do not
currently intend to invest in Mortgage REITs.

Debt Securities. We may invest a maximum of 35% of our total assets in
investment grade and non-investment grade debt securities of companies,
including real estate companies. Securities rated non-investment grade (lower
than Baa by Moody's Investor Services Inc.

<PAGE>

(Moody's) or lower than BBB by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. (S&P)), are sometimes referred to as 'high
yield' or 'junk' bonds. For a description of bond ratings, see Appendix A of the
SAI.

Illiquid Securities. We will not invest more than 15% of our net assets in
illiquid securities. A security is illiquid if, for legal or market reasons, it
cannot be promptly sold (i.e., within seven days) at a price which approximates
its fair value.

Defensive Position. When the Investment Manager believes that market or
general economic conditions justify a temporary defensive position, we may
deviate from our investment objective and invest all or any portion of our
assets in high-grade debt securities, without regard to whether the issuer is a
real estate company. When and to the extent we assume a temporary defensive
position, we may not pursue or achieve our investment objective.

OTHER INVESTMENTS

We may also invest in the following types of securities, which are described
in greater detail under 'Investment Objective and Policies' in the SAI.

Cash Reserves. The Fund's cash reserves, held to provide sufficient
flexibility to take advantage of new opportunities for investments and for other
cash needs, will be invested in money market instruments. Money market
instruments in which we may invest our cash reserves will generally consist of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and such obligations which are subject to repurchase
agreements.

Futures Contracts. We may purchase and sell financial futures contracts. A
financial futures contract is an agreement to buy or sell a specific security or
financial instrument at a particular price on a stipulated future date. We may
also buy and sell index futures contracts with respect to any stock or bond
index traded on a recognized stock exchange or board of trade. An index futures
contract is a contract to buy or sell units of an index on a specified future
date at a price agreed upon when the contract is made. We will be authorized to
use financial futures contracts and related options for 'bona fide hedging'
purposes, as such term is used in applicable regulations of the Commodity
Futures Trading Commission (CFTC). We will also be authorized to enter into such
contracts and related options for non-hedging purposes, for example, to enhance
total return or provide market exposure pending the investment of cash balances,
but only to the extent that aggregate initial margin deposits plus premiums paid
by us for open futures options positions, less the amount by which any such
positions are 'in-the-money,' would not exceed 5% of the Fund's total assets. We
may lose the expected benefit of transactions in financial futures contracts if
interest rates, currency exchange rates or securities prices change in an
unanticipated manner. Such unanticipated changes in interest rates, currency
exchange rates or securities prices may also result in poorer overall
performance than if we had not entered into any futures transactions.

Options on Securities and Stock Indices. We may write covered call and put
options and purchase call and put options on securities or stock indices that
are traded on U.S. exchanges. An option on a security is a contract that gives
the purchaser of the option, in return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a securities index
gives the purchaser of the option, in return for the premium paid, the right to
receive from the seller

<PAGE>

cash equal to the difference between the closing price of the index and the
exercise price of the option. We may write a call or put option only if the
option is 'covered.'

BORROWINGS AND LEVERAGE

We may borrow money for investment purposes in an amount up to 33% of our
total assets. We also may borrow money through the issuance of short-term debt
securities or obtain additional funds for investment by issuing shares of
preferred stock. Borrowing for investment purposes creates a 'leveraged' capital
structure, in which our obligations under borrowing commitments rank senior in
preference to our common stock, and is considered a speculative technique. The
techniques described above may be deemed to involve the issuance of 'senior
securities' by the Fund, and our ability to issue such senior securities or
borrow money is limited by provisions of the 1940 Act. We may also borrow money
as a temporary measure for extraordinary or emergency purposes, including the
payment of dividends and the settlement of securities transactions, which might
otherwise require untimely dispositions of the Fund's securities. For more
information on leverage, see 'Investment Objective and Policies -- Borrowings
and Leverage' in the SAI. Temporary borrowings by the Fund for administrative
purposes and not in excess of 5% of the value of our total assets at the time
the loan is made are not deemed to be 'senior securities' and are not subject to
the restrictions described in the SAI.

RISK FACTORS AND SPECIAL CONSIDERATIONS

We are a non-diversified, closed-end management investment company designed
primarily as a long-term investment and not as a trading vehicle. The Fund is
not intended to be a complete investment program and, due to the uncertainty
inherent in all investments, there can be no assurance that we will achieve our
investment objective. As a recently-organized entity, we have no operating
history.

MARKET RISK

Because prices of equity securities fluctuate from day to day, the value of
our portfolio and the price per share will vary based upon general market
conditions.

GENERAL RISKS OF SECURITIES LINKED TO THE REAL ESTATE MARKET

We will not invest in real estate directly, but only in securities issued by
real estate companies. However, because of our policy of concentration in the
securities of companies in the real estate industry, we are also subject to the
risks associated with the direct ownership of real estate. These risks include:

declines in the value of real estate

risks related to general and local economic conditions

possible lack of availability of mortgage funds

overbuilding

extended vacancies of properties

increased competition

<PAGE>

increases in property taxes and operating expenses

changes in zoning laws

losses due to costs resulting from the clean-up of environmental problems

liability to third parties for damages resulting from environmental
problems

casualty or condemnation losses

limitations on rents

changes in neighborhood values and the appeal of properties to tenants

changes in interest rates

Thus, the value of the shares may change at different rates compared to the
value of shares of a registered investment company with investments in a mix of
different industries.

In addition to these risks, Equity REITs may be affected by changes in the
value of the underlying property owned by the trusts, while Mortgage REITs may
be affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be diversified.
Equity and Mortgage REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, Equity and Mortgage
REITs could possibly fail to qualify for tax free pass-through of income under
the Code, or to maintain their exemptions from registration under the 1940 Act.
The above factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.

In addition, even the larger REITs in the industry tend to be small to
medium-sized companies in relation to the equity markets as a whole. There may
be less trading in a smaller company's stock, which means that buy and sell
transactions in that stock could have a larger impact on the stock's price than
is the case with larger company stocks. Smaller companies also may have fewer
lines of business so that changes in any one line of business may have a greater
impact on a smaller company's stock price than is the case for a larger company.
Further, smaller company stocks may perform in different cycles than larger
company stocks. Accordingly, REIT shares can be more volatile than -- and at
times will perform differently from -- large company stocks such as those found
in the Dow Jones Industrial Average.

RISKS OF INVESTMENT IN PREFERRED STOCKS

In addition to the risks of equity securities and securities linked to the
real estate market, preferred stocks also are more sensitive to changes in
interest rates than common stocks. When interest rates rise, the value of
preferred stocks may fall.

RISKS OF INVESTMENT IN DEBT SECURITIES

High yield securities may be considered speculative with respect to the
issuer's continuing ability to make principal and interest payments. Analysis of
the creditworthiness of issuers of high yield securities may be more complex
than for issuers of higher quality debt securities, and our ability to achieve
our investment objective may, to the extent we are invested in high yield

<PAGE>

securities, be more dependent upon such creditworthiness analysis than would be
the case if we were investing in higher quality securities.

High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. Yields on high
yield securities will fluctuate. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery.

The secondary markets in which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which we could
sell a particular high yield security when necessary to meet liquidity needs or
in response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the net asset value of our shares. Adverse publicity and
investor perceptions may decrease the values and liquidity of high yield
securities.

It is reasonable to expect that any adverse economic conditions could
disrupt the market for high yield securities, have an adverse impact on the
value of such securities, and adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon. New laws and
proposed new laws may adversely impact the market for high yield securities.

PORTFOLIO TURNOVER

We may engage in portfolio trading when considered appropriate, but
short-term trading will not be used as the primary means of achieving its
investment objective. Although we cannot accurately predict our portfolio
turnover rate, it is not expected to exceed 100% under normal circumstances.
However, there are no limits on the rate of portfolio turnover, and investments
may be sold without regard to length of time held when, in the opinion of the
Investment Manager, investment considerations warrant such action. A higher
turnover rate results in correspondingly greater brokerage commissions and other
transactional expenses which are borne by the Fund. High portfolio turnover may
result in the realization of net short-term capital gains by the Fund which,
when distributed to shareholders, will be taxable as ordinary income. See
'Taxation.'

RISKS OF OPTIONS AND FUTURES

Options and futures are forms of derivatives. The use of options and futures
as hedging techniques may not succeed where the price movements of the
securities underlying the options and futures do not follow the price movements
of the portfolio securities subject to the hedge. Gains on investments in
options and futures depend on the Investment Manager's ability to predict
correctly the direction of stock prices, interest rates and other economic
factors. Where a liquid secondary market for options or futures does not exist,
we may not be able to close our position and, in such an event would be unable
to control our losses. The loss from investing in futures contracts is
potentially unlimited.

<PAGE>

USE OF LEVERAGE

We may borrow money for investment purposes in an amount up to 33% of our
total assets. We also may raise additional funds for investment purposes by the
issuance of short-term debt or preferred stock. Any of these practices would
result in leveraging our portfolio. Borrowings are obligations of the Fund
senior in preference to our common stock. Because the investment risk associated
with investment assets purchased with borrowed funds is borne solely by the
holders of our common stock, adverse movements in the price of our portfolio
holdings would have a more severe effect on our net asset value than if we were
not leveraged. See 'Investment Objective and Policies -- Borrowings and
Leverage'.

Leverage creates risks for shareholders in the Fund, including the
likelihood of greater volatility of net asset value and market price of shares,
and the risk that fluctuations in interest rates on borrowings or in the
dividend rates on any preferred stock may affect the yield to shareholders. If
the income from the securities purchased with borrowed funds is not sufficient
to cover the cost of leverage, our net income will be less than if leverage had
not been used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. In such an event, we may nevertheless
determine to maintain our leveraged position in order to avoid capital losses on
securities purchased with leverage.

NON-DIVERSIFIED STATUS

The Fund is classified as a 'non-diversified' investment company under the
1940 Act, which means we are not limited by the 1940 Act in the proportion of
our assets that may be invested in the securities of a single issuer. However,
we intend to conduct our operations so as to qualify as a regulated investment
company for purposes of the Code, which generally will relieve the Fund of any
liability for federal income tax to the extent our earnings are distributed to
shareholders. See 'Taxation' in the SAI. To so qualify, among other
requirements, we will limit our investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of our
total assets will be invested in the securities of a single issuer (other than
U.S. Government securities or the securities of other regulated investment
companies), (ii) at least 50% of the market value of our total assets will be
invested in cash and cash items, U.S. Government securities, securities of other
regulated investment companies and other securities; provided, however, that
with respect to such other securities, not more than 5% of the market value of
our total assets will be invested in the securities of a single issuer and
(iii) we will not own more than 10% of the outstanding voting securities of a
single issuer. Because we, as a non-diversified investment company, may invest
in a smaller number of individual issuers than a diversified investment company,
an investment in the Fund may present greater risk to you than an investment in
a diversified company.

