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<SEC-DOCUMENT>0000950117-03-002675.txt : 20030620
<SEC-HEADER>0000950117-03-002675.hdr.sgml : 20030620
<ACCEPTANCE-DATETIME>20030620172643
ACCESSION NUMBER:		0000950117-03-002675
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		9
FILED AS OF DATE:		20030620

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			COHEN & STEERS REIT & PREFERRED INCOME FUND INC
		CENTRAL INDEX KEY:			0001224450
		STATE OF INCORPORATION:			MD

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-104047
		FILM NUMBER:		03752359

	BUSINESS ADDRESS:	
		STREET 1:		757 THIRD AVE.
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10017

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	COHEN & STEERS REIT & PREFERRED BALANCED INCOME FUND INC
		DATE OF NAME CHANGE:	20030325

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			COHEN & STEERS REIT & PREFERRED INCOME FUND INC
		CENTRAL INDEX KEY:			0001224450
		STATE OF INCORPORATION:			MD

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-21326
		FILM NUMBER:		03752360

	BUSINESS ADDRESS:	
		STREET 1:		757 THIRD AVE.
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10017

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	COHEN & STEERS REIT & PREFERRED BALANCED INCOME FUND INC
		DATE OF NAME CHANGE:	20030325
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>a34780.txt
<DESCRIPTION>COHEN & STEERS REIT AND PREFERRED INCOME FUND
<TEXT>
<PAGE>


     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 2003


                                             SECURITIES ACT FILE NO. 333-104047
                                      INVESTMENT COMPANY ACT FILE NO. 811-21326
________________________________________________________________________________

                       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

[x] PRE-EFFECTIVE AMENDMENT NO. 3

[ ] POST-EFFECTIVE AMENDMENT NO.

                                     AND/OR

[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[x] AMENDMENT NO. 4

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

                                 COHEN & STEERS
                      REIT AND PREFERRED INCOME FUND, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
    (FORMERLY COHEN & STEERS REIT AND PREFERRED BALANCED INCOME FUND, INC.)

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

                                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.                         LEONARD B. MACKEY, JR., ESQ.
         SIMPSON THACHER & BARTLETT LLP                       CLIFFORD CHANCE US LLP
              425 LEXINGTON AVENUE                               200 PARK AVENUE
            NEW YORK, NEW YORK 10017                         NEW YORK, NEW YORK 10166
                 (212) 455-2000                                   (212) 878-8000
</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. [ ]

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

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933


<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
                                                              PROPOSED            PROPOSED
                                                              MAXIMUM             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 Shares, $.001 par value........  70,000,000 Shares      $25.00          $1,750,000,000         $141,575
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</Table>


(1) Estimated solely for the purpose of calculating the registration fee.

(2) Includes the registration fee of $80.90 and $5,501.20 previously paid on
    March 26, 2003 and May 5, 2003, respectively.

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

    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
                      REIT AND PREFERRED 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
                            -----------------------                       ----------------------
<S>          <C>                                                    <C>
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
                                                                      Objectives and Policies
Item 8.      General Description of the Registrant................  Cover Page; Prospectus Summary;
                                                                      The Fund; Investment Objectives
                                                                      and Policies; Use of Leverage;
                                                                      Principal Risks of the Fund;
                                                                      Additional Risk Considerations;
                                                                      Repurchase of Shares
Item 9.      Management...........................................  Prospectus Summary; Management of
                                                                      the Fund
Item 10.     Capital Stock, Long-Term Debt, and Other
               Securities.........................................  Investment Objectives and
                                                                      Policies; Use of Leverage;
                                                                      Dividends and Distributions;
                                                                      Taxation; Description of Shares
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
</Table>

                 PART B -- STATEMENT OF ADDITIONAL INFORMATION

<Table>
<Caption>
                                                                          LOCATION IN STATEMENT
                          ITEMS IN PART B OF FORM N-2                   OF 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 Objectives and Policies...................  Investment Objectives and
                                                                      Policies; Investment Restrictions
Item 18.     Management...........................................  Management of the Fund;
                                                                      Compensation of Directors and
                                                                      Certain Officers; Investment
                                                                      Advisory and Other Services
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

                                     PART C -- OTHER INFORMATION
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
                   PRELIMINARY PROSPECTUS DATED JUNE 20, 2003


PROSPECTUS

                                                   [COHEN & STEERS LOGO]

                                             SHARES
                                 COHEN & STEERS
                      REIT AND PREFERRED INCOME FUND, INC.
                                 COMMON SHARES
                                $25.00 PER SHARE

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

   Investment Objectives. Cohen & Steers REIT and Preferred Income Fund, Inc.
(the 'Fund') is a recently organized, non-diversified, closed-end management
investment company.

    Our primary investment objective is high current income; and

    Our secondary objective is capital appreciation.

                                                   (continued on following page)


   INVESTING IN THE COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN THE
'PRINCIPAL RISKS OF THE FUND' SECTION BEGINNING ON PAGE 42 OF THIS PROSPECTUS.


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

<Table>
<Caption>
                                                              PER SHARE   TOTAL(1)
                                                              ---------   --------
<S>                                                           <C>         <C>
Public offering price.......................................    $25.00       $
Sales load(2)...............................................    $1.125       $
Estimated offering expenses(3)..............................      $.05       $
Proceeds, before expenses, to the Fund......................   $23.875       $
</Table>

   (1) The Fund has granted the underwriters an option to purchase up to
       additional Common Shares at the public offering price less the sales
       load within 45 days of the date of this prospectus, solely to cover
       overallotments, if any. If such option is exercised in full, the total
       public offering price, sales load, estimated offering expenses and
       proceeds to the Fund will be $   , $   , $   and $   , respectively. See
       'Underwriting.'

   (2) The Fund has agreed to pay the underwriters $.0083 per Common Share as a
       partial reimbursement of expenses incurred in connection with the
       offering. See 'Underwriting.'

   (3) The Investment Manager has agreed to pay all organizational expenses and
       offering costs of the Fund (other than the sales load, but including the
       $.0083 reimbursement of expenses to the underwriters) that exceed $.05
       per share of the Fund's Common Shares. The estimated offering expenses to
       be incurred by the Fund are $        .

   Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

   The Common Shares will be ready for delivery on or about         , 2003.

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

<Table>
<S>                                  <C>                                  <C>
                                             MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.                  DEUTSCHE BANK SECURITIES                     LEGG MASON WOOD WALKER
                                                                                             INCORPORATED
RAYMOND JAMES                                RBC CAPITAL MARKETS                    U.S. BANCORP PIPER JAFFRAY
WACHOVIA SECURITIES                      WELLS FARGO SECURITIES, LLC                              ADVEST, INC.
BB&T CAPITAL MARKETS                        ROBERT W. BAIRD & CO.           H&R BLOCK FINANCIAL ADVISORS, INC.
FAHNESTOCK & CO. INC.                 J.J.B. HILLIARD, W.L. LYONS, INC.            JANNEY MONTGOMERY SCOTT LLC
MCDONALD INVESTMENTS INC.                    QUICK & REILLY, INC.                   STIFEL, NICOLAUS & COMPANY
                                                                                           INCORPORATED
                                                TD WATERHOUSE
</Table>

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

                 The date of this prospectus is         , 2003.









<PAGE>


(continued from previous page)

    Portfolio Contents.  Under normal market conditions, the Fund will invest:

      at least 40%, but no more than 60%, of its total assets in common stocks
      issued by real estate companies, such as real estate investment trusts or
      'REITs';

      at least 40%, but no more than 60%, of its total assets in preferred
      securities of which up to 5% may be preferred securities of REITs;

      up to 20% of its total assets in debt securities other than preferred
      securities;

      up to 10% of its total assets in preferred or other debt securities that
      at the time of the investment are rated below investment grade or that are
      unrated but judged to be of comparable quality by the Fund's Investment
      Manager;

      a significant portion, but less than 25%, of its total assets in the
      securities of companies principally engaged in the financial services
      industry; this policy of investing in the financial services industry and
      the Fund's concentration of its investments in the real estate industry
      make the Fund more susceptible to adverse economic or regulatory
      occurrences affecting these sectors; and

      up to 20% of its total assets in U.S. dollar-denominated securities of
      foreign issuers traded or listed on a U.S. securities exchange or in the
      U.S. over-the-counter market.

    With respect to the preferred securities component of the portfolio, the
Fund expects that it will invest primarily in taxable preferred securities.

    Initially, the Fund will allocate approximately 50% of the Fund's total
assets to common stocks issued by REITs, approximately 40% to preferred
securities and approximately 10% to debt securities other than preferred
securities. Thereafter, the portion of the Fund's total assets invested in
common stock issued by real estate companies, including REITs, preferred
securities and other debt securities will vary from time to time, consistent
with the Fund's investment objectives and policies. At any time, under normal
circumstances at least 80% of the Fund's total assets will be invested in common
stocks issued by REITs and preferred securities. There can be no assurance that
the Fund will achieve its investment objectives. See 'Investment Objectives and
Policies' and 'Principal Risks of the Fund.'

    Leverage. The Fund intends to use leverage by issuing shares of preferred
stock representing approximately 35% of the Fund's capital after their issuance
or alternatively through borrowing. Through leveraging, the Fund will seek to
obtain a higher return for holders of Common Shares than if the Fund did not use
leverage. Leverage is a speculative technique and there are special risks and
costs associated with leveraging. There can be no assurance that a leveraging
strategy will be successful during any period in which it is employed. See 'Use
of Leverage -- Leverage Risks.'

    No Prior History.  Because the Fund is recently organized, its common shares
have no history of public trading. The shares of closed-end investment companies
frequently trade at a discount from their net asset value. This risk may be
greater for investors expecting to sell their shares in a relatively short
period after completion of the public offering. The Fund's Common Shares have
been approved for listing on the New York Stock Exchange upon notice of issuance
under the symbol 'RNP.'








<PAGE>



                               TABLE OF CONTENTS


<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Prospectus Summary..........................................    4
Summary of Fund Expenses....................................   26
The Fund....................................................   28
Use of Proceeds.............................................   28
Investment Objectives and Policies..........................   28
Use of Leverage.............................................   38
Interest Rate Transactions..................................   41
Principal Risks of the Fund.................................   42
Additional Risk Considerations..............................   53
How the Fund Manages Risk...................................   54
Management of the Fund......................................   56
Dividends and Distributions.................................   58
Closed-End Structure........................................   61
Possible Conversion to Open-End Status......................   61
Repurchase of Shares........................................   62
Taxation....................................................   62
Description of Shares.......................................   64
Certain Provisions of the Articles of Incorporation and
  By-Laws...................................................   66
Underwriting................................................   69
Custodian, Transfer Agent, Dividend Disbursing Agent and
  Registrar.................................................   71
Reports to Shareholders.....................................   71
Validity of the Shares......................................   72
Table of Contents of the Statement of Additional
  Information...............................................   73
</Table>


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

    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE
DATE OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE.


    This prospectus concisely sets forth information about the Fund you should
know before investing. You should read the prospectus before deciding whether to
invest and retain it for future reference. A Statement of Additional
Information, dated           , 2003 (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 73 of this
prospectus. You may request a free copy of the SAI by calling (800) 437-9912.
You may also obtain the SAI and other information regarding the Fund on the
Securities and Exchange Commission website (http://www.sec.gov).


    Through and including        , 2003 (25 days after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

                                       3











<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 Common Shares. You should
review the more detailed information contained in this prospectus and in the
SAI, especially the information set forth under the heading 'Principal Risks of
the Fund.'

<Table>
<S>                                            <C>
THE FUND.....................................  Cohen & Steers REIT and Preferred 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
                                               ('Common Shares') through a group of underwriters led
                                               by Merrill Lynch, Pierce, Fenner & Smith Incorporated
                                               ('Merrill Lynch'). You must purchase at least 100
                                               Common Shares ($2,500). The underwriters have been
                                               granted an option to purchase up to        additional
                                               Common Shares solely to cover overallotments, if any.
                                               The initial public offering price is $25.00 per
                                               share. See 'Underwriting.' Cohen & Steers Capital
                                               Management, Inc. (the 'Investment Manager') will be
                                               responsible for all organizational expenses and
                                               offering costs (other than the sales load) that, when
                                               aggregated with the Fund's organizational expenses,
                                               exceed $.05 per share of the Fund's Common Shares.

INVESTMENT OBJECTIVES AND POLICIES...........  Our primary investment objective is high current
                                               income. Capital appreciation is our secondary
                                               objective. Our investment objectives and certain
                                               investment policies are considered fundamental and
                                               may not be changed without shareholder approval. See
                                               'Investment Objectives and Policies.'