MARKET PRICE DISCOUNT FROM NET ASSET VALUE

Shares of closed-end investment companies frequently trade at a discount
from their net asset value. This characteristic is a risk separate and distinct
from the risk that the Fund's net asset value could decrease as a result of our
investment activities and may be greater for investors expecting to sell their
shares in a relatively short period following completion of this offering. The
net asset value of the shares will be reduced immediately following the offering
as a result of the payment of organizational and offering costs. Whether
investors will realize gains or losses upon the sale of the shares will depend
not upon the Fund's net asset value but

<PAGE>

entirely upon whether the market price of the shares at the time of sale is
above or below the investor's purchase price for the shares. Because the market
price of the shares will be determined by factors such as relative supply of and
demand for shares in the market, general market and economic conditions, and
other factors beyond the control of the Fund, we cannot predict whether the
shares will trade at, below or above net asset value or at, below or above the
initial public offering price.

ANTI-TAKEOVER PROVISIONS

Certain provisions of our Articles of Incorporation and By-Laws may have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change our structure. These provisions may also have the
effect of depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices. These include provisions for staggered
terms of office for Directors, super-majority voting requirements for merger,
consolidation, liquidation, termination and asset sale transactions, amendments
to the Articles of Incorporation, and conversion to open-end status. See
'Description of Shares' and 'Certain Provisions of the Articles of Incorporation
and By-Laws.'

<PAGE>

INVESTMENT MANAGER

Cohen & Steers Capital Management, Inc., with offices located at 757 Third
Avenue, New York, New York 10017, has been retained to provide investment
advice, and, in general, to conduct the management and investment program of the
Fund under the overall supervision and control of the Directors of the Fund.
Cohen & Steers Capital Management, Inc., a registered investment adviser, was
formed in 1986 and is a leading U.S. manager of portfolios dedicated to
investments in REITs. Its current clients include pension plans, endowment funds
and registered investment companies, including the Fund, Cohen & Steers Realty
Income Fund, Inc. and Cohen & Steers Total Return Realty Fund, Inc., which are
closed-end investment companies, and Cohen & Steers Institutional Realty Shares,
Inc., Cohen & Steers Realty Shares, Inc., Cohen & Steers Special Equity Fund,
Inc. and Cohen & Steers Advantage Income Fund, Inc., which are open-end
investment companies. All of Cohen & Steers' client accounts are invested
principally in real estate securities.

Under its Management Agreement with the Fund, the Investment Manager
furnishes a continuous investment program for the Fund's portfolio, makes the
day-to-day investment decisions for the Fund, and generally manages the Fund's
investments in accordance with the stated policies of the Fund, subject to the
general supervision of the Board of Directors of the Fund. The Investment
Manager also performs certain administrative services for the Fund and provides
persons satisfactory to the Directors of the Fund to serve as officers of the
Fund. Such officers, as well as certain other employees and Directors of the
Fund, may be directors, officers, or employees of the Investment Manager. Under
the Management Agreement, the Investment Manager pays all expenses of the Fund
except for brokerage fees, taxes, interest, fees and expenses of the Independent
Directors (including fees and expenses of their independent counsel and other
independent consultants), trade organization membership dues, federal and state
registration fees and extraordinary expenses.

For its services under the Management Agreement, and for paying the ordinary
operating expenses of the Fund, the Fund pays the Investment Manager a monthly
management fee at the annual rate of % of the average daily net asset value
of the Fund. This fee is higher than the fees incurred by many other investment
companies.

The Fund's portfolio managers are:

Martin Cohen -- Mr. Cohen is a Director, President and Treasurer of the
Fund. He is, and has been since their inception, President of Cohen &
Steers Capital Management, Inc., the Fund's investment adviser, and Vice
President of Cohen & Steers Securities, Inc., a registered broker-dealer.

Robert H. Steers -- Mr. Steers is a Director, Chairman and Secretary of the
Fund. He is, and has been since their inception, Chairman of Cohen & Steers
Capital Management, Inc., the Fund's investment adviser, and President of
Cohen & Steers Securities, Inc., a registered broker-dealer.

Steven R. Brown -- Mr. Brown joined Cohen & Steers in 1992 and currently
serves as a Senior Vice President in investment research at Cohen & Steers
Capital Management, Inc. He is a member of NAREIT and ICSC and currently
serves on the ICSC Research Advisory Task Force.

<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Our policy will be to make monthly distributions from investment company
taxable income of the Fund. Net capital gain (net long-term capital gain in
excess of net short-term capital loss), if any, is expected to be distributed at
least annually. The first monthly dividend is expected to be declared and paid
approximately days after delivery of the shares offered hereby. Investment
company taxable income, as that term is defined in the Code, of the Fund does
not include net capital gain, and is reduced by the Fund's deductible expenses.
The expenses of the Fund are accrued each day. In addition, we currently expect
that a portion of our dividends will consist of amounts in excess of investment
company taxable income derived from the non-taxable components of the cash flow
from the real estate underlying the Fund's portfolio investments. These amounts
would be considered a return of capital and thus would reduce the basis in
shareholders' shares; any amounts in excess of such basis would be treated as a
gain from the sale of such shares. [To the extent practicable, the Fund will
attempt to pay monthly distributions to shareholders at a constant rate, which
may be adjusted from time to time by the Fund's Board of Directors, although
there can be no assurance that it will be able to do so. In order to maintain
such monthly distributions, short-term capital gains, and amounts representing a
return of the shareholder's capital, may from time to time be included in
monthly distributions. See 'Taxation.']

DIVIDEND REINVESTMENT PLAN

The Fund has a Dividend Reinvestment Plan (the 'Plan'). Each shareholder
will have all distributions of dividends and capital gains automatically
reinvested in additional shares by , as agent
for shareholders pursuant to the Plan (the 'Plan Agent'), unless they elect to
receive cash. The Plan Agent will either (i) effect purchases of shares under
the Plan in the open market or (ii) distribute newly issued shares of the Fund.
Shareholders who elect not to participate in the Plan will receive all
distributions in cash paid by check mailed directly to the shareholder of record
(or if the shares are held in street or other nominee name, then to the nominee)
by the Plan Agent, as dividend disbursing agent. Shareholders whose shares are
held in the name of a broker or nominee should contact the broker or nominee to
determine whether and how they may participate in the Plan.

The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or makes a capital gain distribution,
the Plan Agent will, as agent for the participants, either (i) receive the cash
payment and use it to buy shares in the open market, on the NYSE or elsewhere,
for the participants' accounts or (ii) distribute newly issued shares of the
Fund on behalf of the participants. The Plan Agent will receive cash from the
Fund with which to buy shares in the open market if, on the determination date,
the net asset value per share exceeds the market price per share plus estimated
brokerage commissions on that date. The Plan Agent will receive the dividend or
distribution in newly issued shares of the Fund if, on the determination date,
the market price per share plus estimated brokerage commissions equals or
exceeds the net asset value per share of the Fund on that date. For the purposes
of this paragraph, 'market price' shall mean the average of the highest and
lowest prices at which shares of the Fund sell on the NYSE on the particular
date, or if there is no sale on that date, the average of the closing bid and
asked quotations.

Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to

<PAGE>

a dividend record date; otherwise, it will be effective for all subsequent
dividend record dates. When a participant withdraws from the Plan or upon
termination of the Plan as provided below, certificates for whole shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fraction of a share credited to such account. In the
alternative, upon receipt of the participant's instructions, shares will be sold
and the proceeds sent to the participant less brokerage commissions and any
applicable taxes.

The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax records.
Shares in the account of each Plan participant will be held by the Plan Agent on
behalf of the participant. Proxy material relating to shareholders' meetings of
the Fund will include those shares purchased as well as shares held pursuant to
the Plan.

In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are
participants in the Plan. Shares may be purchased through any of the
underwriters, acting as broker or, after the completion of this offering,
dealer.

The Plan Agent's fees for the handling of reinvestment of dividends and
other distributions will be paid by the Fund. Each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of distributions.
There are no other charges to participants for reinvesting dividends or capital
gain distributions. See 'Taxation.'

The automatic reinvestment of dividends and other distributions will not
relieve participants of any income tax that may be payable or required to be
withheld on such dividends or distributions.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any distribution paid subsequent to written notice of the change sent
to all shareholders of the Fund at least 90 days before the record date for the
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent by at least 90 days' written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at
(telephone - - ).

CLOSED-END STRUCTURE

The Fund is a newly-organized, non-diversified management investment company
(commonly referred to as a closed-end fund). Closed-end funds differ from
open-end funds (which are generally referred to as mutual funds) in that
closed-end funds generally list their shares for trading on a stock exchange and
do not redeem their shares at the request of the shareholder. This means that if
you wish to sell your shares of a closed-end fund you must trade them on the
market like any other stock at the prevailing market price at that time. In a
mutual fund, if the shareholder wishes to sell shares, the mutual fund will
redeem or buy back the shares at 'net asset value.' Mutual funds generally offer
new shares on a continuous basis to new investors, and closed-end funds
generally do not. The continuous inflows and outflows

<PAGE>

of assets in a mutual fund can make it difficult to manage the fund's
investments. By comparison, closed-end funds are generally able to stay fully
invested in securities that are consistent with their investment objectives, and
also have greater flexibility to make certain types of investments, and to use
certain investment strategies, such as financial leverage and investments in
illiquid securities.

Shares of closed-end funds frequently trade at a discount to their net asset
value. Because of this possibility and the recognition that any such discount
may not be in the interest of shareholders, the Fund's Board of Directors might
consider from time to time engaging in open market repurchases, tender offers
for shares at net asset value or other programs intended to reduce the discount.
We cannot guarantee or assure, however, that the Fund's Board will decide to
engage in any of these actions. Nor is there any guarantee or assurance that
such actions, if undertaken, would result in shares trading at a price equal or
close to net asset value per share. The Board of Directors might also consider
converting the Fund to an open-end mutual fund, which would also require a vote
of the shareholders of the Fund.

POSSIBLE CONVERSION TO OPEN-END STATUS

The Fund may be converted to an open-end investment company at any time by a
vote of the outstanding shares. See 'Certain Provisions of the Articles of
Incorporation and By-Laws' for a discussion of voting requirements applicable to
conversion of the Fund to an open-end investment company. If the Fund converted
to an open-end investment company, the Fund's shares would no longer be listed
on the NYSE. Conversion to open-end status could also require the Fund to modify
certain investment restrictions and policies. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or permitted under the 1940
Act) at their net asset value, less such redemption charge, if any, as might be
in effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
investment companies typically engage in a continuous offering of their shares.
Open-end investment companies are thus subject to periodic asset in-flows and
out-flows that can complicate portfolio management. The Board of Directors may
at any time propose conversion of the Fund to open-end status, depending upon
its judgment regarding the advisability of such action in light of circumstances
then prevailing.

REPURCHASE OF SHARES

Shares of closed-end investment companies often trade at a discount to net
asset value, and the Fund's shares may also trade at a discount to their net
asset value, although it is possible that they may trade at a premium above net
asset value. The market price of the Fund's shares will be determined by such
factors as relative demand for and supply of shares in the market, the Fund's
net asset value, general market and economic conditions and other factors beyond
the control of the Fund. See 'Net Asset Value.' Although the Fund's common
shareholders will not have the right to redeem their shares, the Fund may take
action to repurchase shares in the open market or make tender offers for its
shares at net asset value. This may have the effect of reducing any market
discount to net asset value.

There is no assurance that, if action is undertaken to repurchase or tender
for shares, such action will result in the shares' trading at a price which
approximates their net asset value. Although share repurchases and tenders could
have a favorable effect on the market price of the

<PAGE>

shares, you should be aware that the acquisition of shares by the Fund will
decrease the total assets of the Fund and, therefore, have the effect of
increasing the Fund's expense ratio. Any share repurchases or tender offers will
be made in accordance with the requirements of the Securities Exchange Act of
1934 and the 1940 Act.

TAXATION

The following brief tax discussion assumes you are a U.S. shareholder. In
the SAI we have provided more detailed information regarding the tax
consequences of investing in the Fund. Dividends paid to you out of the Fund's
'investment company taxable income' (which includes dividends the Fund receives
on REIT shares, interest income, and net short-term capital gains) will be
taxable to you as ordinary income. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable to you as long-term capital gains, regardless of how long you
have held your Fund shares. A distribution of an amount in excess of the Fund's
earnings is treated as a non-taxable return of capital that reduces your tax
basis in your Fund shares; any such distributions in excess of your basis are
treated as gain from a sale of your shares. The tax treatment of your dividends
and distributions will be the same regardless of whether they were paid to you
in cash or reinvested in additional Fund shares.

A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid during January of the following
year.

Each year, we will notify you of the tax status of dividends and other
distributions.

If you sell your Fund shares, you may realize a capital gain or loss which
will be long-term or short-term, depending on your holding period for the
shares.

We may be required to withhold U.S. federal income tax at the rate of 31 %
of all taxable distributions payable if you

fail to provide us with your correct taxpayer identification number;

fail to make required certifications; or

have been notified by the IRS that you are subject to backup withholding.

Backup withholding is not an additional tax. Any amounts withheld may be
credited against your U.S. federal income tax liability.

Fund distributions also may be subject to state and local taxes. You should
consult with your own tax adviser regarding the particular consequences of
investing in the Fund.

DESCRIPTION OF SHARES

The Fund is authorized to issue [100,000,000] shares of common stock,
[$.001] par value. The shares have no preemptive, conversion, exchange or
redemption rights. Each share has equal voting, dividend, distribution and
liquidation rights. The shares outstanding are and those offered hereby, when
issued, will be fully paid and nonassessable. Shareholders are entitled to one
vote per share. All voting rights for the election of Directors are
noncumulative, which means that the holders of more than 50% of the shares can
elect 100% of the Directors then nominated for election if they choose to do so
and, in such event, the holders of the remaining shares will not be able to
elect any Directors. Under the rules of the NYSE applicable to listed

<PAGE>

companies, the Fund will be required to hold an annual meeting of shareholders
in each year. The foregoing description and the descriptions below under
'Certain Provisions of the Articles of Incorporation and By-Laws' and above
under 'Possible Conversion to Open-End Status' are subject to the provisions
contained in the Fund's Articles of Incorporation and By-Laws.

The Fund has no present intention of offering additional shares. Other
offerings of our shares, if made, will require approval of the Board of
Directors. Any additional offering will be subject to the requirement of the
1940 Act that shares may not be sold at a price below the then current net asset
value, exclusive of sales loads, except in connection with an offering to
existing shareholders or with consent of the holders of a majority of the Fund's
outstanding voting securities.

As of the date of this Prospectus, Cohen & Steers Capital Management, Inc.
owned of record and beneficially shares of the Fund's common stock,
constituting 100% of the outstanding shares of the Fund, and thus, until the
public offering of the shares is completed, will control the Fund.

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS

We presently have provisions in our Articles of Incorporation and By-laws
(together, the Charter Documents) that are intended to have the effect of
limiting:

the ability of other entities or persons to acquire control of the Fund,

the Fund's freedom to engage in certain transactions or

the ability of the Fund's Directors or shareholders to amend the Charter
Documents or effect changes in the Fund's management.

These provisions of the Charter Documents may be regarded as 'anti-takeover'
provisions. Commencing with the first annual meeting of shareholders, the Board
of Directors will be divided into three classes. The term of office of the first
class will expire on the date of the second annual meeting of shareholders, the
term of office of the second class will expire on the date of the third annual
meeting of shareholders and the term of office of the third class will expire on
the date of the fourth annual meeting of shareholders. Upon the expiration of
the term of office of each class as set forth above, the Directors in such class
will be elected for a term of three years to succeed the Directors whose terms
of office expire. Accordingly, only those Directors in one class may be changed
in any one year, and it would require two years to change a majority of the
Board of Directors (although under Maryland law, procedures are available for
the removal of Directors even if they are not then standing for re-election, and
under Commission regulations, procedures are available for including shareholder
proposals in management's annual proxy statement).

Such system of electing Directors may have the effect of maintaining the
continuity of management and, thus, make it more difficult for the Fund's
shareholders to change the majority of Directors. A Director may be removed from
office only by a vote of at least 75% of the outstanding shares entitled to vote
for the election of Directors. Under Maryland law and the Fund's Articles of
Incorporation, the affirmative vote of the holders of a majority of the votes
entitled to be cast is required for the consolidation of the Fund with another
corporation, a merger of the Fund with or into another corporation (except for
certain mergers in which the Fund is the successor), a statutory share exchange
in which the Fund is not the successor, a sale or transfer of all or
substantially all of the Fund's assets, the dissolution of the Fund and any

<PAGE>

amendment to the Fund's Articles of Incorporation. The affirmative vote of 75%
(which is higher than that required under Maryland law or the 1940 Act) of the
outstanding shares is required to authorize the liquidation or dissolution of
the Fund in the absence of approval of the liquidation or dissolution by a
majority of the Continuing Directors of the Fund (defined for this purpose as
those Directors who are either members of the Board of Directors on the date of
closing of the offering of the Shares or subsequently become Directors and whose
election is approved by a majority of the Continuing Directors then on the
Board). In addition, the affirmative vote of 75% (which is higher than that
required under Maryland law or the 1940 Act) of the outstanding Shares is
required generally to authorize any of the following transactions involving a
corporation, person or entity that is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares
('Principal Shareholder'), or to amend the provisions of the Articles of
Incorporation relating to such transactions:

merger, consolidation or statutory share exchange of the Fund with or into
any Principal Shareholder;

issuance of any securities of the Fund to any Principal Shareholder for
cash;

sale, lease or exchange of all or any substantial part of the assets of the
Fund to any Principal Shareholder (except assets having an aggregate fair
market value of less than $1,000,000); or

sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000).

However, such vote would not be required when, under certain conditions, the
Continuing Directors of the Fund approve the transaction, although in certain
cases involving merger, consolidation or statutory share exchange or sale of all
or substantially all of the Fund's assets, the affirmative vote of a majority of
the outstanding shares of the Fund would nevertheless be required. The
affirmative vote of 66 2/3% (which is higher than that required under Maryland
law or the 1940 Act) of the outstanding Shares is required to convert the Fund
to an open-end investment company and to amend the Fund's Articles of
Incorporation to effect any such conversion. For the full text of these
provisions, reference is made to the Articles of Incorporation and By-Laws of
the Fund, on file with the Securities and Exchange Commission.

The provisions of the Charter Documents described above could have the
effect of depriving the owners of shares of opportunities to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or similar transaction.
See 'Possible Conversion to Open-End Status.' The overall effect of these
provisions is to render more difficult the accomplishment of a merger or the
assumption of control by a principal shareholder. The Board of Directors of the
Fund has considered the foregoing anti-takeover provisions and concluded that
they are in the best interests of the Fund and its shareholders.

<PAGE>

UNDERWRITING

We have entered into an underwriting agreement with the underwriters named
below, for whom [ ] is acting as representative. We are obligated to
sell, and the underwriters are obligated to purchase, all of the shares offered
hereby, if any are purchased. Subject to the terms and conditions of the
underwriting agreement, each underwriter has generally agreed to purchase the
shares indicated opposite its name:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
[ ]Total..........................
</TABLE>

The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date our shares begin trading, an over-allotment option to
purchase up to [ ] additional shares from us. If any additional shares
are purchased, the underwriters will severally purchase the shares in the same
proportion as purchased in the table above.

The representatives of the underwriters have advised us that the shares will
be offered to the public at the offering price indicated on the cover page of
this prospectus. You must pay for shares purchased in this offering on or before
, 2000. The underwriters may allow to selected dealers a concession not
in excess of $ per share and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and the concessions. The representatives have informed us that the
underwriters do not intend to sell shares to any investor who has granted them
discretionary authority.

The Fund, [and] the Investment Manager [and ] have each agreed
to indemnify the several underwriters or to contribute to the losses arising out
of certain liabilities, including liabilities under the Securities Act.

[We, our officers and directors and the officers and directors of the
Investment Manager have entered into lock-up agreements pursuant to which we and
they have agreed not to offer or sell any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of [ ], on behalf of the underwriters. [ ]
may, at any time and without notice, waive the terms of these lock-up agreements
specified in the underwriting agreement.]

The Fund has agreed to pay the underwriters $[ ] as partial
reimbursement of expenses incurred in connection with the offering.

In order to meet the requirements for listing the shares on the New York
Stock Exchange the underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial holders. The minimum investment
requirement is 100 shares [(or $ )]. Prior to this offering there has
been no public market for the shares or any other securities of the Fund.

In the ordinary course of their businesses, [ ], some of the other
underwriters and their respective affiliates have in the past engaged, and in
the future may engage, in investment banking and financial transactions with the
Fund, the Investment Manager or their affiliates.

<PAGE>

[ ], on behalf of the underwriters, may engage in the following
activities in accordance with applicable securities rules:

Over-allotments involving sales in excess of the offering size and creating
a short position. [ ] may elect to reduce this short position
by exercising some or all of the over-allotment option.

Stabilizing and short covering; stabilizing bids to purchase the shares are
permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in the
open market may also reduce the short position. These activities may cause
the price of the shares to be higher than would otherwise exist in the open
market.

Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.

Such activities, which may be commenced and discontinued at any time, may be
effected on a national securities market, in the over-the-counter market or
otherwise.

Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:

the Public Offers of Securities Regulations 1995,

the Financial Services Act 1986, and

the Financial Services Act 1986 (Investment Advertisements)(Exemptions)
Order 1996 (as amended).

[ ] facilitates the marketing of new issues online through its
[ ] division. Clients of [ ], a full service brokerage
firm program, may view offering terms and a prospectus online and place orders
through their financial advisors.

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

, whose principal business address is , has been
retained to act as custodian of the Fund's investments and to serve as the
Fund's transfer and dividend disbursing agent and registrar. has
no part in deciding the Fund's investment policies or which securities are to be
purchased or sold for the Fund's portfolio.

REPORTS TO SHAREHOLDERS

The Fund will send unaudited semi-annual and audited annual reports to its
shareholders, including a list of investments held.

VALIDITY OF THE SHARES

The validity of the shares offered hereby is being passed on for the Fund by
Simpson Thacher & Bartlett, New York, New York, and certain other legal matters
will be passed on for the underwriters by , New York, New York.
Venable, Baetjer and Howard, LLP will opine on matters pertaining to Maryland
law.