                                               Under normal market conditions, the Fund seeks to
                                               achieve its objectives through a portfolio of income
                                               producing common stock issued by REITs and preferred
                                               and other debt securities. Initially, the Fund will
                                               allocate approximately 50% of the Fund's total assets
                                               to common stocks issued by REITs, approximately 40%
                                               to preferred securities and approximately 10% to debt
                                               securities other than preferred securities.
                                               Thereafter, the portion of the Fund's total assets
                                               invested in common stock issued by real estate
                                               companies, including REITs, preferred securities and
                                               other debt securities will vary from time to time,
                                               consistent with the Fund's investment objectives,
                                               although the Fund will normally invest at least 40%
                                               of its total assets in common stock issued by real
                                               estate companies, including REITs and at least 40% of
                                               its total
</Table>

                                       4









<PAGE>


<Table>
<S>                                            <C>
                                               assets in preferred securities. At any time, under
                                               normal circumstances at least 80% of the Fund's total
                                               assets will be invested in common stocks issued by
                                               REITs and preferred securities.

                                               Investment Strategies. In making investment decisions
                                               with respect to common stocks and other equity
                                               securities issued by real estate companies, including
                                               REITs, 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 and sector position, and economic and market
                                               conditions. The Investment Manager evaluates a number
                                               of factors, including growth potential, earnings
                                               estimates and the quality of management.

                                               In making investment decisions with respect to
                                               preferred securities and debt securities, the
                                               Investment Manager seeks to select what it believes
                                               are superior securities (i.e., securities the
                                               Investment Manager views as undervalued on the basis
                                               of risk and return profiles). In making these
                                               determinations, the Investment Manager evaluates the
                                               fundamental characteristics of an issuer, including
                                               an issuer's creditworthiness, and also takes into
                                               account prevailing market factors. In analyzing
                                               credit quality, the Investment Manager considers not
                                               only fundamental analysis, but also an issuer's
                                               corporate and capital structure and the placement of
                                               the preferred or debt securities within that
                                               structure. The Investment Manager also takes into
                                               account other factors, such as call and other
                                               structural features, momentum and other exogenous
                                               signals (i.e., the likely directions of ratings) and
                                               relative value versus other income security classes.

                                               Common Stocks Issued by REITs. Under normal market
                                               conditions, at least 40%, but no more than 60%, of
                                               the Fund's total assets will be invested in common
                                               stocks issued by real estate companies, consisting
                                               primarily of REITs. Substantially all of the common
                                               stocks issued by REITs in which the Fund intends to
                                               invest are traded on a national securities exchange
                                               or in the over-the-counter market. A real estate
                                               company 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. REITs are generally
</Table>

                                       5









<PAGE>



<Table>
<S>                                            <C>
                                               not taxed on income distributed to shareholders
                                               provided they distribute to their shareholders
                                               substantially all of their taxable income (other than
                                               net capital gains) and otherwise comply with the
                                               requirements of the Internal Revenue Code of 1986, as
                                               amended (the 'Code'). As a result, REITs generally
                                               pay relatively higher dividends (as compared to other
                                               types of companies) and the Fund intends to use these
                                               REIT dividends in an effort to meet its objective of
                                               high current income. It is the Fund's current
                                               intention to invest approximately 50% of its total
                                               assets in common stocks of real estate companies,
                                               consisting primarily of REITs, although the actual
                                               percentage in its portfolio may change.

                                               Preferred Securities. Under normal market conditions,
                                               at least 40%, but no more than 60%, of the Fund's
                                               total assets will be invested in preferred
                                               securities. Preferred securities pay fixed or
                                               floating dividends to investors and have '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 dividends on its common stock. Preferred
                                               stockholders usually have no right to vote for
                                               corporate directors or on other matters. The Fund
                                               expects that, under current market conditions, it
                                               will invest primarily in taxable preferred
                                               securities.  The taxable preferred securities
                                               in which the Fund intends to invest do not
                                               qualify for the dividends received deduction under
                                               Section 243 of the Code and are not expected to
                                               provide significant benefits under the rules relating
                                               to 'qualified dividend income.' The DRD generally allows
                                               corporations to deduct from their income 70% of
                                               dividends received. Pursuant to recently enacted
                                               legislation, individuals will generally be taxed at
                                               long-term capital gain rates on qualified dividend
                                               income. Accordingly, any corporate shareholder who
                                               otherwise would qualify for the DRD, and any
                                               individual shareholder who otherwise would qualify to
                                               be taxed at long-term capital gain rates on qualified
                                               dividend income, should assume that none of the
                                               distributions the shareholder receives from the Fund
                                               will qualify for the DRD or provide significant
                                               benefits under the rules relating to qualified
                                               dividend income. The Fund may also invest up to 5% of
                                               its total assets in preferred securities issued by
                                               REITs. Under current market conditions, the Fund's
                                               investments in preferred securities are expected to
</Table>


                                       6







<PAGE>



<Table>
<S>                                            <C>
                                               consist primarily of fixed rate preferred securities.
                                               When used in this prospectus, taxable preferred
                                               securities refer generally to hybrid-preferred
                                               securities as well as certain types of traditional
                                               preferred securities that are not eligible for the
                                               DRD (and are not expected to provide significant
                                               benefits under the rules relating to qualified
                                               dividend income), such as REIT preferred securities.
                                               The Fund also may invest up to 10% of its total
                                               assets in preferred or other debt securities that at
                                               the time of investment are rated below investment
                                               grade (Ba/BB or B) by Moody's Investors Service, Inc.
                                               ('Moody's'), Standard & Poor's Ratings Group, a
                                               division of The McGraw-Hill Companies, Inc. ('S&P')
                                               or Fitch Ratings ('Fitch') or that are unrated but
                                               judged to be of comparable quality by the Fund's
                                               Investment Manager. A security will not be considered
                                               to be below investment grade quality if it is rated
                                               within the four highest grades (Baa or BBB or better)
                                               by Moody's, S&P or Fitch, or is unrated but judged to
                                               be of comparable quality by the Fund's Investment
                                               Manager. These below investment grade quality
                                               securities are commonly referred to as 'junk bonds'
                                               and are regarded as having predominantly speculative
                                               characteristics with respect to the payment of
                                               interest and repayment of principal.

                                               While the Fund does not currently intend to invest in
                                               illiquid securities (i.e., securities that are not
                                               readily marketable), it may invest up to 10% of its
                                               total assets in illiquid securities.

                                               The Fund may invest up to 20% of its total assets in
                                               debt securities, including convertible debt
                                               securities and convertible preferred securities.
                                               Common stock acquired pursuant to a conversion
                                               feature will be subject to this 20% limitation.

                                               The Fund will invest a significant portion, but less
                                               than 25%, of its total assets in the securities of
                                               companies principally engaged in the financial
                                               services industry (which are prominent issuers of
                                               preferred securities). In addition, under normal
                                               market conditions the Fund will invest at least 40%
                                               of its total assets in common stock issued by real
                                               estate companies, consisting primarily of REITs. This
                                               policy of investing in the financial services
                                               industry and the Fund's concentration of its
                                               investments in the real estate industry make the Fund
                                               more
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                                               susceptible to adverse economic or regulatory
                                               occurrences affecting these sectors.

                                               The Fund also may invest up to 20% of its total
                                               assets in U.S. dollar-denominated securities of
                                               foreign issuers traded or listed on a U.S. securities
                                               exchange or the U.S. over-the-counter market.

                                               The Fund will generally not invest more than 10% of
                                               its total assets in the securities of one issuer. The
                                               Fund may engage in portfolio trading when considered
                                               appropriate, but short-term trading will not be used
                                               as the primary means of achieving the Fund's
                                               investment objectives.

                                               There are no limits on 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 portfolio turnover rate results in
                                               correspondingly greater brokerage commissions and
                                               other transactional expenses that 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.

                                               Although not intended to be a significant element in
                                               the Fund's investment strategy, from time to time the
                                               Fund may use various other investment management
                                               techniques that also involve certain risks and
                                               special considerations including: engaging in
                                               interest rate and credit derivatives transactions and
                                               using options and financial futures.

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

USE OF LEVERAGE..............................  Subject to market conditions and the Fund's receipt
                                               of a AAA/Aaa credit rating on the Fund's preferred
                                               stock, approximately one to three months after
                                               completion of this offering, the Fund intends to
                                               offer shares of preferred stock ('Fund Preferred
                                               Shares') representing approximately 35% of the Fund's
                                               capital after their issuance. The issuance of Fund
                                               Preferred Shares will leverage your investment in
                                               Common Shares. As an alternative to the issuance of
                                               Fund Preferred Shares, the Fund may leverage through
                                               borrowing. The Fund Preferred Shares and any
                                               borrowings will have seniority over the Common
                                               Shares.
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                                               The use of leverage creates an opportunity for
                                               increased Common Share net income, but also creates
                                               special risks for holders of Common Shares ('Common
                                               Shareholders'). The Fund Preferred Shares will pay
                                               dividends based on short-term rates, which will be
                                               reset frequently. Alternatively, borrowings may be at
                                               a fixed or floating rate. The Fund may seek to
                                               protect itself from the risk of increasing dividends
                                               or interest expenses resulting from an increase in
                                               short-term interest rates by entering into a swap or
                                               cap transaction as to all or a portion of the Fund
                                               Preferred Shares or any borrowings. See 'Interest
                                               Rate Transactions.' As long as the rate of return,
                                               net of applicable Fund expenses, on the Fund's
                                               portfolio investments exceeds Fund Preferred Share
                                               dividend rates, as reset periodically, interest on
                                               any borrowings (as modified by any cap or the payment
                                               rate set by any interest rate swap), the investment
                                               of the proceeds of the Fund Preferred Shares or any
                                               borrowings will generate more income than will be
                                               needed to pay such dividends, interest rate or swap
                                               payment. If so, the excess will be available to pay
                                               higher dividends to Common Shareholders. If, however,
                                               the dividends or interest rate on any borrowings (as
                                               modified by any cap or payment rate set by any
                                               interest rate swap) exceeds the rate of return on the
                                               Fund's investment portfolio, the return to Common
                                               Shareholders will be less than if the Fund had not
                                               leveraged.

                                               The holders of Fund Preferred Shares voting as a
                                               separate class will be entitled to elect two members
                                               of the Board of Directors of the Fund and, in the
                                               event that the Fund fails to pay two full years of
                                               accrued dividends on the Fund Preferred Shares, the
                                               holders of the Fund Preferred Shares will be entitled
                                               to elect a majority of the members of the Board of
                                               Directors. See 'Use of Leverage' and 'Description of
                                               Shares -- Fund Preferred Shares.'

                                               There is no assurance that the Fund will utilize
                                               leverage or that, if utilized, the Fund's leveraging
                                               strategy will be successful. See 'Use of
                                               Leverage -- Leverage Risks.'

                                               Leverage Risks. Leverage creates two major types of
                                               risks for Common Shareholders:

                                                 the likelihood of greater volatility of net asset
                                                 value and market price of Common Shares because
                                                 changes in the value of the Fund's portfolio
                                                 (including changes
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                                                 in the value of any interest rate swap, if
                                                 applicable) are borne entirely by the Common
                                                 Shareholders; and

                                                 the possibility either that Common Share income will
                                                 fall if the dividend rate on the Fund Preferred
                                                 Shares or the interest rate on any borrowings rises,
                                                 or that Common Share income will fluctuate because
                                                 the dividend rate on the Fund Preferred Shares or
                                                 the interest rate on any borrowings varies.

                                               When the Fund is utilizing leverage, the fees paid to
                                               the Investment Manager for investment advisory and
                                               management services will be higher than if the Fund
                                               did not utilize leverage because the fees paid will
                                               be calculated based on the Fund's managed assets
                                               (which equals the net asset value of the Common
                                               Shares plus the liquidation preference on any Fund
                                               Preferred Shares plus the principal amount of any
                                               borrowings).