<PAGE>

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<S> <C>
Investment Objective and Policies.
Investment Restrictions.....................................
Management of the Fund......................................
Compensation of Directors and Certain Officers..............
Investment Advisory and Other Services......................
Portfolio Transactions and Brokerage........................
Determination of Net Asset Value............................
Repurchase of Shares........................................
Taxation....................................................
Counsel and Independent Accountants.........................
Additional Information......................................
Report of Independent Accountants...........................
Statement of Assets and Liabilities as of ,
2000......................................................
Description of Bond Ratings (Appendix A)....................
</TABLE>

<PAGE>

[COHEN & STEERS LOGO]

COMMON STOCK

-------------------
PROSPECTUS
-------------------

[ ]

, 2000

<PAGE>

SUBJECT TO COMPLETION, DATED JUNE 22, 2000

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.

[COHEN & STEERS LOGO]

757 THIRD AVENUE
NEW YORK, NEW YORK 10017
(800) 437-9912

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

STATEMENT OF ADDITIONAL INFORMATION

, 2000

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS,
BUT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
OF COHEN & STEERS ADVANTAGE INCOME FUND, INC., DATED
, 2000, AS SUPPLEMENTED FROM TIME TO TIME (THE 'PROSPECTUS').
THIS STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE
IN ITS ENTIRETY INTO THE PROSPECTUS.
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION AND PROSPECTUS
MAY BE OBTAINED FREE OF CHARGE BY WRITING OR CALLING
THE ADDRESS OR PHONE NUMBER SHOWN ABOVE.

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

<PAGE>

====================================================================
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective and Policies........................... 3

Investment Restrictions..................................... 7

Management of the Fund [To Be Updated]...................... 9

Compensation of Directors and Certain Officers.............. 10

Investment Advisory and Other Services...................... 11

Portfolio Transactions and Brokerage........................ 13

Determination of Net Asset Value............................ 14

Repurchase of Shares........................................ 14

Taxation.................................................... 16

Counsel and Independent Accountants......................... 22

Additional Information...................................... 23

Report of Independent Accountants [To Come]................. 24

Statement of Assets and Liabilities as of , 2000
[To Come]................................................. 25

Description of Bond Ratings (Appendix A).................... A-1
</TABLE>

<PAGE>

================================================================================
STATEMENT OF ADDITIONAL INFORMATION

Cohen & Steers Advantage Income Fund, Inc. (the 'Fund') is a non-diversified,
open-end, management investment company organized as a Maryland corporation on
, 2000. Much of the information contained in this Statement of
Additional Information expands on subjects discussed in the Prospectus. Defined
terms used herein have the same meanings as in the Prospectus. No investment in
the shares of the Fund should be made without first reading the Prospectus.

================================================================================
INVESTMENT OBJECTIVE AND POLICIES
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS

The following descriptions supplement the descriptions of the principal
investment objectives, strategies and risks as set forth in the Prospectus.
Except as otherwise provided below, the Fund's investment policies are not
fundamental and may be changed by the Board of Directors of the Fund without the
approval of the shareholders; however, the Fund will not change its investment
policies without written notice to shareholders.

--------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS

REITs are sometimes informally characterized as Equity REITs and Mortgage REITs.
An Equity REIT invests primarily in the fee ownership or leasehold ownership of
land and buildings and derives its income primarily from rental income. An
Equity REIT may also realize capital gains (or losses) by selling real estate
properties in its portfolio that have appreciated (or depreciated) in value. A
Mortgage REIT invests primarily in mortgages on real estate, which may secure
construction, development or long-term loans. A Mortgage REIT generally derives
its income primarily from interest payments on the credit it has extended. It is
anticipated, although not required, that under normal circumstances a majority
of the Fund's investments in REITs will consist of securities issued by Equity
REITs.

--------------------------------------------------------------------------------
CASH RESERVES

The Fund's cash reserves, held to provide sufficient flexibility to take
advantage of new opportunities for investments and for other cash needs, will be
invested in money market instruments.

Money market instruments in which the Fund may invest its cash reserves will
generally consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and such obligations which are subject to
repurchase agreements. Repurchase agreements may be entered into with member
banks of the Federal Reserve System or 'primary dealers' (as designated by the
Federal Reserve Bank of New York) in United States Government securities. Other
acceptable money market instruments include commercial paper rated by any
nationally recognized rating agency, such as Moody's or S&P, certificates of
deposit, bankers' acceptances issued by domestic banks having total assets in
excess of one billion dollars, and money market mutual funds.

In entering into the repurchase agreement for the Fund, the Investment Manager
will evaluate and monitor the creditworthiness of the vendor. In the event that
a vendor should default on its repurchase obligation, the Fund might suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase

<PAGE>

price. If the vendor becomes bankrupt, the Fund might be delayed, or may incur
costs or possible losses of Principal and income, in selling the collateral.

--------------------------------------------------------------------------------
FUTURES CONTRACTS

The Fund may purchase and sell financial futures contracts. A financial futures
contract is an agreement to buy or sell a specific security or financial
instrument at a particular price on a stipulated future date. Although some
financial futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the settlement
date. The closing of a contractual obligation is accomplished by purchasing or
selling an identical offsetting futures contract. Other financial futures
contracts by their terms call for cash settlements.

The Fund may also buy and sell index futures contracts with respect to any stock
or bond index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index on a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.

At the time the Fund purchases a futures contract, an amount of cash or liquid
portfolio securities equal to the market value of the futures contract will be
deposited in a segregated account with the Fund's custodian. When writing a
futures contract, the Fund will maintain with its custodian similar liquid
assets that, when added to the amounts deposited with a futures commission
merchant or broker as margin, are equal to the market value of the instruments
underlying the contract. Alternatively, the Fund may 'cover' its position by
owning the instruments underlying the contract (or, in the case of an index
futures contract, a portfolio with a volatility substantially similar to that of
the index on which the futures contract is based), or holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).

The Fund will be authorized to use financial futures contracts and related
options for 'bona fide hedging' purposes, as such term is used in applicable
regulations of the Commodity Futures Trading Commission ('CFTC'). The Fund will
also be authorized to enter into such contracts and related options for
non-hedging purposes, for example to enhance total return or provide market
exposure pending the investment of cash balances, but only to the extent that
aggregate initial margin deposits plus premiums paid by it for open futures
options positions, less the amount by which any such positions are 'in-the-
money,' would not exceed 5% of the Fund's total assets. The Fund may lose the
expected benefit of transactions in financial futures contracts if interest
rates, currency exchange rates or securities prices change in an unanticipated
manner. Such unanticipated changes in interest rates, currency exchange rates or
securities prices may also result in poorer overall performance than if the Fund
had not entered into any futures transactions.

--------------------------------------------------------------------------------
OPTIONS ON SECURITIES AND STOCK INDICES

The Fund may write covered call and put options and purchase call and put
options on securities or stock indices that are traded on U.S. exchanges.

An option on a security is a contract that gives the purchaser of the option, in
return for the premium paid, the right to buy a specified

<PAGE>

security (in the case of a call option) or to sell a specified security (in the
case of a put option) from or to the writer of the option at a designated price
during the term of the option. An option on a securities index gives the
purchaser of the option, in return for the premium paid, the right to receive
from the seller cash equal to the difference between the closing price of the
index and the exercise price of the option.

The Fund may write a call or put option only if the option is 'covered.' A call
option on a security written by the Fund is covered if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on a security is also covered if the Fund owns a call option on the same
security and in the same principal amount as the call option written where the
exercise price of the call option held (a) is equal to or less than the exercise
price of the call option written or (b) is greater than the exercise price of
the call option written if the difference is maintained by the Fund in cash or
liquid portfolio securities in a segregated account with its custodian. A put
option on a security written by the Fund is 'covered' if the Fund maintains
similar liquid assets with a value equal to the exercise price in a segregated
account with its custodian, or else owns a put option on the same security and
in the same principal amount as the put option written where the exercise price
of the put option held is equal to or greater than the exercise price of the put
option written. The value of the underlying securities on which options may be
written at any one time will not exceed 25% of the total assets of the Fund. The
Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of purchase.

The Fund will cover call options on stock indices by owning securities whose
price changes, in the opinion of the Investment Manager, are expected to be
similar to those of the index, or in such other manner as may be in accordance
with the rules of the exchange on which the option is traded and applicable laws
and regulations. Nevertheless, where the Fund covers a call option on a stock
index through ownership of securities, such securities may not match the
composition of the index. In that event, the Fund will not be fully covered and
could be subject to risk of loss in the event of adverse changes in the value of
the index. The Fund will cover put options on stock indices by segregating
assets equal to the option's exercise price, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations.

The Fund will receive a premium for writing a put or call option, which will
increase the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which the
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however,
the Fund will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the Fund's stock investments. By
writing a put option, the Fund assumes the risk of a decline in the underlying
security or index. To the extent that the price changes of the portfolio
securities being hedged correlate with changes in the value of the underlying
security or index, writing covered put options on securities or indices will
increase the Fund's losses in the event of a market decline, although such
losses will be offset in part by the premium received for writing the option.

The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's

<PAGE>

investments does not decline as anticipated, or if the value of the option does
not increase, the Fund's loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will depend, in
part, on the accuracy of the correlation between the changes in value of the
underlying security or index and the changes in value of the Fund's security
holdings being hedged.

The Fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. Similarly, the Fund may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.

There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.

--------------------------------------------------------------------------------
BORROWINGS AND LEVERAGE

The Fund would borrow for leveraging purposes when an investment opportunity
arises but the Investment Manager believes that it is not appropriate to
liquidate any existing investments. The Fund will only borrow when the
Investment Manager believes that the cost of borrowing to carry the assets to be
acquired through leverage would be lower than the return earned by the Fund on
its longer-term portfolio investments. Should the differential between interest
rates on borrowed funds and the return from investment assets purchased with
such funds narrow, the Fund would realize less of a positive return, with the
additional risk that, during periods of adverse market conditions, the market
value of the Fund's entire portfolio holdings (including those acquired through
leverage) may decline far in excess of incremental returns the Fund may have
achieved in the interim.

Under the 1940 Act, the Fund is not permitted to incur indebtedness or issue
senior securities in excess of certain limits expressed as asset coverage
requirements and limitations exist on the Fund's ability to declare dividends on
common stock while borrowings are at certain levels. Under these limits, the
Fund may not declare dividends or other distributions to its holders of common
stock at any time when the payment of such dividend or distribution would cause
the ratio between the Fund's total assets (including borrowings) and the total
amount borrowed to fall below 300%. If the Fund has preferred stock outstanding,
it may not declare dividends or other distributions to holders of common stock
at any time when the payment of such dividend or distribution would cause the
ratio between the Fund's total assets and the liquidation value of such
preferred stock to fall below 200%.