INTEREST RATE TRANSACTIONS...................  In order to reduce the interest rate risk inherent in
                                               our underlying investments and capital structure, we
                                               may enter into interest rate swap or cap
                                               transactions. The use of interest rate swaps and caps
                                               is a highly specialized activity that involves
                                               investment techniques and risks different from those
                                               associated with ordinary portfolio security
                                               transactions. In an interest rate swap, the Fund
                                               would agree to pay to the other party to the interest
                                               rate swap (which is known as the 'counterparty') a
                                               fixed rate payment in exchange for the counterparty
                                               agreeing to pay to the Fund a variable rate payment
                                               that is intended to approximate the Fund's variable
                                               rate payment obligation on the Fund Preferred Shares
                                               or any variable rate borrowing. The payment
                                               obligations would be based on the notional amount of
                                               the swap. In an interest rate cap, the Fund would pay
                                               a premium to the counterparty to the interest rate
                                               cap and, to the extent that a specified variable rate
                                               index exceeds a predetermined fixed rate, would
                                               receive from the counterparty payments of the
                                               difference based on the notional amount of such cap.
                                               Depending on the state of interest rates in general,
                                               our use of interest rate swaps or caps could enhance
                                               or harm the overall performance of the Common Shares.
                                               To the extent there is a decline in interest rates,
                                               the value of the interest rate swap or cap could
                                               decline, and could result in a decline in the net
                                               asset value of the Common Shares. In addition, if the
                                               counterparty to an interest rate swap or cap
                                               defaults, the Fund would be obligated to make the
                                               payments that
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<S>                                            <C>
                                               it had intended to avoid. Depending on whether the
                                               Fund would be entitled to receive net payments from
                                               the counterparty on the swap or cap, which in turn
                                               would depend on the general state of short-term
                                               interest rates and the returns on the Fund's
                                               portfolio securities at that point in time, such
                                               default could negatively impact the performance of
                                               the Fund's Common Shares. In addition, at the time an
                                               interest rate swap or cap transaction reaches its
                                               scheduled termination date, there is a risk that the
                                               Fund will not be able to obtain a replacement
                                               transaction or that the terms of the replacement will
                                               not be as favorable as on the expiring transaction.
                                               If this occurs, it could have a negative impact on
                                               the performance of the Common Shares. If the Fund
                                               fails to maintain the required 200% asset coverage of
                                               the liquidation value of the outstanding Fund
                                               Preferred Shares or if the Fund loses its expected
                                               AAA/Aaa rating on the Fund Preferred Shares or fails
                                               to maintain other covenants, the Fund may be required
                                               to redeem some or all of the Fund Preferred Shares.
                                               Similarly, the Fund could be required to prepay the
                                               principal amount of any borrowings. Such redemption
                                               or prepayment would likely result in the Fund seeking
                                               to terminate early all or a portion of any swap or
                                               cap transaction. Early termination of the swap could
                                               result in a termination payment by or to the Fund.
                                               Early termination of a cap could result in a
                                               termination payment to the Fund. The Fund intends to
                                               maintain, in a segregated account with its custodian,
                                               cash or liquid securities having a value at least
                                               equal to the Fund's net payment obligations under any
                                               swap transaction, marked-to-market daily. We would
                                               not enter into interest rate swap or cap transactions
                                               having an aggregate notional amount that exceeded the
                                               outstanding amount of the Fund's leverage. See 'Use
                                               of Leverage' and 'Interest Rate Transactions' for
                                               additional information.

PRINCIPAL RISKS OF THE FUND..................  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 objectives.

                                               No Operating History. As a recently organized entity,
                                               we have no operating history. See 'The Fund.'
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                                               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 Common Shares
                                               represents an indirect investment in the common
                                               stock, preferred securities and other securities
                                               owned by the Fund, substantially all of which are
                                               traded on a national securities exchange or in the
                                               over-the-counter markets. The value of these
                                               securities, like other stock market investments, may
                                               move up or down, sometimes rapidly and unpredictably.
                                               Your Common 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. The Fund may utilize leverage, which
                                               magnifies the stock market risk. See 'Use of
                                               Leverage -- Leverage Risks.'

                                               Interest Rate Risk. Interest rate risk is the risk
                                               that fixed-income securities such as preferred and
                                               debt securities, and to a lesser extent
                                               dividend-paying common stocks such as REIT common
                                               shares, will decline in value because of changes in
                                               market interest rates. When market interest rates
                                               rise, the market value of such securities generally
                                               will fall. The Fund's investment in such securities
                                               means that the net asset value and market price of
                                               the common shares may tend to decline if market
                                               interest rates rise.

                                               During periods of declining interest rates, an issuer
                                               may be able to exercise an option to prepay principal
                                               earlier than scheduled, which is generally known as
                                               call or prepayment risk. If this occurs, the Fund may
                                               be forced to reinvest in lower yielding securities.
                                               This is known as reinvestment risk. Preferred and
                                               debt securities frequently have call features that
                                               allow the issuer to repurchase the security prior to
                                               its stated maturity. An issuer may redeem an
                                               obligation if the issuer can refinance the debt at a
                                               lower cost due to declining interest rates or an
                                               improvement in the credit standing of the issuer.
                                               During periods of rising interest rates, the average
                                               life of certain types of securities may be extended
                                               because of slower than expected principal payments.
                                               This may lock in a below market interest rate,
                                               increase the security's duration and reduce the value
                                               of the security. This is known as extension risk.
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                                               Market interest rates for investment grade
                                               fixed-income securities in which the Fund will invest
                                               have recently declined significantly below the recent
                                               historical average rates for such securities. This
                                               decline may have increased the risk that these rates
                                               will rise in the future (which would cause the value
                                               of the Fund's net assets to decline) and the degree
                                               to which asset values may decline in such events;
                                               however, historical interest rate levels are not
                                               necessarily predictive of future interest rate
                                               levels. See 'Principal Risks of the Fund -- Interest
                                               Rate Risk.'

                                               Credit Risk and Lower-Rated Securities Risk. Credit
                                               risk is the risk that a security in the Fund's
                                               portfolio will decline in price or the issuer will
                                               fail to make dividend, interest or principal payments
                                               when due because the issuer of the security
                                               experiences a decline in its financial status.
                                               Preferred securities normally are subordinated to
                                               bonds and other debt instruments in a company's
                                               capital structure, in terms of priority to corporate
                                               income and claim to corporate assets, and therefore
                                               will be subject to greater credit risk than debt
                                               instruments. The Fund may invest up to 10% (measured
                                               at the time of investment) of its total assets in
                                               preferred securities and other debt securities that
                                               are rated below investment grade. Preferred stock or
                                               debt securities will be considered to be investment
                                               grade if, at the time of the investment, such
                                               security has a rating of 'BBB' or higher by S&P,
                                               'Baa' or higher by Moody's or an equivalent rating by
                                               a nationally recognized statistical rating agency or,
                                               if unrated, such security is determined by the
                                               Investment Manager to be of comparable quality.
                                               Lower-rated preferred stock or other debt securities,
                                               or equivalent unrated securities, which are commonly
                                               known as 'junk bonds,' generally involve greater
                                               volatility of price and risk of loss of income and
                                               principal, and 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 lower-rated
                                               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.

                                               Counterparty Risk. The Fund will be subject to credit
                                               risk with respect to the counterparties to any
                                               derivative
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<S>                                            <C>
                                               contracts purchased by the Fund. If a counterparty
                                               becomes bankrupt or otherwise fails to perform its
                                               obligations under a derivative contract due to
                                               financial difficulties, the Fund may experience
                                               significant delays in obtaining any recovery under
                                               the derivative contract in bankruptcy or other
                                               reorganization proceeding. The Fund may obtain only a
                                               limited recovery or may obtain no recovery in such
                                               circumstances.

                                               Special Risks Related to Real Estate. Since at least
                                               40% of the Fund's total assets normally will be
                                               concentrated in common stock of real estate
                                               companies, consisting primarily of REITs, your
                                               investment in the Fund will be significantly impacted
                                               by the performance of the real estate markets.
                                               Property values may fall due to increasing vacancies
                                               or declining rents resulting from economic, legal,
                                               cultural or technological developments. REIT prices
                                               also may drop because of the failure of borrowers to
                                               pay their loans and poor management. Many REITs
                                               utilize leverage which increases investment risk and
                                               could adversely affect a REIT's operations and market
                                               value in periods of rising interest rates as well as
                                               risks normally associated with debt financing. Real
                                               property investments are subject to varying degrees
                                               of risk. The yields available from investments in
                                               real estate depend on the amount of income and
                                               capital appreciation generated by the related
                                               properties. Income and real estate values may also be
                                               adversely affected by such factors as applicable laws
                                               (e.g., Americans with Disabilities Act and tax laws),
                                               interest rate levels and the availability of
                                               financing. If the properties do not generate
                                               sufficient income to meet operating expenses,
                                               including, where applicable, debt service, ground
                                               lease payments, tenant improvements, third-party
                                               leasing commissions and other capital expenditures,
                                               the income and ability of the REIT to make payments
                                               of any interest and principal on its debt securities
                                               will be adversely affected. In addition, real
                                               property may be subject to the quality of credit
                                               extended and defaults by borrowers and tenants. The
                                               performance of the economy in each of the regions in
                                               which the real estate owned by the portfolio company
                                               is located affects occupancy, market rental rates and
                                               expenses and, consequently, has an impact on the
                                               income from such properties and their underlying
                                               values. The financial results of major local
                                               employers also may have an impact on the cash flow
                                               and value of certain
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<S>                                            <C>
                                               properties. In addition, real estate investments are
                                               relatively illiquid and, therefore, the ability of
                                               REITs to vary their portfolios promptly in response
                                               to changes in economic or other conditions is
                                               limited. A REIT may also have joint venture
                                               investments in certain of its properties and,
                                               consequently, its ability to control decisions
                                               relating to such properties may be limited.
                                               In addition, there are risks associated with
                                               particular sectors of real estate investments.

                                                    -- Retail Properties. Retail properties are
                                                       affected by the overall health of the applicable
                                                       economy and may be adversely affected by the
                                                       growth of alternative forms of retailing,
                                                       bankruptcy, departure or cessation of
                                                       operations of a tenant, a shift in consumer
                                                       demand due to demographic changes, spending
                                                       patterns and lease terminations.

                                                    -- Office Properties. Office properties are
                                                       affected by the overall health of the economy and
                                                       other factors such as a downturn in the
                                                       businesses operated by their tenants,
                                                       obsolescence and non-competitiveness.

                                                    -- Hotel Properties. The risks of hotel
                                                       properties include, among other things, the
                                                       necessity of a high level of continuing
                                                       capital expenditures, competition, increases
                                                       in operating costs which may not be offset by
                                                       increases in revenues, dependence on business
                                                       and commercial travelers and tourism,
                                                       increases in fuel costs and other expenses of
                                                       travel and adverse effects of general and
                                                       local economic conditions. Hotel properties
                                                       tend to be more sensitive to adverse economic
                                                       conditions and competition than many other
                                                       commercial properties.

                                                    -- Healthcare Properties. Healthcare properties
                                                       and healthcare providers are affected by several
                                                       significant factors including federal, state
                                                       and local laws governing licenses,
                                                       certification, adequacy of care,
                                                       pharmaceutical distribution, rates,
                                                       equipment, personnel and other factors
                                                       regarding operations; continued availability
                                                       of revenue from government reimbursement
                                                       programs (primarily Medicaid and Medicare);
                                                       and competition on a local and regional
                                                       basis. The failure of any healthcare operator
                                                       to comply with governmental laws and
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<S>                                            <C>
                                                       regulations may affect its ability to operate
                                                       its facility or receive government
                                                       reimbursements.

                                                    -- Multifamily Properties. The value and
                                                       successful operation of a multifamily property
                                                       may be affected by a number of factors such
                                                       as the location of the property, the ability
                                                       of the management team, the level of mortgage
                                                       rates, presence of competing properties,
                                                       adverse economic conditions in the locale,
                                                       oversupply, and rent control laws or other
                                                       laws affecting such properties.

                                                    -- Insurance. Certain of the portfolio companies
                                                       may carry comprehensive liability, fire, flood,
                                                       earthquake extended coverage and rental loss
                                                       insurance with various policy specifications,
                                                       limits and deductibles. Should any type of
                                                       uninsured loss occur, the portfolio company
                                                       could lose its investment in, and anticipated
                                                       profits and cash flows from, a number of
                                                       properties, which would as a result impact
                                                       the Fund's investment performance.

                                                    -- Credit Risk. REITs may be highly leveraged
                                                       and financial covenants may affect the ability of
                                                       REITs to operate effectively.

                                                    -- Environmental Issues. In connection with the
                                                       ownership (direct or indirect), operation,
                                                       management and development of real properties
                                                       that may contain hazardous or toxic
                                                       substances, a portfolio company may be
                                                       considered an owner, operator or responsible
                                                       party of such properties and, therefore, may
                                                       be potentially liable for removal or
                                                       remediation costs, as well as certain other
                                                       costs, including governmental fines and
                                                       liabilities for injuries to persons and
                                                       property. The existence of any such material
                                                       environmental liability could have a material
                                                       adverse effect on the results of operations
                                                       and cash flow of any such portfolio company
                                                       and, as a result, the amount available to
                                                       make distributions on shares of the Fund
                                                       could be reduced.