If the asset coverage for senior securities or other borrowings of the Fund
declines below the limits specified in the 1940 Act, the Fund may be required to
sell a portion of its investments when it may not be advantageous to do so.
Sales of investments required to meet asset coverage tests imposed by the 1940
Act could also cause the Fund to lose its status as a regulated investment
company. In addition, if the Fund were unable to make adequate distributions to
shareholders because of asset coverage or other restrictions, it could fail to
qualify as a regulated investment

<PAGE>

company for federal income tax purposes and, even if it did so qualify, it could
become liable for income and excise tax on the portion of its earnings which are
not distributed on a timely basis in accordance with applicable provisions of
the Code. See 'Taxation.'

The Fund's willingness to borrow money and issue new securities for investment
purposes, and the amount it will borrow, will depend on many factors, the most
important of which are investment outlook, market conditions and interest rates.
Successful use of a leveraging strategy depends on the Investment Manager's
ability to predict correctly interest rates and market movements, and there is
no assurance that a leveraging strategy will be successful during any period in
which it is employed.

The Fund may also borrow money to finance the repurchase of and/or tender for
its shares.

--------------------------------------------------------------------------------
SHORT SALES

The Fund may enter into short sales, provided the dollar amount of short sales
at any one time would not exceed [25%] of the net assets of the Fund, and the
value of securities of any one issuer in which the Fund is short would not
exceed the lesser of [2%] of the value of the Fund's net assets or [2%] of the
securities of any class of any issuer. The Fund must maintain collateral in a
segregated account consisting of cash or liquid portfolio securities with a
value equal to the current market value of the shorted securities, which is
marked-to-market daily. If the Fund owns an equal amount of such securities or
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issuer as, and equal in amount to, the
securities sold short (which sales are commonly referred to as 'short sales
against the box'), the above requirements are not applicable.

================================================================================
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------

The investment objective and the general investment policies and investment
techniques of the Fund are described in the Prospectus. The Fund has also
adopted certain investment restrictions limiting the following activities except
as specifically authorized:

The Fund may not:

1. Issue senior securities (including borrowing money for other than temporary
purposes) except in conformity with the limits set forth in the 1940 Act; or
pledge its assets other than to secure such issuances or borrowings or in
connection with permitted investment strategies; notwithstanding the foregoing,
the Fund may borrow up to an additional 5% of its total assets for temporary
purposes;

2. Act as an underwriter of securities issued by other persons, except insofar
as the Fund may be deemed an underwriter in connection with the disposition of
securities;

3. Purchase or sell real estate or commodities, except that the Fund may invest
in securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities secured
by real estate or interests therein and the Fund may hold and sell real estate
acquired through default, liquidation, or other distributions of an interest in
real estate as a result of the Fund's ownership of such securities;

4. Purchase or sell commodities or commodity futures contracts, except that the
Fund may invest in financial futures contracts, options thereon and such similar
instruments;

5. Make loans to other persons except through the lending of securities held by
it (but not to exceed a value of one-third of total assets),

<PAGE>

through the use of repurchase agreements, and by the purchase of debt
securities, all in accordance with its investment policies;

6. Purchase restricted or 'illiquid' securities, including repurchase agreements
maturing in more than seven days, if as a result, more than 15% of the Fund's
net assets would then be invested in such securities (excluding securities which
are eligible for resale pursuant to Rule 144A under the Securities Act of 1933);

7. Acquire or retain securities of any investment company, except that the Fund
may (a) acquire securities of investment companies up to the limits permitted by
Sec. 12(d)(1) of the Investment Company Act of 1940, and (b) acquire securities
of any investment company as part of a merger, consolidation or similar
transaction;

8. Make short sales whereby the dollar amount of short sales at any one time
would exceed 25% of the net assets of the Fund; provided the Fund maintains
collateral in a segregated account consisting of cash or liquid portfolio
securities with a value equal to the current market value of the shorted
securities, which is marked to market daily. If the Fund owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issuer as, and
equal in amount to, the securities sold short (which sales are commonly referred
to as 'short sales against the box'), such restrictions shall not apply;

9. Invest in puts, calls, straddles, spreads or any combination thereof, except
that the Fund may (a) purchase put and call options on securities and securities
indexes, and (b) write covered put and call options on securities and securities
indexes, provided that (i) the securities underlying such options are within the
investment policies of the Fund; (ii) at the time of such investment, the value
of the aggregate premiums paid for such securities does not exceed 5% of the
Fund's total assets; and (iii) the value of the underlying securities on which
options may be written at any one time does not exceed 25% of total assets;

10. Invest in oil, gas or other mineral exploration programs, development
programs or leases, except that the Fund may purchase securities of companies
engaging in whole or in part in such activities;

11. Pledge, mortgage or hypothecate its assets except in connection with
permitted borrowings; or

12. Purchase securities on margin, except short-term credits as are necessary
for the purchase and sale of securities, provided that the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase on margin.

The investment restrictions numbered 1 through 5 in this Statement of Additional
Information have been adopted as fundamental policies of the Fund. Under the
1940 Act, a fundamental policy may not be changed without the vote of a majority
of the outstanding voting securities of the Fund, as defined under the 1940 Act.
'Majority of the outstanding voting securities' means the lesser of (1) 67% or
more of the shares present at a meeting of shareholders of the Fund, if the
Holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding shares of the
Fund. Investment restrictions numbered 6 through 12 above are non-fundamental
and may be changed at any time by vote of a majority of the Board of Directors.

<PAGE>

================================================================================
MANAGEMENT OF THE FUND [TO BE UPDATED]
--------------------------------------------------------------------------------

The overall management of the business and affairs of the Fund is vested with
the Board of Directors. The Directors approve all significant agreements between
the Fund and persons or companies furnishing services to it, including the
Fund's agreements with its investment adviser, administrator, custodian and
transfer agent. The management of the Fund's day-to-day operations is delegated
to its officers, the Investment Manager and the Fund's administrator, subject
always to the investment objective and policies of the Fund and to the general
supervision of the Directors. As of , 2000, the Directors and officers
as a group beneficially owned, Directly or indirectly, less than 1% of the
outstanding shares of the Fund.

The Directors and officers of the Fund and their principal occupations during
the past five years are set forth below. Each such Director and officer is also
a director or officer of Cohen & Steers Realty Income Fund, Inc. and Cohen &
Steers Total Return Realty Fund, Inc., both of which are closed-end investment
companies sponsored by the Investment Manager, and Cohen & Steers Advantage
Income Fund, Inc., Cohen & Steers Institutional Realty Shares, Inc., Cohen &
Steers Realty Shares, Inc. and Cohen & Steers Special Equity Fund, Inc., which
are open-end investment companies sponsored by the Investment Manager. An
asterisk (*) has been placed next to the name of each Director who is an
'interested person' of the Fund, as such term is defined in the 1940 Act, by
virtue of such person's affiliation with the Fund or the Investment Manager.

<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, ADDRESS AND AGE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
--------------------- ---- -----------------------------------------------
<S> <C> <C>
Robert H. Steers* .............. Director, Chairman Chairman of Cohen & Steers Capital Management, Inc.,
757 Third Avenue and Secretary the Fund's investment manager. President of Cohen &
New York, New York Steers Securities, Inc.
Age: 47

Martin Cohen* .................. Director, President of Cohen & Steers Capital Management, Inc.,
757 Third Avenue President and the Fund's investment manager. Vice President of Cohen
New York, New York Treasurer & Steers Securities, Inc.
Age: 51

Gregory C. Clark ............... Director President of Wellspring Management Group.
376 Mountain Laurel Drive
Aspen, Colorado
Age: 53

George Grossman ................ Director Attorney at law.
17 Elm Place
Rye, New York
Age: 46

Jeffrey H. Lynford ............. Director Chairman of Wellsford Group Inc. since 1986 and of
610 Fifth Avenue Wellsford Residential Property Trust from 1992 to May
New York, New York 1997. Mr. Lynford is also a Trustee of Equity
Age: 52 Residential Properties Trust and an Emeritus Trustee
of the National Trust for Historic Preservation.

Willard H. Smith Jr. ........... Director Board member of Essex Property Trust, Inc., Highwoods
5208 Renaissance Avenue Properties, Inc., Realty Income Corporation and Willis
San Diego, California Lease Finance Corporation. Managing director at
Age: 63 Merrill Lynch & Co., Equity Capital Markets Division
from 1983 to 1995.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, ADDRESS AND AGE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
--------------------- ---- -----------------------------------------------
<S> <C> <C>
Steven R. Brown ................ Vice President Senior Vice President of Cohen & Steers Capital
757 Third Avenue Management, Inc., the Fund's investment manager, since
New York, New York 1996 and prior to that Vice President of Cohen &
Age: 39 Steers Capital Management, Inc.

Adam M. Derechin ............... Vice President and Senior Vice President of Cohen & Steers Capital
757 Third Avenue Assistant Management, Inc., the Fund's investment manager, since
New York, New York Treasurer 1998 and prior to that Vice President of Cohen &
Age: 35 Steers Capital Management, Inc.

Lawrence B. Stoller ............ Assistant Senior Vice President and General Counsel, Cohen &
757 Third Avenue Secretary Steers Capital Management, Inc., the Fund's investment
New York, New York manager, since 1999. Prior to that, Associate
Age: 36 General Counsel, Neuberger Berman Management Inc.
(money manager); Assistant General Counsel, The
Dreyfus Corporation (money manager); and Associate,
Dechert Price & Rhoads (law firm).
</TABLE>

================================================================================
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
--------------------------------------------------------------------------------

The following table sets forth estimated information regarding compensation
expected to be paid to Directors by the Fund for the current fiscal year ending
, 2001 and the aggregate compensation paid by the fund complex of which
the Fund is a part for the fiscal year ended December 31, 1999. Officers of the
Fund and Directors who are interested persons of the Fund do not receive any
compensation from the Fund or any other fund in the fund complex which is a U.S.
registered investment company. Each of the other Directors is paid an annual
retainer of $ , and a fee of $ for each meeting attended and is reimbursed
for the expenses of attendance at such meetings. In the column headed 'Total
Compensation From Fund Complex Paid to Directors,' the compensation paid to each
Director represents five of six other funds that each Director serves in the
fund complex. (Cohen & Steers Institutional Realty Shares, Inc. commenced
operations in January of 2000.) The Directors do not receive any pension or
retirement benefits from the fund complex.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM FUND
COMPENSATION COMPLEX PAID TO
NAME OF PERSON, POSITION FROM FUND DIRECTORS
------------------------ --------- ---------
<S> <C> <C>
Gregory C. Clark*, Director................................. $37,500
Martin Cohen**, Director and President...................... 0
George Grossman*, Director.................................. 37,500
Jeffrey H. Lynford*, Director............................... 35,000
Willard H. Smith Jr.*, Director............................. 37,500
Robert H. Steers**, Director and Chairman................... 0
</TABLE>
---------
* Member of the Audit Committee.

** 'Interested person,' as defined in the 1940 Act, of the Fund because of the
affiliation with Cohen & Steers Capital Management, Inc., the Fund's
investment adviser.