                                                    -- 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
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<S>                                            <C>
                                                       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.

                                                    -- Tax Issues. REITs are subject to a highly
                                                       technical and complex set of provisions in the
                                                       Code. It is possible that the Fund may invest
                                                       in a real estate company which purports to be
                                                       a REIT and that the company could fail to
                                                       qualify as a REIT. In the event of any such
                                                       unexpected failure to qualify as a REIT, the
                                                       company would be subject to corporate-level
                                                       taxation, significantly reducing the return
                                                       to the Fund on its investment in such
                                                       company. 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 Investment Company Act
                                                       of 1940, as amended (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.


                                               As of May 31, 2003, the market capitalization of
                                               REITs ranged in size from approximately
                                               $1.1 million to approximately $11.1 billion. See
                                               'Principal Risks of the Fund -- Special Risks of
                                               Securities Linked to the Real Estate Market.'


                                               Special Risks Related to Preferred Securities. There
                                               are special risks associated with investing in
                                               preferred securities, including:

                                                    -- Deferral and Omission. Preferred securities
                                                       may include provisions that permit the issuer, at
                                                       its discretion, to defer or omit
                                                       distributions for a stated period without any
                                                       adverse consequences to the issuer. If the
                                                       Fund owns a preferred security that is
                                                       deferring or omitting its distributions, the
                                                       Fund may be required to report income for tax
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                                                       purposes although it has not yet received
                                                       such income.

                                                    -- Subordination. Preferred securities are
                                                       generally subordinated to bonds and other debt
                                                       instruments in a company's capital structure
                                                       in terms of having priority to corporate
                                                       income and liquidation payments, and
                                                       therefore will be subject to greater credit
                                                       risk than more senior debt instruments.

                                                    -- Liquidity. Preferred securities may be
                                                       substantially less liquid than many other
                                                       securities, such as common stocks or U.S.
                                                       Government securities.

                                                    -- Limited Voting Rights. Generally, traditional
                                                       preferred securities offer no voting rights
                                                       with respect to the issuing company unless
                                                       preferred dividends have been in arrears for
                                                       a specified number of periods, at which time
                                                       the preferred security holders may elect a
                                                       number of directors to the issuer's board.
                                                       Generally, once all the arrearages have been
                                                       paid, the preferred security holders no
                                                       longer have voting rights. In the case of
                                                       hybrid-preferred securities, as described
                                                       under 'Investment Objectives and Policies,'
                                                       holders generally have no voting rights.

                                                    -- Special Redemption Rights. In certain varying
                                                       circumstances, an issuer of preferred
                                                       securities may redeem the securities prior to
                                                       a specified date. For instance, for certain
                                                       types of preferred securities, a redemption
                                                       may be triggered by certain changes in
                                                       Federal income tax or securities laws. As
                                                       with call provisions, a special redemption by
                                                       the issuer may negatively impact the return
                                                       of the security held by the Fund. See
                                                       'Principal Risks of the Fund -- Special Risks
                                                       Related to Preferred Securities.'

                                                    -- Supply of Hybrid-Preferred Securities. The
                                                       Financial Accounting Standards Board
                                                       currently is reviewing accounting guidelines
                                                       relating to hybrid-preferred securities. To
                                                       the extent that a change in the guidelines
                                                       could adversely affect the market for, and
                                                       availability of, these securities, the Fund
                                                       may be adversely affected. The adoption of
                                                       the Bush Administration's proposal to
                                                       eliminate the Federal income tax on dividends
                                                       may also adversely impact the market and
                                                       supply of hybrid-
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                                                       preferred securities if the issuance of such
                                                       securities becomes less attractive to
                                                       issuers.

                                                    -- New Types of Securities. From time to time,
                                                       preferred securities, including
                                                       hybrid-preferred securities, have been, and
                                                       may in the future be, offered having features
                                                       other than those described herein. The Fund
                                                       reserves the right to invest in these
                                                       securities if the Investment Manager believes
                                                       that doing so would be consistent with the
                                                       Fund's investment objectives and policies.
                                                       Since the market for these instruments would
                                                       be new, the Fund may have difficulty
                                                       disposing of them at a suitable price and
                                                       time. In addition to limited liquidity, these
                                                       instruments may present other risks, such as
                                                       high price volatility.

                                               General Financial Services Risks. The Fund intends to
                                               invest a significant portion, but less than 25%, of
                                               its total assets in the securities of companies
                                               principally engaged in financial services, which are
                                               prominent issuers of preferred securities. Because
                                               the Fund may invest such amounts in this sector, the
                                               Fund may be susceptible to adverse economic or
                                               regulatory occurrences affecting that sector. A
                                               company is 'principally engaged' in financial
                                               services if it owns financial services-related assets
                                               that are responsible for at least 50% of its
                                               revenues. Companies in the financial services sector
                                               include commercial banks, industrial banks, savings
                                               institutions, finance companies, diversified
                                               financial services companies, investment banking
                                               firms, securities brokerage houses, investment
                                               advisory companies, leasing companies, insurance
                                               companies and companies providing similar services.
                                               These are risks associated with investing in the
                                               financial services sector, including:

                                                 financial services companies may suffer a setback if
                                                 regulators change the rules under which they
                                                 operate;

                                                 unstable interest rates can have a disproportionate
                                                 effect on the financial services sector;

                                                 financial services companies whose securities the
                                                 Fund may purchase may themselves have concentrated
                                                 portfolios, such as a high level of loans to real
                                                 estate developers, which makes them vulnerable to
                                                 economic conditions that affect that sector; and

                                                 financial services companies have been affected by
                                                 increased competition, which could adversely affect
                                                 the profitability or viability of such companies.
                                                 See
</Table>

                                       19






<PAGE>


<Table>
<S>                                            <C>
                                                 'Principal Risks of the Fund -- General Risks of
                                                 Securities Limited to the Financial Services
                                                 Industry.'

                                               Foreign Securities Risks. Under normal market
                                               conditions, the Fund may invest up to 20% of its
                                               total assets in U.S. dollar-denominated securities of
                                               foreign issuers traded or listed on a U.S. securities
                                               exchange or in the U.S. over-the-counter market. Such
                                               investments involve certain risks not involved in
                                               domestic investments. Certain foreign countries may
                                               impose restrictions on the ability of issuers of
                                               foreign securities to make payments of principal and
                                               interest to investors located outside the country,
                                               due to blockage of foreign currency exchanges or
                                               otherwise. Generally, there is less publicly
                                               available information about foreign companies due to
                                               less rigorous disclosure or accounting standards and
                                               regulatory practices. In addition, the Fund will be
                                               subject to risks associated with adverse political
                                               and economic developments in foreign countries, which
                                               could cause the Fund to lose money on its investments
                                               in foreign securities. Typically, the Fund will not
                                               hold any foreign securities of issuers in so-called
                                               'emerging markets' (or lesser developed countries),
                                               but to the extent it does, the Fund will not invest
                                               more than 10% of its total assets in such securities.
                                               Investments in such securities are particularly
                                               speculative.

                                               Other Investment Management Techniques Risk. The Fund
                                               may use various other investment management
                                               techniques that also involve certain risks and
                                               special considerations, including engaging in hedging
                                               and risk management transactions, such as interest
                                               rate transactions, options, futures, swaps and other
                                               derivatives transactions. These strategic
                                               transactions will be entered into to seek to manage
                                               the risks of the Fund's portfolio of securities, but
                                               may have the effect of limiting the gains from
                                               favorable market movements.

                                               Convertible Securities Risk. Although to a lesser
                                               extent than with nonconvertible fixed income
                                               securities, the market value of convertible
                                               securities tends to decline as interest rates
                                               increase and, conversely, tends to increase as
                                               interest rates decline. In addition, because of the
                                               conversion feature, the market value of convertible
                                               securities tends to vary with fluctuations in the
                                               market value of the underlying common stock. A unique
                                               feature of convertible securities is that as the
                                               market price of the underlying common stock declines,
                                               convertible securities tend to trade increasingly on
                                               a yield basis, and
</Table>

                                       20






<PAGE>



<Table>
<S>                                            <C>
                                               so may not experience market value declines to the
                                               same extent as the underlying common stock. When the
                                               market price of the underlying common stock
                                               increases, the prices of the convertible securities
                                               tend to rise as a reflection of the value of the
                                               underlying common stock. While no securities
                                               investments are without risk, investments in
                                               convertible securities generally entail less risk
                                               than investments in common stock of the same issuer.

                                               Common Stock Risk. While common stock has
                                               historically generated higher average returns than
                                               fixed income securities, common stock has also
                                               experienced significantly more volatility in those
                                               returns. An adverse event, such as an unfavorable
                                               earnings report, may depress the value of common
                                               stock held by the Fund. Also, the price of common
                                               stock is sensitive to general movements in the stock
                                               market. A drop in the stock market may depress the
                                               price of common stock held by the Fund.

                                               Tax Risk. The Fund may invest in preferred securities
                                               or other securities the Federal income tax treatment
                                               of which may not be clear or may be subject to
                                               recharacterization by the Internal Revenue Service.
                                               It could be more difficult for the Fund to comply
                                               with the tax requirements applicable to regulated
                                               investment companies if the tax characterization of
                                               the Fund's investments or the tax treatment of the
                                               income from such investments were successfully
                                               challenged by the Internal Revenue Service. See
                                               'Taxation.'

                                               In addition, investors should note that the Fund is
                                               not expected to generate significant income that
                                               qualifies for the DRD or the reduced rates of tax
                                               that apply to qualified dividend income. See
                                               'Taxation.'

                                               Restricted and Illiquid Securities Risk. The Fund may
                                               invest, on an ongoing basis, in restricted securities
                                               and other investments that may be illiquid. Illiquid
                                               securities are securities that are not readily
                                               marketable and may include some restricted
                                               securities, which are securities that may not be
                                               resold to the public without an effective
                                               registration statement under the Securities Act of
                                               1933, as amended (the 'Securities Act') or, if they
                                               are unregistered, may be sold only in a privately
                                               negotiated transaction or pursuant to an exemption
                                               from registration. Illiquid investments involve the
                                               risk that the securities will not be able to be sold
                                               at the time desired
</Table>


                                       21






<PAGE>


<Table>
<S>                                            <C>
                                               by the Fund or at prices approximating the value at
                                               which the Fund is carrying the securities on its
                                               books.

                                               Leverage Risk. The Fund intends to use leverage by
                                               issuing Fund Preferred Shares, representing
                                               approximately 35% of the Fund's total capital after
                                               their issuance or alternatively, through borrowing.
                                               Leverage is a speculative technique and there are
                                               special risks and costs associated with leveraging.
                                               For a more detailed description of the risks
                                               associated with leverage, see 'Use of Leverage --
                                               Leverage Risks.'

                                               Interest Rate Transactions Risk. The Fund may enter
                                               into a swap or cap transaction to attempt to protect
                                               itself from increasing dividend or interest expenses
                                               resulting from increasing short-term interest rates.
                                               A decline in interest rates may result in a decline
                                               in the value of the swap or cap which may result in a
                                               decline in the net asset value of the Fund. A sudden
                                               and dramatic decline in interest rates may result in
                                               a significant decline in the net asset value of the
                                               Fund. See 'Interest Rate Transactions Risk.'

                                               Risk of 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 net asset value could decrease as a
                                               result of 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. Net asset
                                               value will be reduced immediately following the
                                               offering by the sales load and the amount of
                                               organizational and offering expenses paid by the
                                               Fund. See 'Principal Risks of the Fund -- Risk of
                                               Market Price Discount From Net Asset Value.'

ADDITIONAL RISK CONSIDERATIONS...............  Portfolio Turnover Risk. We may engage in portfolio
                                               trading when considered appropriate. There are no
                                               limits on the rate of portfolio turnover. A higher
                                               turnover rate results in correspondingly greater
                                               brokerage commissions and other transactional
                                               expenses which are borne by the Fund. See 'Additional
                                               Risk Considerations -- Portfolio Turnover Risk.'

                                               Inflation Risk. Inflation risk is the risk that the
                                               value of assets or income from investments will be
                                               worth less than in the future as inflation decreases
                                               the value of money. As inflation increases, the real
                                               value of the
</Table>

                                       22






<PAGE>



<Table>
<S>                                            <C>
                                               Common Shares and distributions can decline and the
                                               dividend payments on the Fund Preferred Shares, if
                                               any, or interest payments on any borrowings may
                                               increase. See 'Additional Risk Considerations --
                                               Inflation Risk.'