<PAGE>

================================================================================
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------
THE INVESTMENT MANAGER

Cohen & Steers Capital Management, Inc., with offices located at 757 Third
Avenue, New York, New York 10017, is the investment manager to the Fund. The
Investment Manager, a registered investment adviser, was formed in 1986 and
specializes in the management of real estate securities portfolios. Its current
clients include pension plans of leading corporations, endowment funds and
mutual funds, including Cohen & Steers Realty Income Fund, Inc. and Cohen &
Steers Total Return Realty Fund, Inc., both of which are closed-end investment
companies and Cohen & Steers Advantage Income Fund, Inc., Cohen & Steers
Institutional Realty Shares, Cohen & Steers Realty Shares, Inc. and Cohen &
Steers Special Equity Fund, Inc., which are open-end investment companies. Mr.
Cohen and Mr. Steers may be deemed 'controlling persons' of the Investment
Manager on the basis of their ownership of the Investment Manager's stock.

Pursuant to a management agreement (the 'Management Agreement'), the Investment
Manager furnishes a continuous investment program for the Fund's portfolio,
makes the day-to-day investment decisions for the Fund, executes the purchase
and sale orders for the portfolio transactions of the Fund and generally manages
the Fund's investments in accordance with the stated policies of the Fund,
subject to the general supervision of the Board of Directors of the Fund.

Under the Management Agreement, the Fund will pay the Investment Manager a
monthly advisory fee in an amount equal to 1/12th of % of the average daily
value of the net assets of the Fund. The Investment Manager has voluntarily
agreed to waive receipt of a portion of the management fee of the Fund in the
amount of . % of average weekly net assets for the first years of the Fund's
operations (through , ). The Investment Manager pays all expenses of the
Fund except for brokerage fees, taxes, interest, fees and expenses of the
Independent Directors (including fees and expenses of independent counsel and
other independent consultants to the Independent Directors), trade organization
membership dues, federal and state registration fees and extraordinary expenses.

The Investment Manager also provides the Fund with such personnel as the Fund
may from time to time request for the performance of clerical, accounting and
other office services, such as coordinating matters with the sub-administrator,
the transfer agent and the custodian. The personnel rendering these services,
who may act as officers of the Fund, may be employees of the Investment Manager
or its affiliates. These services are provided at no additional cost to the
Fund. The Fund does not pay any additional amounts for services performed by
officers of the Investment Manager or its affiliates.

--------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES

Pursuant to the Management Agreement, the Investment Manager also performs
certain administrative functions for the Fund, including (i) providing office
space, telephone, office equipment and supplies for the Fund; (ii) paying
compensation of the Fund's officers for services rendered as such;
(iii) authorizing expenditures and approving bills for payment on behalf of the
Fund; (iv) supervising preparation of reports to the Fund's shareholders,
notices of dividends, capital gains distributions and tax credits, and attending
to routine correspondence and other communications with individual shareholders;
(v) supervising the pricing of the Fund's investment portfolio and the
publication of the net asset value of the Fund's shares, earnings reports and
other financial data; (vi) monitoring relationships with organizations providing

<PAGE>

services to the Fund, including the custodian, transfer agent and printers;
(vii) providing trading desk facilities for the Fund; (viii) supervising
compliance by the Fund with recordkeeping requirements under the 1940 Act and
regulations thereunder, maintaining books and records for the Fund (other than
those maintained by the custodian and transfer agent) and preparing and filing
of tax reports other than the Fund's income tax returns; and (ix) providing
executive, clerical and secretarial help needed to carry out these
responsibilities. The Investment Manager provides these services for no
additional fee to the Fund except for the fee under the Management Agreement.

[In accordance with the terms of the Management Agreement and with the approval
of the Fund's Board of Directors, the Investment Manager has caused the Fund to
retain Chase Manhattan Bank ('Chase') as sub-administrator under a fund
accounting and administration agreement (the 'Sub-Administration Agreement').
Under the Sub-Administration Agreement, Chase has assumed responsibility for
performing certain of the foregoing administrative functions, including
(i) determining the Fund's net asset value and preparing these figures for
publication; (ii) maintaining certain of the Fund's books and records that are
not maintained by the Investment Manager, custodian or transfer agent;
(iii) preparing financial information for the Fund's income tax returns, proxy
statements, shareholders reports, and SEC filings; and (iv) responding to
shareholder inquiries. The Investment Manager remains responsible for monitoring
and overseeing the performance by Chase and Chase Global Funds Services Company
of their obligations to the Fund under their respective agreements with the
Fund, subject to the overall authority of the Fund's Board of
Directors.][APPLICABLE?]

[The Investment Manager pays for the cost of Chase's services without any
additional charge to the Fund. Chase Global Funds Services Company, P.O. Box
2798, Boston, Massachusetts 02208, a wholly-owned subsidiary of Chase, has been
retained by Chase to provide to the Fund the administrative services described
above. Chase also serves as the Fund's custodian and transfer agent. See
'Custodian and Transfer and Dividend Disbursing Agent,' below. Chase Global
Funds Services Company has been similarly retained by Chase to provide transfer
agency services to the Fund and is hereafter sometimes referred to as the
'Transfer Agent.']

--------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

Chase, which has its principal business office at One Chase Manhattan Plaza, New
York, New York 10081-1000, has been retained to act as custodian of the Fund's
investments and as the Fund's transfer and dividend disbursing agent. Chase has
retained its wholly-owned subsidiary, Chase Global Funds Services Company, to
provide transfer and dividend disbursing agency services to the Fund. Neither
Chase nor Chase Global Funds Services Company has any part in deciding the
Fund's investment policies or which securities are to be purchased or sold for
the Fund's portfolio. The Investment Manager pays for the cost of these services
without any additional charge to the Fund.

--------------------------------------------------------------------------------
CODE OF ETHICS

The Fund and Investment Manager have adopted codes of ethics that are designed
to ensure that the interests of Fund shareholders come before the interests of
those involved in managing the Fund. The codes of ethics, among other things,
prohibit management personnel from investing in REITs and real estate
securities, prohibit purchases in an initial public offering and require
pre-approval for investments in private placements. The Fund's Independent
Directors are prohibited from purchasing or selling any security if they knew

<PAGE>

or reasonably should have known at the time of the transaction that, within the
most recent 15 days, the security is being or has been considered for purchase
or sale by the Fund, or is being purchased or sold by the Fund.

================================================================================
PORTFOLIO TRANSACTIONS AND BROKERAGE
--------------------------------------------------------------------------------

Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund and negotiation of its brokerage commission rates are
made by the Investment Manager. Transactions on U.S. stock exchanges involve the
payment by the Fund of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In certain instances, the Fund may make purchases of
underwritten issues at prices which include underwriting fees.

In selecting a broker to execute each particular transaction, the Investment
Manager will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Fund on a
continuing basis. Accordingly, the cost of the brokerage commissions to the Fund
in any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, the Investment Manager shall not be deemed to have acted unlawfully
or to have breached any duty solely by reason of its having caused the Fund to
pay a broker that provides research services to the Investment Manager an amount
of commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker would have charged for effecting that
transaction, if the Investment Manager determines in good faith that such amount
of commission was reasonable in relation to the value of the research service
provided by such broker viewed in terms of either that particular transaction or
the Investment Manager's ongoing responsibilities with respect to the Fund.
Research and investment information is provided by these and other brokers at no
cost to the Investment Manager and is available for the benefit of other
accounts advised by the Investment Manager and its affiliates, and not all of
the information will be used in connection with the Fund. While this information
may be useful in varying degrees and may tend to reduce the Investment Manager's
expenses, it is not possible to estimate its value and in the opinion of the
Investment Manager it does not reduce the Investment Manager's expenses in a
determinable amount. The extent to which the Investment Manager makes use of
statistical, research and other services furnished by brokers is considered by
the Investment Manager in the allocation of brokerage business but there is no
formula by which such business is allocated. The Investment Manager does so in
accordance with its judgment of the best interests of the Fund and its
shareholders. The Investment Manager may also take into account payments made by
brokers effecting transactions for the Fund to other persons on behalf of the
Fund for services provided to it for which it would be obligated to pay (such as
custodial and professional fees). In addition, consistent with the Conduct Rules
of the National Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Investment Manager may consider sales of shares of
the Fund as a factor in the selection of brokers and dealers to enter into
portfolio transactions with the Fund.

<PAGE>

================================================================================
DETERMINATION OF NET ASSET VALUE
--------------------------------------------------------------------------------

The Fund will determine the net asset value of its shares at least once each
week, generally on Friday, as of the close of trading on the New York Stock
Exchange (currently 4:00 p.m. New York time). Net asset value is computed by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses and dividends
declared but unpaid), by the total number of shares outstanding.

For purposes of determining the net asset value of the Fund, readily marketable
portfolio securities listed on the New York Stock Exchange are valued, except as
indicated below, at the last sale price reflected on the consolidated tape 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 on such day. If no
bid or asked prices are quoted on such day, then the security is valued by such
method as the Board of Directors shall determine in good faith to reflect its
fair market value. Readily marketable 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 List are valued in a like manner. Portfolio
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 Investment Manager 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 or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable source as the Directors deem
appropriate to reflect their fair market value. However, certain fixed-income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed by the Board of Directors to reflect the fair
market value of such securities. The prices provided by a pricing service take
into account institutional size trading in similar groups of securities and any
developments related to specific 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.

For purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean of the bid and asked prices of such currencies against
the U.S. dollar last quoted by a major bank which is a regular participant in
the institutional foreign exchange markets or on the basis of a pricing service
which takes into account the quotes provided by a number of such major banks.

================================================================================
REPURCHASE OF SHARES
--------------------------------------------------------------------------------

The Fund is a closed-end investment company and as such its shareholders will
not have the right to cause the Fund to redeem their shares. Instead the Fund's
shares will trade in the open market at a price that will be a function of
several factors, including dividend levels (which are in

<PAGE>

turn affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, market
and economic conditions and other factors. Because shares of a closed-end
investment company may frequently trade at prices lower than net asset value,
the Fund's Board of Directors may consider action that might be taken to reduce
or eliminate any material discount from net asset value in respect of shares,
which may include the repurchase of such shares in the open market, private
transactions, the making of a tender offer for such shares at net asset value,
or the conversion of the Fund to an open-end investment company. The Board of
Directors may not decide to take any of these actions. In addition, there can be
no assurance that share repurchases or tender offers, if undertaken, will reduce
market discount.

Subject to its investment limitations, the Fund may borrow to finance repurchase
of shares or to make a tender offer. Interest on any borrowings to finance share
repurchase transactions or the accumulation of cash by the Fund in anticipation
of share repurchases or tenders will reduce the Fund's income. Any share
repurchase, tender offer or borrowing that might be approved by the Board of
Directors would have to comply with the Securities Exchange Act of 1934 and the
1940 Act and the rules and regulations under each of those Acts.