                                               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 presents 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
                                               'Additional Risk Considerations -- Non-Diversified
                                               Status.' See also 'Taxation' in the SAI.

                                               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 conversion of the Fund
                                               to an open-end investment company. See 'Certain
                                               Provisions of the Articles of Incorporation and
                                               By-Laws' and 'Additional Risk Considerations --
                                               Anti-Takeover Provisions.'

                                               Market Disruption Risk. The terrorist attacks in the
                                               U.S. on September 11, 2001 had a disruptive effect on
                                               the securities markets. The war in Iraq and
                                               instability in the Middle East also has resulted in
                                               recent market volatility and may have long-term
                                               effects on the U.S. and worldwide financial markets
                                               and may cause further economic uncertainties in the
                                               U.S. and worldwide. The Fund does not know how long
                                               the securities markets will continue to be affected
                                               by these events and cannot predict the effects of the
                                               war or similar events in the future on the U.S.
                                               economy and securities markets.

                                               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.

INVESTMENT MANAGER...........................  Cohen & Steers Capital Management, Inc. is the
                                               investment manager of the Fund pursuant to an
                                               Investment Management Agreement. The Investment
                                               Manager, which was formed in 1986, is a leading firm
                                               specializing in the management of real estate
                                               securities
</Table>


                                       23






<PAGE>



<Table>
<S>                                            <C>
                                               portfolios and as of May 31, 2003 had approximately
                                               $7.5 billion in assets under management, including
                                               more than $630.0 million in preferred securities
                                               issued by real estate companies. Its clients include
                                               pension plans, endowment funds and mutual funds,
                                               including some of the largest open-end and closed-end
                                               real estate funds. The Investment Manager also will
                                               have responsibility for providing administrative
                                               services and assisting the Fund with operational
                                               needs pursuant to an Administration Agreement. In
                                               accordance with the terms of the Administration
                                               Agreement, the Fund has entered into an agreement
                                               with State Street Bank and Trust Company ('State
                                               Street Bank') to perform certain administrative
                                               functions subject to the supervision of the
                                               Investment Manager (the 'Sub-Administration
                                               Agreement'). See 'Management of the
                                               Fund -- Administration and Sub-Administration
                                               Agreement.'

FEES AND EXPENSES............................  The Fund will pay the Investment Manager a monthly
                                               fee computed at the annual rate of .65% of average
                                               daily managed assets (i.e., the net asset value of
                                               Common Shares plus the liquidation preference of any
                                               Fund Preferred Shares and the principal amount of any
                                               borrowings used for leverage). See 'Management of the
                                               Fund -- Investment Manager.' When the Fund is
                                               utilizing leverage, the fees paid to the Investment
                                               Manager for investment advisory and management
                                               services will be higher than if the Fund did not
                                               utilize leverage because the fees paid will be
                                               calculated based on the Fund's managed assets, which
                                               include the liquidation preference of preferred
                                               stock, and the principal amount of any outstanding
                                               borrowings used for leverage. The Fund's investment
                                               management fees and other expenses are paid only by
                                               the Common Shareholders, and not by holders of the
                                               Fund Preferred Shares. See 'Use of Leverage.'

LISTING AND SYMBOL...........................  The Fund's Common Shares have been approved for
                                               listing on the New York Stock Exchange upon notice of
                                               issuance under the symbol 'RNP.'

DIVIDENDS AND DISTRIBUTIONS..................  Commencing with the Fund's first dividend, the Fund
                                               intends to make regular monthly cash distributions to
                                               Common Shareholders at a level rate based on the
                                               projected performance of the Fund, which rate may be
                                               adjusted from time to time. The Fund's ability to
                                               maintain a level dividend rate will depend on a
                                               number of factors, including the stability of income
                                               received from its investments and dividends payable
                                               on the Fund Preferred Shares or interest payments on
                                               borrowings. As
</Table>


                                       24









<PAGE>


<Table>
<S>                                            <C>
                                               portfolio and market conditions change, the rate of
                                               dividends on the Common Shares and the Fund's
                                               dividend policy will likely change. Over time, the
                                               Fund will distribute all of its net investment income
                                               (after it pays accrued dividends on, or redeems or
                                               liquidates, any outstanding Fund Preferred Shares and
                                               pays interest and required principal payments on any
                                               borrowings). In addition, at least annually, the Fund
                                               intends to distribute net capital gain and taxable
                                               ordinary income, if any, to shareholders so long as
                                               the net capital gain and taxable ordinary income are
                                               not necessary to pay accrued dividends on, or redeem
                                               or liquidate any Fund Preferred Shares, or pay
                                               interest or required principal payments on any
                                               borrowings. Your initial distribution is expected to
                                               be declared approximately 45 days, and paid
                                               approximately 60 to 75 days, from the completion of
                                               this offering, depending on market conditions.
                                               Following the commencement of this offering, the Fund
                                               intends to rely on an exemptive order issued by the
                                               Securities and Exchange Commission under the 1940 Act
                                               facilitating the implementation of a dividend policy
                                               calling for monthly distributions of a fixed
                                               percentage of its net asset value ('Managed Dividend
                                               Policy'). See 'Dividends and Distributions.'

DIVIDEND REINVESTMENT PLAN...................  Shareholders will receive their dividends in
                                               additional Common Shares purchased in the open market
                                               or issued by the Fund 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 Common Shares are held in
                                               the name of a broker or nominee should contact the
                                               broker or nominee to confirm that the dividend
                                               reinvestment service is available. See 'Dividends and
                                               Distributions' and 'Taxation.'

CUSTODIAN, TRANSFER AGENT, DIVIDEND
  DISBURSING AGENT AND REGISTRAR.............  State Street Bank and Trust Company will act as
                                               custodian, and EquiServe Trust Company, NA will act
                                               as transfer agent, dividend disbursing agent and
                                               registrar for the Fund. See 'Custodian, Transfer
                                               Agent, Dividend Disbursing Agent and Registrar.'
</Table>

                                       25









<PAGE>

                            SUMMARY OF FUND EXPENSES

    The purpose of the following table is to help you understand the fees and
expenses that you, as a Common Shareholder, would bear directly or indirectly.
The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations, unless otherwise indicated, and assume that the Fund
issues approximately 17,700,000 Common Shares. If the Fund issues fewer Common
Shares, all other things being equal, these expenses would increase. See
'Management of the Fund.' The expenses in the table also assume the issuance of
Fund Preferred Shares in an amount equal to 35% of the Fund's total capital
(after issuance), and the table shows Fund expenses both as a percentage of net
assets attributable to Common Shares, and, in footnote 4, as a percentage of net
assets attributable to Common Shares assuming no leverage.

<Table>
<S>                                                           <C>
SHAREHOLDER TRANSACTION EXPENSES
    Sales Load Paid by You (as a percentage of offering
      price)................................................            4.5%
    Expenses Borne by the Fund (as a percentage of offering
      price)................................................             .2%(1)(2)
    Dividend Reinvestment Plan Fees.........................            None
</Table>

<Table>
<Caption>
                                                                 PERCENTAGE OF NET
                                                                ASSETS ATTRIBUTABLE
                                                                 TO COMMON SHARES
                                                              (ASSUMES FUND PREFERRED
                                                               SHARES ARE ISSUED)(4)
                                                               ---------------------
<S>                                                           <C>
ANNUAL EXPENSES
    Investment Management Fees(3)...........................           1.00%
    Other Expenses(3).......................................            .37%
    Interest Payments on Borrowed Funds(3)..................            None
                                                                       -----
    Total Annual Fund Operating Expenses(3).................           1.37%
                                                                       -----
                                                                       -----
</Table>

- ---------

(1) The Investment Manager has also agreed to pay all organizational expenses
    and offering costs (other than the sales load) that exceed $.05 per Common
    Share (.20% of the offering price).

(2) If the Fund offers Fund Preferred Shares, costs of that offering, estimated
    to be slightly more than 1% of the total amount of the Fund Preferred Share
    offering, will be borne immediately by Common Shareholders and result in the
    reduction of the net asset value of the Common Shares. Assuming the issuance
    of Fund Preferred Shares in an amount equal to 35% of the Fund's total
    capital (after issuance), those offering costs are estimated to be no more
    than approximately $2,800,000 or $.16 per Common Share (.63% of the offering
    price of the Common Shares).

(3) In the event the Fund, as an alternative to issuing Fund Preferred Shares,
    utilizes leverage by borrowing in an amount equal to approximately 33 1/3%
    of the Fund's total assets (including the amount obtained from leverage), it
    is estimated that, as a percentage of net assets attributable to Common
    Shares, the Investment Management Fee would be .97%, Other Expenses would be
    .35%, Interest Payments on Borrowed Funds (assuming an interest rate of
    2.88%, which interest rate is subject to change based on prevailing market
    conditions) would be 1.44%, Total Annual Fund Operating Expenses would be
    2.76%. Based on the Total Annual Fund Operating Expenses and in accordance
    with the example below, the expenses for years 1, 3, 5 and 10 would be $74,
    $129, $186 and $341, respectively.
                                                  (notes continued on next page)

                                       26







<PAGE>

(notes continued from previous page)

(4) If the Fund does not issue Fund Preferred Shares or otherwise use leverage,
    the Fund's expenses would be estimated to be as follows:

<Table>
<Caption>
                                                                 PERCENTAGE OF NET
                                                              ASSETS ATTRIBUTABLE TO
                                                                   COMMON SHARES
                                                              (ASSUMES NO BORROWINGS
                                                               AND NO FUND PREFERRED
                                                              SHARES ARE OUTSTANDING)
                                                              -----------------------
<S>                                                           <C>
  ANNUAL EXPENSES
     Investment Management Fees.............................           .65%
     Other Expenses.........................................           .16%
     Interest Payments on Borrowed Funds....................           None
                                                                       ----
     Total Annual Fund Operating Expenses...................           .81%
                                                                       ----
                                                                       ----
</Table>

    The following example illustrates the expenses (including the sales load of
$45, estimated offering expenses of this offering of $2 and the estimated Fund
Preferred Share offering costs assuming Fund Preferred Shares are issued
representing 35% of the Fund's total capital (after issuance) of $6) that you
would pay on a $1,000 investment in Common Shares, assuming (1) total net annual
expenses of 1.37% of net assets attributable to Common Shares and (2) a 5%
annual return:

<Table>
<Caption>
                                                              1 YEAR   3 YEARS   5 YEARS   10 YEARS
                                                              ------   -------   -------   --------
<S>                                                           <C>      <C>       <C>       <C>
    Total Expenses Incurred.................................   $67       $94      $124       $209
</Table>

    THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE HIGHER OR LOWER. The example assumes that the
estimated 'Other Expenses' set forth in the Annual Expenses table are accurate
and that all dividends and distributions are reinvested at net asset value.
Actual expenses may be greater or less than those assumed. Moreover, the Fund's
actual rate of return may be greater or less than the hypothetical 5% return
shown in the example.

                                       27










<PAGE>

                                    THE FUND

    Cohen & Steers REIT and Preferred Income Fund, Inc. is a recently organized,
non-diversified, closed-end management investment company. We were organized as
a Maryland corporation on March 25, 2003 and are registered as an investment
company under 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

    We estimate the net proceeds of this offering, after deducting organization
expenses and offering costs (other than the sales load) that do not exceed $.05
per share of Common Shares, to be $    , or $    assuming exercise of the
overallotment option in full. The net proceeds will be invested in accordance
with the policies set forth under 'Investment Objectives 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. The Investment Manager will incur and be responsible for (i) all of
the Fund's organization expenses and (ii) offering expenses (other than the
sales load) that, when aggregated with the Fund's organizational expenses,
exceed $.05 per share of the Fund's Common Shares.

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

                       INVESTMENT OBJECTIVES AND POLICIES

GENERAL

    The Fund's primary investment objective is to seek high current income.
Capital appreciation is our secondary objective. The Fund is not intended as a
complete investment program. There can be no assurance that the Fund will
achieve its investment objectives.

    Under normal market conditions, the Fund will invest:

      at least 40%, but no more than 60%, of its total assets in common stocks
      issued by real estate companies such as REITs. A real estate company
      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;

      at least 40%, but no more than 60%, of its total assets in preferred
      securities; up to 5% of the Fund's total assets may be invested in
      preferred securities issued by REITs;

      up to 10% of its total assets in preferred or other securities that at the
      time of investment are rated below investment grade (Ba/BB or B by
      Moody's, S&P or Fitch) or that are unrated but judged to be of comparable
      quality by the Fund's Investment Manager;

      up to 20% of its total assets in debt securities, including convertible
      debt securities and convertible preferred securities;

      a significant portion, but less than 25%, of its total assets in the
      securities of companies principally engaged in the financial services
      industry (which are prominent issuers of preferred securities); and

                                       28






<PAGE>

      up to 20% of its total assets in U.S. dollar-denominated securities of
      foreign issuers traded or listed on a U.S. securities exchange or the U.S.
      over-the-counter market.

    The policy referred to above of investing in the financial services industry
and the Fund's concentration of its investments in the real estate industry make
the Fund more susceptible to adverse economic or regulatory occurrences
affecting these sectors. See 'Principal Risks of the Fund -- Special Risks of
Securities Linked to the Real Estate Market' and ' -- General Risks of
Securities Linked to the Financial Services Industry.'

    Although the Fund does not currently intend to invest in illiquid securities
(i.e., securities that are not readily marketable), it may invest up to 10% of
its total assets in illiquid securities. Similarly, although the Fund does not
intend to invest in convertible securities, it may invest up to 20% of its total
assets in securities convertible into common or preferred securities where the
conversion feature represents, in the Investment Manager's view, a significant
element of the securities' value. Common stock acquired pursuant to a conversion
feature will be subject to this 20% limitation.

    Under normal conditions, the Fund intends to invest in income producing
common stock issued by real estate companies, consisting primiarly of REITs, and
preferred and other debt securities. Substantially all of the common stocks
issued by REITs in which the Fund intends to invest are traded on a national
securities exchange or in the over-the-counter market. REITs are generally not
taxed on income distributed to shareholders provided they distribute to their
shareholders substantially all of their income and otherwise comply with the
requirements of the Code. As a result, REITs generally pay relatively high
dividends (as compared to other types of companies) and the Fund intends to use
these REIT dividends in an effort to meet its objective of high current income.
It is the Fund's current intention to invest approximately 50% of its total
assets in common stocks of REITs, although the actual percentage of REIT common
stocks in its portfolio may change.

    With respect to the preferred securities component of the portfolio, under
current market conditions the Fund expects that it will invest primarily in
taxable preferred securities. Under current market conditions, the Fund's
portfolio of preferred securities is expected to consist primarily of fixed rate
preferred securities.


    A security will be considered investment grade quality if it is rated 'BBB'
or higher by S&P, 'Baa' or higher by Moody's or an equivalent rating by a
nationally recognized statistical rating agency, or is unrated but judged to be
of comparable quality by the Investment Manager. Bonds of below investment grade
quality (BB/Ba or below) are commonly referred to as 'junk bonds.' Securities of
below investment grade quality are regarded as having predominantly speculative
characteristics with respect to the issuer's capacity to pay interest and repay
principal. The Fund's credit quality policies apply only at the time a security
is purchased, and the Fund is not required to dispose of a security if a rating
agency downgrades its assessment of the credit characteristics of a particular
issue. In determining whether to retain or sell a security that a rating agency
has downgraded, the Investment Manager may consider such factors as its
assessment of the credit quality of the issuer of the security, the price at
which the security could be sold and the rating, if any, assigned to the
security by other rating agencies. Appendix A to the SAI contains a general
description of Moody's and S&P's ratings of securities.


    The Fund's investment objectives and certain other policies are fundamental
and may not be changed without the approval of the holders of a 'majority of the
outstanding' Common Shares

                                       29







<PAGE>

and the Fund Preferred Shares voting together as a single class, and of the
holders of a 'majority of the outstanding' Fund Preferred Shares voting as a
separate class. When used with respect to particular shares of the Fund, a
'majority of the outstanding' shares means (i) 67% or more of the shares present
at a meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the shares, whichever is less.
Unless otherwise indicated, the Fund's investment policies are not fundamental
and may be changed by the Board of Directors without the approval of
shareholders, although we have no current intention of doing so.

INVESTMENT STRATEGIES

    In making investment decisions with respect to common stocks and other
equity securities issued by real estate companies, including REITs, 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 and sector position, and
economic and market conditions. The Investment Manager evaluates a number of
factors, including growth potential, earnings estimates and the quality of
management.

    In making investment decisions with respect to preferred securities and debt
securities, the Investment Manager seeks to select what it believes are superior
securities, (i.e., securities the Investment Manager views as undervalued on the
basis of risk and return profiles). In making these determinations, the
Investment Manager evaluates the fundamental characteristics of an issuer,
including an issuer's creditworthiness, and also takes into account prevailing
market factors. In analyzing credit quality, the Investment Manager considers
not only fundamental analysis, but also an issuer's corporate and capital
structure and the placement of the preferred or debt securities within that
structure. The Investment Manager also takes into account other factors, such as
call and other structural features, momentum and other exogenous signals (i.e.,
the likely directions of ratings) and relative value versus other income
security classes.

PORTFOLIO COMPOSITION

    Our portfolio will be composed principally of the following investments. A
more detailed description of our investment policies and restrictions and more
detailed information about our portfolio investments are contained in the SAI.

    Initial Portfolio Composition. Initially, the Fund intends to allocate
approximately 50% of the Fund's total assets to common stocks issued by real
estate companies, consisting primarily of REITs, approximately 40% to preferred
securities and approximately 10% to debt securities other than preferred
securities. Thereafter, the portion of the Fund's total assets invested in
common stock issued by REITs, preferred securities and other debt securities
will vary from time to time, consistent with the Fund's investment objectives,
although the Fund will normally invest at least 40% of its total assets in
common stock issued by REITs and at least 40% of its total assets in preferred
securities. At any time, under normal circumstances at least 80% of the Fund's
total assets will be invested in common stocks issued by REITs and preferred
securities.

    Common Stocks Issued By Real Estate Companies and REITs. 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

                                       30







<PAGE>

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

    Under normal market conditions, we will invest at least 40%, but no more
than 60%, of our total assets in the common stocks of real estate companies,
consisting primarily of REITs. A REIT is a company dedicated to owning, and
usually operating, income producing real estate, or to financing real estate.
REITs pool investors' funds for investment primarily in income producing real
estate or real estate-related loans or interests. REITs are generally not taxed
on income distributed to shareholders provided, among other things, they
distribute to their shareholders substantially all of their 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 the Fund
intends to use these REIT dividends in an effort to meet the current income goal
of its investment objectives.

    REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid
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. Hybrid REITs
combine the characteristics of both Equity REITs and Mortgage REITs. The Fund
does not currently intend to invest more than 10% of its total assets in
Mortgage REITs or Hybrid REITs.

    Preferred Securities. Under normal market conditions, the Fund will invest
at least 40%, but no more than 60%, of its total assets in preferred securities.
There are two basic types of preferred securities. The first, sometimes referred
to in this prospectus as traditional preferred securities, consists of preferred
stock issued by an entity taxable as a corporation. The second is referred to in
this prospectus as hybrid-preferred securities. Hybrid-preferred securities are
usually issued by a trust or limited partnership and often represent preferred
interests in deeply subordinated debt instruments issued by the corporation for
whose benefit the trust or partnership was established. Initially, the preferred
securities component of the Fund will be comprised primarily of taxable
preferred securities.

    Traditional Preferred Securities. Traditional preferred securities generally
pay fixed or adjustable rate dividends to investors and generally 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. In order to be payable,
distributions on such preferred securities must be declared by the issuer's
board of directors. Income payments on typical preferred securities currently
outstanding are cumulative, causing dividends and distributions to accumulate
even if not declared by the board of directors or otherwise made payable. In
such a case, all accumulated dividends must be paid before any dividend on the
common stock can be paid. However, some traditional preferred stocks are non-
cumulative, in which case dividends do not accumulate and need not ever be paid.
A portion of the portfolio may include investments in non-cumulative preferred
securities, whereby the issuer does not have an obligation to make up any
arrearages to its shareholders. Should an issuer of a non-cumulative preferred
stock held by the Fund determine not to pay dividends on such stock, the amount
of dividends the Fund pays may be adversely affected. There is no assurance that
dividends or distributions on the traditional preferred securities in which the
Fund invests will be declared or otherwise made payable. Preferred stockholders
usually have no right to vote for corporate directors or on other matters.
Shares of traditional preferred securities have a liquidation value that
generally equals the original purchase price at the date of issuance. The market
value of

                                       31







<PAGE>

preferred securities may be affected by favorable and unfavorable changes
impacting companies in the utilities and financial services sectors, which are
prominent issuers of preferred securities, and by actual and anticipated changes
in tax laws, such as changes in corporate income tax rates. Because the claim on
an issuer's earnings represented by traditional preferred securities may become
onerous when interest rates fall below the rate payable on such securities, the
issuer may redeem the securities. Thus, in declining interest rate environments
in particular, the Fund's holdings of higher rate-paying fixed rate preferred
securities may be reduced and the Fund may be unable to acquire securities of
comparable credit quality paying comparable rates with the redemption proceeds.

    Pursuant to the DRD, corporations may generally deduct 70% of the income
they receive from dividends on traditional preferred securities that are paid
out of earnings and profits of the issuer. Corporate shareholders of a regulated
investment company like the Fund generally are permitted to claim a deduction
with respect to that portion of their distributions attributable to amounts
received by the regulated investment company that qualify for the DRD. However,
not all traditional preferred securities pay dividends that are eligible for the
DRD, including preferred securities issued by REITs described below. Under
current market conditions, it is expected that few, if any, of the preferred
securities in which the Fund intends to invest will qualify for the DRD.


    Pursuant to recently enacted legislation, individuals will generally be
taxed at long-term capital gain rates on qualified dividend income for taxable
years beginning on or before December 31, 2008. Individual shareholders of a
regulated investment company like the Fund generally are permitted to treat as
qualified dividend income that portion of their distributions attributable to
qualified dividend income received by the regulated investment company. However,
not all traditional preferred securities will provide signficant benefits under
the rules relating to qualified dividend income, including preferred securities
issued by REITs described below. Under current market conditions, it is expected
that few, if any, of the preferred securities in which the Fund intends to
invest will provide significant benefits under the rules relating to qualified
dividend income.



    Within the category of traditional preferred securities, the Fund may invest
up to 5% of its total assets in traditional preferred securities issued by real
estate companies, including REITs. REIT preferred securities are generally
perpetual in nature, although REITs often have the ability to redeem the
preferred securities after a specified period of time. The market value of REIT
preferred securities may be affected by favorable and unfavorable changes
impacting a particular REIT. While sharing characteristics that make them
similar to traditional preferred securities, dividends from REIT preferred
securities do not provide any DRD benefit (and generally do not provide
significant benefits under the rules relating to qualified dividend income).


    Hybrid-Preferred Securities. Hybrid-preferred securities are a comparatively
new asset class. Hybrid-preferred securities are typically issued by
corporations, generally in the form of interest-bearing notes with preferred
securities characteristics, or by an affiliated business trust of a corporation,
generally in the form of beneficial interests in subordinated debentures or
similarly structured securities. The hybrid-preferred securities market consists
of both fixed and adjustable coupon rate securities that are either perpetual in
nature or have stated maturity dates.

    Hybrid-preferred securities are typically junior and fully subordinated
liabilities of an issuer or the beneficiary of a guarantee that is junior and
fully subordinated to the other liabilities of the guarantor. In addition,
hybrid-preferred securities typically permit an issuer to defer the payment

                                       32







<PAGE>

of income for eighteen months or more without triggering an event of default.
Generally, the maximum deferral period is five years. Because of their
subordinated position in the capital structure of an issuer, the ability to
defer payments for extended periods of time without default consequences to the
issuer, and certain other features (such as restrictions on common dividend
payments by the issuer or ultimate guarantor when full cumulative payments on
the trust preferred securities have not been made), these hybrid-preferred
securities are often treated as close substitutes for traditional preferred
securities, both by issuers and investors. Hybrid-preferred securities have many
of the key characteristics of equity due to their subordinated position in an
issuer's capital structure and because their quality and value are heavily
dependent on the profitability of the issuer rather than on any legal claims to
specific assets or cash flows. Hybrid preferred securities include, but are not
limited to, trust originated preferred securities ('TOPRS'r''); monthly income
preferred securities ('MIPS'r''); quarterly income bond securities ('QUIBS'r'');
quarterly income debt securities ('QUIDS'r'); quarterly income preferred
securities ('QUIPS'sm''); corporate trust securities ('CORTS'r''); public income
notes ('PINES'r''); and other hybrid-preferred securities.*

    Hybrid-preferred securities are typically issued with a final maturity date,
although some are perpetual in nature. In certain instances, a final maturity
date may be extended and/or the final payment of principal may be deferred at
the issuer's option for a specified time without default. No redemption can
typically take place unless all cumulative payment obligations have been met,
although issuers may be able to engage in open-market repurchases without regard
to whether all payments have been paid.