Although the decision to take action in response to a discount from net asset
value will be made by the Board of Directors at the time it considers the issue,
it is the Board's present policy, which may be changed by the Board, not to
authorize repurchases of common shares or a tender offer for such shares if
(1) such transactions, if consummated, would (a) result in delisting of the
common shares from the New York Stock Exchange, or (b) impair the Fund's status
as a regulated investment company under the Code (which would make the Fund a
taxable entity, causing its income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from the Fund) or
as a registered closed-end investment company under the 1940 Act; (2) the Fund
would not be able to liquidate portfolio securities in an orderly manner and
consistent with the Fund's investment objective and policies in order to
repurchase shares; or (3) there is, in the Board's judgment, any (a) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b) general
suspension of or limitation on prices for trading securities on the New York
Stock Exchange, (c) declaration of a banking moratorium by Federal or state
authorities or a suspension of payment by United States banks in which the Fund
invests, (d) material limitation affecting the Fund or the issuers of its
portfolio securities by Federal or state authorities on the extension of credit
by institutions or on the exchange of foreign currency, (e) commencement of
armed hostilities or other international or national calamity directly or
indirectly involving the United States, or (f) other event or condition which
would have a material adverse effect (including any adverse tax effect) on the
Fund or its shareholders if shares were repurchased. The Board may in the future
modify these conditions in light of experience.

The repurchase by the Fund of its shares at prices below net asset value will
result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the shares
may be the subject of repurchase or tender offers at net asset value from time
to time, or that the Fund may be converted to an open-end investment company,
may reduce any spread between market price and net asset value that might
otherwise exist.

In addition, a purchase by the Fund of its common shares will decrease the
Fund's total assets which would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its common shares at a time when

<PAGE>

preferred shares are outstanding will increase the leverage applicable to the
outstanding common shares then remaining.

Before deciding whether to take any action, the Fund's Board of Directors would
likely consider all relevant factors, including the extent and duration of the
discount, the liquidity of the Fund's portfolio, the impact of any action on the
Fund or its shareholders and market considerations. Based on the considerations,
even if the Fund's shares should trade at a discount, the Board may determine
that, in the interest of the Fund and its shareholders, no action should be
taken.

================================================================================
TAXATION [UNDER REVIEW]
--------------------------------------------------------------------------------

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the 'Code'), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.

--------------------------------------------------------------------------------
TAXATION OF THE FUND

The Fund intends to qualify annually and to elect to be treated as a regulated
investment company under the Code.

To qualify as a regulated investment company, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holding so that, at end of each quarter of the
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) each taxable
year.

As a regulated investment company, the Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent

<PAGE>

imposition of the excise tax, the Fund must distribute during each calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for the one-year period ending on October 31 of the
calendar year, and (3) any ordinary income and capital gains for previous years
that was not distributed during those years. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

--------------------------------------------------------------------------------
DISTRIBUTIONS

Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund shares. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the net asset value
of a share of the Fund on the reinvestment date. A distribution of an amount in
excess of the Fund's current and accumulated earnings and profits will be
treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's basis in his or her shares. To the extent that the
amount of any such distribution exceeds the shareholder's basis in his or her
shares, the excess will be treated by the shareholder as gain from a sale or
exchange of the shares.

Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of
additional shares will receive a report as to the net asset value of those
shares.

--------------------------------------------------------------------------------
SALE OR EXCHANGE OF FUND SHARES

Upon the sale or other disposition of shares of the Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, depending
upon the shareholder's holding period for the shares. Generally, a shareholder's
gain or loss will be a long-term gain or loss if the shares have been held for
more than one year.

Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced (including through reinvestment of dividends)
within a period of 61 days beginning 30 days before and ending 30 days after
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on a disposition of Fund shares held by the shareholder for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to such shares.

<PAGE>

--------------------------------------------------------------------------------
ORIGINAL ISSUE DISCOUNT SECURITIES

Investments by the Fund in zero coupon or other discount securities will result
in income to the Fund equal to a portion of the excess of the face value of the
securities over their issue price (the 'original issue discount') each year that
the securities are held, even though the Fund receives no cash interest
payments. This income is included in determining the amount of income which the
Fund must distribute to maintain its status as a regulated investment company
and to avoid the payment of federal income tax and the 4% excise tax. Because
such income may not be matched by a corresponding cash distribution to the Fund,
the Fund may be required to borrow money or dispose of other securities to be
able to make distributions to its shareholders.

--------------------------------------------------------------------------------
MARKET DISCOUNT BONDS

Gain derived by the Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price) held by the Fund will be taxed as ordinary
income to the extent of the accrued market discount of the bonds, unless the
Fund elects to include the market discount in income as it accrues. If such an
election is not made, all or a portion of any deduction for any interest expense
incurred to purchase or hold any such bond may be deferred until such bond is
sold or otherwise disposed.

--------------------------------------------------------------------------------
OPTIONS AND HEDGING TRANSACTIONS

The taxation of equity options and over-the-counter options on debt securities
is governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium is received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss. Certain options, futures
contracts and forward contracts in which the Fund may invest are 'section 1256
contracts.' Gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses; however, foreign
currency gains or losses (as discussed below) arising from certain section 1256
contracts may be treated as ordinary income or loss. Also, section 1256
contracts held by the Fund at the end of each taxable year (and, generally, for
purposes of the 4% excise tax, on October 31 of each year) are
'marked-to-market' (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.

Generally, the hedging transactions undertaken by the Fund may result in
'straddles' for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle

<PAGE>

rules, rather than being taken into account in calculating the taxable income
for the taxable year in which the losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences to the Fund of engaging in hedging transactions are not entirely
clear. Hedging transactions may increase the amount of short-term capital gain
realized by the Fund which is taxed as ordinary income when distributed to
shareholders.

The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to shareholders, and
which will be taxed to them as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such hedging
transactions.

Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain 'appreciated financial positions' if the
Fund enters into a short sale, offsetting notional principal contract, futures
or forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment does not apply to certain transactions closed prior to the end of
the 30th day after the close of the taxable year, if certain conditions are met.

--------------------------------------------------------------------------------
CURRENCY FLUCTUATIONS 'SECTION 988' GAINS OR LOSSES

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain options, futures and foreign
currency contracts, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as 'Section 988' gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

--------------------------------------------------------------------------------
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS

The Fund may invest in real estate investment trusts ('REITs') that hold
residual interests in real estate mortgage investment conduits ('REMICs'). Under
existing Treasury regulations that have not yet been issued, but may apply
retroactively, a portion of the Fund's income from a REIT that is attributable
to the REIT's residual interest in a REMIC (referred to in the Code as an
'excess inclusion') will be subject to federal income tax in all events. These
regulations are also expected to provide that excess inclusion income of a
regulated investment company, such as the Fund, will be allocated to
shareholders of the regulated investment company in proportion to the dividends
received by such shareholders, with the same consequences as if the shareholders
held the related REMIC residual interest directly. In general, excess inclusion
income allocated to shareholders (i) cannot be offset by

<PAGE>

net operating losses (subject to a limited exception for certain thrift
institutions), (ii) will constitute unrelated business taxable income to
entities (including a qualified pension plan, an individual retirement account,
a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on
unrelated business income, thereby potentially requiring such an entity that is
allocated excess inclusion income, and otherwise might not be required to file a
tax return, to file a tax return and pay tax on such income, and (iii) in the
case of a foreign shareholder, will not qualify for any reduction in U.S.
federal withholding tax. In addition, if at any time during any taxable year a
'disqualified organization' (as defined in the Code) is a record holder of a
share in a regulated investment company, then the regulated investment company
will be subject to a tax equal to that portion of its excess inclusion income
for the taxable year that is allocable to the disqualified organization,
multiplied by the highest federal income tax rate imposed on corporations. The
Investment Manager does not intend on behalf of the Fund to invest in REITs, a
substantial portion of the assets of which consists of residual interests in
REMICs.

--------------------------------------------------------------------------------
PASSIVE FOREIGN INVESTMENT COMPANIES

If the Fund invests in stock of a 'passive foreign investment company' (a
'PFIC'), the Fund may be subject to U.S. federal income taxation on a portion of
any 'excess distribution' with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income tax rate in effect for such year, and the tax would
be further increased by an interest charge to reflect the value of the tax
deferral deemed to have resulted from the ownership of the PFIC stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

The Fund may be able to make an election to treat the PFIC as a 'qualified
electing fund' under the Code (a 'QEF'). If this QEF election is made, in lieu
of being taxable in the manner described above, the Fund would include annually
in income its pro rata share of the ordinary earnings and net capital gain of
the PFIC, regardless of whether it actually received any distributions from the
PFIC. These amounts would be included in the Fund's investment company taxable
income and net capital gain which, to the extent distributed by the Fund as
ordinary or capital gain dividends, as the case may be, would not be taxable to
the Fund. In order to make this QEF election, the Fund would be required to
obtain certain annual information from the PFICs in which it invests, which in
many cases may be difficult to obtain. Alternatively, the Fund may elect to mark
to market its foreign investment company stock, resulting in the stock being
treated as sold at fair market value on the last business day of each taxable
year. Any resulting gain would be reported as ordinary income; any resulting
loss and any loss from an actual disposition of the stock would be reported as
ordinary loss to the extent of any net marked-to-market gains reported in prior
years. Under either election, the Fund might be required to recognize in a year,
income in excess of its distributions from PFICs, and its proceeds from
dispositions of PFIC stock during that year, and such income would nevertheless
be subject to the 90% and excise tax distribution requirements.

--------------------------------------------------------------------------------
FOREIGN WITHHOLDING TAXES

Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.

<PAGE>

--------------------------------------------------------------------------------
[OFFERS TO PURCHASE SHARES

A shareholder who, pursuant to a tender offer, tenders all shares owned or
considered owned by him or her will realize a taxable gain or loss depending
upon his or her basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's hands
and will be long-term or short-term depending upon the shareholder's holding
period for the shares. If a tendering shareholder tenders less than all shares
owned by and attributed to such shareholder, and if the distribution to such
shareholder does not otherwise qualify as an exchange, the proceeds received
will be treated as a dividend, return of capital or capital gain depending on
the Fund's earnings and profits and the shareholder's basis in the tendered
shares. There is a risk that shareholders may be considered to have received a
deemed distribution as a result of the purchase by the Fund of tendered shares
and that such distribution may be taxable as a dividend in whole or in part. See
'Repurchase of Shares'. A shareholder wishing to tender shares pursuant to a
tender offer will be required to tender all (but not less than all) of the
shares owned by and attributed to such shareholder unless the Fund has received
a ruling from the Internal Revenue Service (or, at the Fund's option, an opinion
of counsel) that a tender of less than all of a shareholder's shares will not
cause adverse tax consequences with respect to shares not tendered.]

--------------------------------------------------------------------------------
BACKUP WITHHOLDING

The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.

--------------------------------------------------------------------------------
FOREIGN SHAREHOLDERS

U.S. taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ('foreign shareholder') depends on whether the income of the Fund is
'effectively connected' with a U.S. trade or business carried on by the
shareholder.

Income Not Effectively Connected. If the income from the Fund is not
'effectively connected' with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. tax of 30% (or lower treaty rate, except in the case of any excess
inclusion income allocated to the shareholder (see 'Taxation -- Investments in
Real Estate Investment Trusts' above)), which tax is generally withheld from
such distributions.

Distributions of capital gain dividends and any amounts retained by the Fund
which are designated as undistributed capital gains will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a nonresident alien individual and is physically present in the United States
for more than 182 days during the taxable year and meets certain other
requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her

<PAGE>

worldwide income at the graduated rates applicable to U.S. citizens, rather than
the 30% U.S. tax. In the case of a foreign shareholder who is a nonresident
alien individual, the Fund may be required to withhold U.S. income tax at a rate
of 31% of distributions of net capital gains unless the foreign shareholder
certifies his or her non-U.S. status under penalties of perjury or otherwise
establishes an exemption. See 'Taxation Backup Withholding,' above. If a foreign
shareholder is a nonresident alien individual, any gain such shareholder
realizes upon the sale or exchange of such shareholder's shares of the Fund in
the United States will ordinarily be exempt from U.S. tax unless (i) the gain is
U.S. source income and such shareholder is physically present in the United
States for more than 182 days during the taxable year and meets certain other
requirements, or is otherwise considered to be a resident alien of the United
States, or (ii) at any time during the shorter of the period during which the
foreign shareholder held shares of the Fund and the five year period ending on
the date of the disposition of those shares, the Fund was a 'U.S. real property
holding corporation' and the foreign shareholder held more than 5% of the shares
of the Fund, in which event the gain would be taxed in the same manner as for a
U.S. shareholder as discussed above and a 10% U.S. withholding tax would be
imposed on the amount realized on the disposition of such shares to be credited
against the foreign shareholder's U.S. income tax liability on such disposition.
A corporation is a 'U.S. real property holding corporation' if the fair market
value of its U.S. real property interests equals or exceeds 50% of the fair
market value of such interests plus its interests in real property located
outside the United States plus any other assets used or held for use in a
business. In the case of the Fund, U.S. real property interests include
interests in stock in U.S. real property holding corporations (other than stock
of a REIT controlled by U.S. persons and holdings of 5% or less in the stock of
publicly traded U.S. real property holding corporations) and certain
participating debt securities.

Income Effectively Connected. If the income from the Fund is 'effectively
connected' with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Fund which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Fund will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Foreign
corporate shareholders may also be subject to the branch profits tax imposed by
the Code.

The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.

--------------------------------------------------------------------------------
OTHER TAXATION

Fund shareholders may be subject to state, local and foreign taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.

================================================================================
COUNSEL AND INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------

Simpson Thacher & Bartlett serves as counsel to the Fund, and is located at 425
Lexington Avenue, New York, New York 10017-3909. , have been
appointed as independent accountants for the Fund. The statement of assets and
liabilities of the Fund as of , 2000

<PAGE>

included in this statement of additional information has been so included in
reliance on the report of , New York, New York, independent accountants,
given on the authority of the firm as experts in auditing and accounting.

================================================================================
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------

A Registration Statement on Form N-2, including amendments thereto, relating to
the shares offered hereby has been filed by the Fund with the Securities and
Exchange Commission, Washington, D.C. The prospectus and this statement of
additional information do not contain all the information set forth in the
Registration Statement, including any exhibits and schedules thereto. For
further information with respect to the Fund and the shares offered hereby,
reference is made to the Registration Statement. Statements contained in the
prospectus and this statement of additional information as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of any part thereof may be obtained from the
Commission upon the payment of fees prescribed by the Commission.

<PAGE>

================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS [TO COME]
--------------------------------------------------------------------------------

<PAGE>

================================================================================
STATEMENT OF ASSETS AND LIABILITIES AS OF , 2000 [TO COME]
--------------------------------------------------------------------------------

<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt:

'AAA' -- This designation represents the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.

'AA' -- Debt is considered to have a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.

'A' -- Debt is considered to have a strong capacity to pay interest and repay
principal although such issues are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

'BBB' -- Debt is regarded as having an adequate capacity to pay interest and
repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

'BB,' 'B,' 'CCC,' 'CC' and 'C' -- Debt is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. 'BB' indicates the lowest degree of
speculation and 'C' the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

'BB' -- Debt has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The 'BB' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'BBB-' rating.

'B' -- Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.

'CCC' -- Debt has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.

'CC' -- This rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.

'C' -- This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

A-1

<PAGE>

'CI' -- This rating is reserved for income bonds on which no interest is being
paid.

'D' -- Debt is in payment default. This rating is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S & P believes that such payments will be made
during such grace period. 'D' rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-) -- The ratings from 'AA' through 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

'r' -- This rating is attached to highlight derivative, hybrid, and certain
other obligations that S & P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an 'r' symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.

The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt:

'Aaa' -- Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as 'gilt edged.'
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

'Aa' -- Bonds are judged to be of high quality by all standards. Together with
the 'Aaa' group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in 'Aaa' securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in 'Aaa' securities.

'A' -- Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

'Baa' -- Bonds considered medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

'Ba,' 'B,' 'Caa,' 'Ca,' and 'C' -- Bonds that possess one of these ratings
provide questionable protection of interest and principal ('Ba' indicates some
speculative elements; 'B' indicates a general lack of characteristics of
desirable investment; 'Caa' represents a poor standing; 'Ca' represents
obligations which are speculative in a high degree; and 'C' represents the
lowest rated class of bonds). 'Caa,' 'Ca' and 'C' bonds may be in default.

Con. ( -- ) -- Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches.

A-2

<PAGE>

Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.

(P) -- When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds. The rating may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols, Aa1,
A1, Ba1 and B1.

A-3

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

1) Financial Statements

Part A -- None

Part B -- Report of Independent Accountants*

Statement of Assets and Liabilities*

2) Exhibits

(a) Articles of Incorporation

(b) By-Laws

(d) (i) Form of specimen share certificate*
(ii) The rights of security holders are defined in the Registrant's
Articles of Incorporation (Article FIFTH and Article EIGHTH)
and the Registrant's By-Laws (Article II and Article VI).

(e) Form of Dividend Reinvestment Plan*

(f) Not Applicable

(g) Form of Management Agreement*

(h) (i) Form of Underwriting Agreement*
(ii) Form of Master Agreement Among Underwriters*

(i) Not Applicable

(j) Form of Custodian Agreement*

(k) (i) Form of Transfer Agency, Registrar and Dividend Disbursing
Agency Agreement*
(ii) Form of Administration Agreement*

(l) (i) Opinion and Consent of Simpson Thacher & Bartlett*
(ii) Opinion and Consent of Venable, Baetjer and Howard*

(m) Not Applicable

(n) Consent of Independent Accountants*

(o) Not Applicable

(p) Investment Representation Letter*

(q) Not Applicable

(r) Financial Data Schedule*

(s) Power of Attorney*
---------
* To be filed by Amendment.

ITEM 25. MARKETING ARRANGEMENTS

See Exhibit 2(h).

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

<TABLE>
<S> <C>
SEC Registration fees....................................... $264
New York Stock Exchange listing fee*........................
Printing and engraving expenses*............................
Auditing fees and expenses*.................................
Legal fees and expenses*....................................
NASD Fees*..................................................
Miscellaneous*..............................................
----
Total*...................................................... $
----
----
</TABLE>

C-1

<PAGE>

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Common Stock, par value $.001 per share..................... None
</TABLE>

ITEM 29. INDEMNIFICATION

It is the Registrant's policy to indemnify its directors, officers,
employees and other agents to the maximum extent permitted by Section 2-418 of
the General Corporation Law of the State of Maryland as set forth in Article
NINTH of Registrant's Articles of Incorporation, and Article VIII, Section 1, of
the Registrant's By-Laws. The Liability of the Registrant's directors and
officers is dealt with in Article NINTH of Registrant's Articles of
Incorporation and Article VIII, Section 1 through Section 6, of the Registrant's
By-Laws. The liability of Cohen & Steers Capital Management, Inc., the
Registrant's Manager (the 'Manager'), for any loss suffered by the Registrant or
its shareholders is set forth in Section 5 of the Management Agreement.

The Registrant has agreed to indemnify the Underwriters of the Registrant's
common stock to the extent set forth in Exhibit 2(h)(i).

Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to the directors and officers, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such liabilities
under the Securities Act of 1933 (other than for expenses incurred in a
successful defense) is asserted against the Company by the directors or officers
in connection with the shares, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER

The descriptions of the Investment Manager under the captions 'Investment
Manager' and 'Investment Advisory and Other Services' in the Prospectus and in
the Statement of Additional Information, respectively, constituting Parts A and
B, respectively, of this Registration Statement are incorporated by reference
herein.

The following is a list of the Directors and Officers of the Investment
Manager. None of the persons listed below has had other business connections of
a substantial nature during the past two fiscal years.

<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Robert H. Steers............................. Chairman, Director
Martin Cohen................................. President, Director
Joseph M. Harvey............................. Senior Vice President & Director of
Research
Steven R. Brown.............................. Senior Vice President
John J. McCombe.............................. Senior Vice President
Adam M. Derechin............................. Senior Vice President
Lawrence B. Stoller.......................... Senior Vice President and General
Counsel
James S. Corl................................ Senior Vice President
Sheila J. Stoltz............................. Vice President
Michael J. Kozoriz........................... Vice President
Greg E. Brooks............................... Vice President
Jay J. Chen.................................. Vice President
Terrance R. Ober............................. Vice President
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<PAGE>

Cohen & Steers Capital Management, Inc. acts as investment adviser/manager
of, in addition to the Registrant, the following investment companies:

Cohen & Steers Institutional Realty Shares, Inc.

Cohen & Steers Advantage Income Fund, Inc.

Cohen & Steers Realty Income Fund, Inc.

Cohen & Steers Realty Shares, Inc.

Cohen & Steers Total Return Realty Fund, Inc.

Cohen & Steers Special Equity Fund, Inc.

Frank Russell Investment Management Company Real Estate Securities Fund

Russell Insurance Funds -- Real Estate Securities Fund

American Skandia Trust -- AST Cohen & Steers Realty Portfolio

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940, as amended
and the Rules thereunder will be maintained as follows: journals, ledgers,
securities records and other original records will be maintained principally at
the offices of the Registrant's Administrator and Custodian,
. All other records so required to be maintained will be maintained at
the offices of Cohen & Steers Capital Management, Inc. 757 Third Avenue, New
York, New York 10017.

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

(1) Registrant undertakes to suspend the offering of shares until the
prospectus is amended, if subsequent to the effective date of this registration
statement, its net asset value declines more than ten percent from its net asset
value as of the effective date of the registration statement or its net asset
value increases to an amount greater than its net proceeds as stated in the
prospectus.

(2) Not applicable.

(3) Not applicable.

(4) Not applicable.

(5) Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of prospectus
filed as part of the Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
497(h) will be deemed to be a part of the Registration Statement as of the time
it was declared effective.

Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus will be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.

(6) Registrant undertakes to send by first-class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any statement of additional information.

C-3

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York, on
the 22nd day of June, 2000.

COHEN & STEERS ADVANTAGE INCOME FUND, INC.

By: /s/ MARTIN COHEN
.......................................
MARTIN COHEN
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: /s/ MARTIN COHEN President, Treasurer and Director June 22, 2000
.........................................
(MARTIN COHEN)

By: /s/ ROBERT H. STEERS Director, Chairman and Secretary June 22, 2000
.........................................
(ROBERT H. STEERS)
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<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2(a) Articles of Incorporation

2(b) By-Laws
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