    Many hybrid-preferred securities are issued by trusts or other special
purpose entities established by operating companies and are not a direct
obligation of an operating company. At the time the trust or special purpose
entity sells such preferred securities to investors, it purchases debt of the
operating company (with terms comparable to those of the trust or special
purpose entity securities), which enables the operating company to deduct for
tax purposes the interest paid on the debt held by the trust or special purpose
entity. The trust or special purpose entity is generally required to be treated
as transparent for Federal income tax purposes such that the holders of the
trust preferred securities are treated as owning beneficial interests in the
underlying debt of the operating company. Accordingly, payments on the
hybrid-preferred securities are treated as interest rather than dividends for
Federal income tax purposes and, as such, are not eligible for the DRD or the
reduced rates of tax that apply to qualified dividend income. The trust or
special purpose entity in turn would be a holder of the operating company's debt
and would have priority with respect to the operating company's earnings and
profits over the operating company's common shareholders, but would typically be
subordinated to other classes of the operating company's debt. Typically a
preferred share has a rating that is slightly below that of its corresponding
operating company's senior debt securities.


    Within the category of hybrid-preferred securities are senior debt
instruments that trade in the broader preferred securities market. These debt
instruments, which are sources of long-term capital for the issuers, have
structural features similar to preferred stock such as maturities ranging from

- ---------
* TOPRS is a registered service mark owned by Merrill Lynch & Co., Inc. MIPS and
  QUIDS are registered service marks and QUIPS is a service mark owned by
  Goldman, Sachs & Co. QUIBS is a registered service mark owned by Morgan
  Stanley. CORTS and PINES are registered service marks owned by Salomon Smith
  Barney Inc.

                                       33







<PAGE>

30 years to perpetuity, call features, exchange listings and the inclusion of
accrued interest in the trading price. Similar to other hybrid-preferred
securities, these debt instruments usually do not offer equity capital
treatment. CORTS'r' and PINES'r' are two examples of senior debt instruments
which are structured and trade as hybrid-preferred securities.

    Lower-Rated Securities. The Fund may invest up to 10% (measured at the time
of purchase) of its total assets in securities rated below investment grade.
These lower grade securities are commonly known as 'junk bonds.' Securities
rated below investment grade are judged to have speculative characteristics with
respect to their interest and principal payments. Such securities may face 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. Lower grade securities, though high yielding, are
characterized by high risk. They may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated securities. The retail secondary market for lower grade
securities may be less liquid than that of higher rated securities; adverse
conditions could make it difficult at times for the Fund to sell certain of
these securities or could result in lower prices than those used in calculating
the Fund's net asset value. Preferred stock or debt securities will be
considered to be investment grade if, at the time of investment, such security
has a rating of 'BBB' or higher by S&P, 'Baa' or higher by Moody's or an
equivalent rating by a nationally recognized statistical rating agency, or, if
unrated, such security is determined by the Investment Manager to be of
comparable quality.

    Financial Services Company Securities. The Fund intends to invest a
significant portion, but less than 25%, of its total assets in securities issued
by companies 'principally engaged' in the financial services industry (which are
prominent issuers of preferred securities). A company is 'principally engaged'
in financial services if it derives at least 50% of its consolidated revenues
from providing financial services. Companies in the financial services sector
include commercial banks, industrial banks, savings institutions, finance
companies, diversified financial services companies, investment banking firms,
securities brokerage houses, investment advisory companies, leasing companies,
insurance companies and companies providing similar services.

    Foreign Securities. The Fund may invest up to 20% of its total assets in
U.S. dollar-denominated securities of non-U.S. issuers traded or listed on a
U.S. securities exchange or the U.S. over-the-counter market. The Fund may
invest in any region of the world and invests in companies operating in
developed countries such as Canada, Japan, Australia, New Zealand and most
Western European countries. The Fund does not intend to invest in companies
based in emerging markets such as the Far East, Latin America and Eastern
Europe. The World Bank and other international agencies define emerging markets
based on such factors as trade initiatives, per capita income and level of
industrialization. For purposes of this 20% limitation, non-U.S. securities
include securities represented by American Depository Receipts.

    Debt Securities. The Fund may invest up to 20% of its total assets in debt
securities, including convertible debt securities and convertible preferred
securities. Convertible securities are debt securities or preferred stock that
are exchangeable for common stock of the issuer at a predetermined price (the
'conversion price'). Depending upon the relationship of the conversion price to
the market value of the underlying securities, convertible securities may trade
more like common stock than debt instruments. Common stock acquired pursuant to
a conversion feature will be subject to this 20% limitation. As a result of
conversion, the Fund may hold common stocks issued by companies other than real
estate companies or REITs, such holdings not normally

                                       34







<PAGE>

to exceed 5% of total assets. In addition, keeping with the income objective of
the Fund, the Fund expects to sell any common stock holdings of issuers other
than real estate companies or REITs as soon as practicable after conversion of a
convertible security. The Fund's investments in debt securities may include
investments in U.S. dollar-denominated corporate debt securities issued by
domestic and non-U.S. corporations (subject to the requirements noted above) and
U.S. dollar-denominated government debt securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities or a non-U.S. Government or
its agencies or instrumentalities (subject to the requirements noted above).

    Common Stocks. The Fund will normally invest at least 40%, but will not
invest more than 60%, of its total assets in common stocks issued by real estate
companies or REITs. Common stocks represent the residual ownership interest in
the issuer and holders of common stock are entitled to the income and increase
in the value of the assets and business of the issuer after all of its debt
obligations and obligations to preferred stockholders are satisfied. Common
stocks generally have voting rights. Common stocks fluctuate in price in
response to many factors including historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest rates,
investor perceptions and market liquidity.


Other Investment Companies



    The Fund may invest up to 10% of its total assets in securities of other
open- or closed-end investment companies, including exchange traded funds, that
invest primarily in securities of the types in which the Fund may invest
directly. The Fund generally expects to invest in other investment companies
either during periods when it has large amounts of uninvested cash, such as the
period shortly after the Fund receives the proceeds of the offering of its
common shares, or during periods when there is a shortage of attractive
opportunities in the market. As a shareholder in an investment company, the Fund
would bear its ratable share of that investment company's expenses, and would
remain subject to payment of the Fund's advisory and other fees and expenses
with respect to assets so invested. Holders of common shares would therefore be
subject to duplicative expenses to the extent the Fund invests in other
investment companies. The Investment Manager will take expenses into account
when evaluating the investment merits of an investment in an investment company
relative to available bond investments. The securities of other investment
companies may also be leveraged and will therefore be subject to the same
leverage risks to which the Fund is subject. As described in the sections
entitled 'Use of Leverage' and 'Use of Leverage -- Leverage Risks,' the net
asset value and market value of leveraged shares will be more volatile and the
yield to shareholders will tend to fluctuate more than the yield generated by
unleveraged shares. Investment companies may have investment policies that
differ from those of the Fund. In addition, to the extent the Fund invests in
other investment companies, the Fund will be dependent upon the investment and
research abilities of persons other than the Investment Manager.


    Illiquid Securities. While the Fund does not currently intend to invest in
illiquid securities (i.e., securities that are not readily marketable), it may
invest up to 10% of its total assets in illiquid securities. For this purpose,
illiquid securities include, but are not limited to, restricted securities
(securities the disposition of which is restricted under the Federal securities
laws), securities that may only be resold pursuant to Rule 144A under the
Securities Act but that are deemed to be illiquid, and repurchase agreements
with maturities in excess of seven days. The Board of Directors or its delegate
has the ultimate authority to determine, to the extent permissible under

                                       35







<PAGE>

the Federal securities laws, which securities are liquid or illiquid for
purposes of this 10% limitation. The Board of Directors has delegated to the
Investment Manager the day-to-day determination of the illiquidity of any
security held by the Fund, although it has retained oversight and ultimate
responsibility for such determinations. Although no definitive liquidity
criteria are used, the Board and/or the Investment Manager will consider factors
such as (i) the nature of the market for a security (including the institutional
private resale market; the frequency of trades and quotes for the security; the
number of dealers willing to purchase or sell the security; the amount of time
normally needed to dispose of the security; and the method of soliciting offers
and the mechanics of transfer), (ii) the terms of certain securities or other
instruments allowing for the disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand instruments) and (iii) other
permissible relevant factors.

    Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than that which prevailed when it decided to
sell. Illiquid securities will be priced at fair value as determined in good
faith by the Board of Directors or its delegate. If, through changes in the
market value of its portfolio securities, the Fund should be in a position where
more than 10% of the value of its total assets is invested in illiquid
securities, including restricted securities that are not readily marketable, the
Fund will take such steps as the Board and/or the Investment Manager deem
advisable, if any, to protect liquidity.

    Strategic Transactions. The Fund may, but is not required to, use various
strategic transactions described below to mitigate risks and to facilitate
portfolio management. Such strategic transactions are generally accepted under
modern portfolio management and are regularly used by many closed-end funds and
other institutional investors. Although the Investment Manager seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.

    The Fund may purchase and sell derivative instruments such as
exchange-listed and over-the-counter put and call options on securities,
financial futures, equity, fixed-income and interest rate indices, and other
financial instruments, purchase and sell financial futures contracts and options
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars or credit transactions and credit default swaps. The Fund also
may purchase derivative instruments that combine features of these instruments.
Collectively, all of the above are referred to as 'Strategic Transactions.' The
Fund generally seeks to use Strategic Transactions as a portfolio management or
hedging technique to seek to protect against possible adverse changes in the
market value of securities held in or to be purchased for the Fund's portfolio,
protect the value of the Fund's portfolio, facilitate the sale of certain
securities for investment purposes, manage the effective interest rate exposure
of the Fund, manage the effective maturity or duration of the Fund's portfolio,
or establish positions in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. There is no limit on the amount of
credit derivative transactions that may be entered into by the Fund.

    Strategic Transactions have risks, including the imperfect correlation
between the value of such instruments and the underlying assets, the possible
default of the other party to the transaction or

                                       36







<PAGE>

illiquidity of the derivative instruments. Furthermore, the ability to
successfully use Strategic Transactions depends on the Investment Manager's
ability to predict pertinent market movements, which cannot be assured. Thus,
the use of Strategic Transactions may result in losses greater than if they had
not been used, may require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, may limit the
amount of appreciation the Fund can realize on an investment, or may cause the
Fund to hold a security that it might otherwise sell. Additionally, amounts paid
by the Fund as premiums and cash or other assets held in margin accounts with
respect to Strategic Transactions are not otherwise available to the Fund for
investment purposes. A more complete discussion of Strategic Transactions and
their risks is contained in the Fund's SAI.

    The Fund also may enter into certain interest rate transactions that are
designed to reduce the risks inherent in the Fund's anticipated issuance of Fund
Preferred Shares. See 'Interest Rate Transactions.'

    When-Issued and Delayed Delivery Transactions. The Fund may buy and sell
securities on a when-issued or delayed delivery basis, making payment or taking
delivery at a later date, normally within 15 to 45 days of the trade date. This
type of transaction may involve an element of risk because no interest accrues
on the securities prior to settlement and, because securities are subject to
market fluctuations, the value of the securities at time of delivery may be less
(or more) than cost. A separate account of the Fund will be established with its
custodian consisting of cash equivalents or liquid securities having a market
value at all times at least equal to the amount of the commitment.

    Portfolio Turnover. The Fund may engage in portfolio trading when considered
appropriate, but short-term trading will not be used as the primary means of
achieving the Fund's investment objectives. 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 portfolio turnover rate results in
correspondingly greater brokerage commissions and other transactional expenses
that 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.

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

OTHER INVESTMENTS

    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 and commercial paper. See
'Investment Objectives and Policies' in the SAI.

                                       37







<PAGE>

                                USE OF LEVERAGE

    Fund Preferred Shares. Subject to market conditions and the Fund's receipt
of AAA/Aaa credit rating on the Fund Preferred Shares, approximately one to
three months after the completion of the offering of the Common Shares, the Fund
intends to offer Fund Preferred Shares representing approximately 35% of the
Fund's capital immediately after their issuance. The issuance of Fund Preferred
Shares will leverage your investment in the Common Shares. As an alternative to
the Fund Preferred Shares, the Fund may leverage through borrowings. The Fund
Preferred Shares and any borrowings will have seniority over the Common Shares.

    Changes in the value of the Fund's investment portfolio, including
securities bought with the proceeds of the leverage, will be borne entirely by
the holders of Common Shares. If there is a net decrease, or increase, in the
value of the Fund's investment portfolio, the leverage will decrease, or
increase (as the case may be), the net asset value per Common Share to a greater
extent than if the Fund were not leveraged. During periods in which the Fund is
using leverage, the fees paid to the Investment Manager for advisory services
will be higher than if the Fund did not use leverage because the fees paid will
be calculated on the basis of the Fund's managed assets, including the proceeds
from the issuance of Fund Preferred Shares and other leverage. Leverage involves
greater risks. The Fund's leveraging strategy may not be successful.

    Borrowings may be made by the Fund through reverse repurchase agreements
under which the Fund sells portfolio securities to financial institutions such
as banks and broker-dealers and agrees to repurchase them at a particular date
and price. Such agreements are considered to be borrowings under the 1940 Act.
The Fund may utilize reverse repurchase agreements when it is anticipated that
the interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction.

    Borrowings may also be made by the Fund through dollar roll transactions. A
dollar roll transaction involves a sale by the Fund of a mortgage-backed or
other security concurrently with an agreement by the Fund to repurchase a
similar security at a later date at an agreed-upon price. The securities that
are repurchased will bear the same interest rate and stated maturity as those
sold, but pools of mortgages collateralizing those securities may have different
prepayment histories than those sold. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
additional investments for the Fund, and the income from these investments will
generate income for the Fund. If such income does not exceed the income, capital
appreciation and gain or loss that would have been realized on the securities
sold as part of the dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what the performance would have
been without the use of dollar rolls.

    Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after the issuance the value of the Fund's total assets is at
least 200% of the liquidation value of the outstanding preferred shares (i.e.,
such liquidation value may not exceed 50% of the Fund's total assets less
liabilities other than borrowing). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its Common Shares unless, at
the time of such declaration, the value of the Fund's total assets less
liabilities other than borrowing is at least 200% of such liquidation value. If
Fund Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Fund Preferred Shares from time to time to the extent
necessary in order to maintain coverage of any Fund Preferred Shares of at least
200%. If the

                                       38







<PAGE>

Fund has Fund Preferred Shares outstanding, two of the Fund's Directors will be
elected by the holders of Fund Preferred Shares, voting separately as a class.
The remaining Directors of the Fund will be elected by holders of Common Shares
and Fund Preferred Shares voting together as a single class. In the event the
Fund failed to pay dividends on Fund Preferred Shares for two years, Fund
Preferred Shareholders would be entitled to elect a majority of the Directors of
the Fund. The failure to pay dividends or make distributions could result in the
Fund ceasing to qualify as a regulated investment company under the Code, which
could have a material adverse effect on the value of the Common Shares. See
'Description of Shares -- Fund Preferred Shares.'

    Under the 1940 Act, the Fund generally is not permitted to borrow unless
immediately after the borrowing the value of the Fund's total assets less
liabilities other than the borrowing is at least 300% of the principal amount of
such borrowing (i.e., such principal amount may not exceed 33 1/3% of the Fund's
total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total assets, less liabilities other than
the borrowings, is at least 300% of such principal amount. If the Fund borrows,
the Fund intends, to the extent possible, to prepay all or a portion of the
principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default and entitle the debt holders to
elect a majority of the board of directors.

    The Fund may be subject to certain restrictions imposed by either guidelines
of one or more rating agencies which may issue ratings for Fund Preferred or, if
the Fund borrows from a lender, by the lender. These restrictions may impose
asset coverage or portfolio composition requirements that are more stringent
than those imposed on the Fund by the 1940 Act. It is not anticipated that these
restrictions will impede the Investment Manager from managing the Fund's
portfolio in accordance with the Fund's investment objectives and policies. In
addition to other considerations, to the extent that the Fund believes that the
guidelines required by the rating agencies would impede its ability to meet its
investment objectives, or if the Fund is unable to obtain the rating on the Fund
Preferred Shares (expected to be AAA/Aaa), the Fund will not issue the Fund
Preferred Shares.

    Assuming that the Fund Preferred Shares or borrowings will represent
approximately 35% of the Fund's capital and pay dividends or interest or involve
payment at a rate set by an interest rate transaction at an annual average rate
of 2.88%, the income generated by the Fund's portfolio (net of estimated
expenses) must exceed 1.01% in order to cover such dividend payments or interest
or payment rates and other expenses specifically related to the Fund Preferred
Shares or borrowings. Of course, these numbers are merely estimates, used for
illustration. Actual Fund Preferred Share dividend rates, interest or
borrowings, or payment rates may vary frequently and may be significantly higher
or lower than the rate estimated above.

    The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on Common Share total return, assuming investment portfolio total
returns (comprised of income and changes in the value of investments held in the
Fund's portfolio) of  - 10%,  - 5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative of
the investment portfolio returns expected to be experienced by the Fund. The
table further reflects the issuance of Fund Preferred Shares or borrowings
representing 35% of the Fund's total capital. See 'Use of Leverage -- Leverage
Risks.'

                                       39







<PAGE>

<Table>
<S>                                        <C>         <C>        <C>        <C>      <C>
Assumed Portfolio Total Return...........     (10)%       (5)%        0 %       5%       10%
Common Share Total Return................  (16.94)%    (9.24)%    (1.55)%    6.14%    13.83%
</Table>

    Common Share total return is composed of two elements -- the Common Share
dividends paid by the Fund (the amount of which is largely determined by the net
investment income of the Fund after paying dividends on Fund Preferred Shares or
interest on borrowings or payment rate set by an interest rate transaction) and
gains or losses on the value of the securities the Fund owns. As required by
Securities and Exchange Commission rules, the table assumes that the Fund is
more likely to suffer capital losses than to enjoy capital appreciation.

    During the time in which the Fund is utilizing leverage, the fees paid to
the Investment Manager for investment advisory and management services will be
higher than if the Fund did not utilize leverage because the fees paid will be
calculated based on the Fund's managed assets. Only the Fund's Common
Shareholders bear the cost of the Fund's fees and expenses, including the costs
associated with any offering of Fund Preferred Shares (estimated to be slightly
more than 1% of the total amount of the Fund Preferred Share offering) which
will be borne immediately by Common Shareholders, and the costs associated with
any borrowing. See 'Summary of Fund Expenses.'

    The Fund 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 otherwise might require untimely dispositions of
Fund securities.

LEVERAGE RISKS

    Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Shares. These include the possibility of
higher volatility of the net asset value of the Common Shares and potentially
more volatility in the market value of the Common Shares. So long as the Fund is
able to realize a higher net return on its investment portfolio than the then
current cost of any leverage together with other related expenses, the effect of
the leverage will be to cause holders of Common Shares to realize higher current
net investment income than if the Fund were not so leveraged. On the other hand,
to the extent that the then current cost of any leverage, together with other
related expenses, approaches the net return on the Fund's investment portfolio,
the benefit of leverage to holders of Common Shares will be reduced, and if the
then current cost of any leverage were to exceed the net return on the Fund's
portfolio, the Fund's leveraged capital structure would result in a lower rate
of return to Common Shareholders than if the Fund were not so leveraged.

    Any decline in the net asset value of the Fund's investments will be borne
entirely by Common Shareholders. Therefore, if the market value of the Fund's
portfolio declines, the leverage will result in a greater decrease in net asset
value to Common Shareholders than if the Fund were not leveraged. Such greater
net asset value decrease will also tend to cause a greater decline in the market
price for the Common Shares. To the extent that the Fund is required or elects
to redeem any Fund Preferred Shares or prepay any borrowings, the Fund may need
to liquidate investments to fund such redemptions or prepayments. Liquidation at
times of adverse economic conditions may result in capital loss and reduce
returns to Common Shareholders.

    In addition, such redemption or prepayment would likely result in the Fund
seeking to terminate early all or a portion of any swap or cap transaction.
Early termination of the swap

                                       40







<PAGE>

could result in a termination payment by or to the Fund. Early termination of a
cap could result in a termination payment to the Fund. See 'Interest Rate
Transactions.'

    Unless and until Fund Preferred Shares are issued or borrowings for leverage
are made, the Common Shares will not be leveraged and the disclosure regarding
these strategies will not apply.

                           INTEREST RATE TRANSACTIONS

    In order to reduce the interest rate risk inherent in our underlying
investments and capital structure, we may enter into interest rate swap or cap
transactions. Interest rate swaps involve the Fund's agreement with the swap
counterparty to pay a fixed rate payment in exchange for the counterparty paying
the Fund a variable rate payment that is intended to approximate the Fund's
variable rate payment obligation on the Fund Preferred Shares or any variable
rate borrowing. The payment obligation would be based on the notional amount of
the swap. We may use an interest rate cap, which would require us to pay a
premium to the cap counterparty and would entitle us, to the extent that a
specified variable rate index exceeds a predetermined fixed rate, to receive
from the counterparty payment of the difference based on the notional amount of
such cap. We would use interest rate swaps or caps only with the intent to
reduce or eliminate the risk that an increase in short-term interest rates could
have on the performance of the Fund's Common Shares as a result of leverage.

    The use of interest rate swaps and caps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. Depending on the state of
interest rates in general, our use of interest rate swaps or caps could enhance
or harm the overall performance of the Fund's Common Shares. To the extent there
is a decline in interest rates, the value of the interest rate swap or cap could
decline, and could result in a decline in the net asset value of the Common
Shares. In addition, if short-term interest rates are lower than our rate of
payment on the interest rate swap, this will reduce the performance of the
Fund's Common Shares. If, on the other hand, short-term interest rates are
higher than our rate of payment on the interest rate swap, this will enhance the
performance of the Fund's Common Shares. Buying interest rate caps could enhance
the performance of the Fund's Common Shares by providing a maximum leverage
expense. Buying interest rate caps could also decrease the net income of the
Fund's Common Shares in the event that the premium paid by the Fund to the
counterparty exceeds the additional amount the Fund would have been required to
pay had it not entered into the cap agreement. The Fund has no current intention
of selling an interest rate swap or cap. We would not enter into interest rate
swap or cap transactions in an aggregate notional amount that exceeds the
outstanding amount of the Fund's leverage.

    Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counter-party defaults, the
Fund would not be able to use the anticipated net receipts under the swap or cap
to offset the dividend payments on the Fund Preferred Shares or rate of interest
on borrowings. Depending on whether the Fund would be entitled to receive net
payments from the counterparty on the swap or cap, which in turn would depend on
the general state of short-term interest rates at that point in time, such
default could negatively impact the performance of the Fund's Common Shares.
Although this will not guarantee that the counterparty does not default, the
Fund will not enter into an interest rate swap or cap transaction with any
counterparty that the Investment Manager believes does not have the financial
resources to honor its obligation

                                       41







<PAGE>

under the interest rate swap or cap transaction. Further, the Investment Manager
will continually monitor the financial stability of a counterparty to an
interest rate swap or cap transaction in an effort to proactively protect the
Fund's investments. In addition, at the time an interest rate swap or cap
transaction reaches its scheduled termination date, there is a risk that the
Fund will not be able to obtain a replacement transaction or that the terms of
the replacement will not be as favorable as on the expiring transaction. If this
occurs, it could have a negative impact on the performance of the Fund's Common
Shares.

    The Fund will usually enter into swaps or caps on a net basis; that is, the
two payment streams will be netted out in a cash settlement on the payment date
or dates specified in the instrument, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments. The Fund intends to
maintain in a segregated account with its custodian cash or liquid securities
having a value at least equal to the Fund's net payment obligations under any
swap transaction, marked to market daily.

    The Fund may choose or be required to redeem some or all of the Fund
Preferred Shares or prepay any borrowings. This redemption or prepayment would
likely result in the Fund seeking to terminate early all or a portion of any
swap or cap transaction. Such early termination of a swap could result in
termination payment by or to the Fund. An early termination of a cap could
result in a termination payment to the Fund.

                          PRINCIPAL RISKS OF THE FUND

    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 objectives.

NO OPERATING HISTORY

    We are a newly organized, non-diversified, closed-end management investment
company with no operating history.

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 Common Shares represents an indirect investment in the
common stock, preferred securities and other securities owned by the Fund,
substantially all of which are traded on a national securities exchange or in
the over-the-counter markets. The value of these securities, like other stock
market investments, may move up or down, sometimes rapidly and unpredictably.
Your Common 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. The Fund may utilize leverage, which magnifies the stock market
risk. See 'Use of Leverage -- Leverage Risks.'

                                       42







<PAGE>

INTEREST RATE RISK

    Interest rate risk is the risk that fixed-income securities such as
preferred and debt securities, and to a lessor extent dividend-paying common
stocks and shares such as REIT common shares, will decline in value because of
changes in market interest rates. When market interest rates rise, the market
value of such securities generally will fall. The Fund's investment in such
securities means that the net asset value and market price of common shares may
tend to decline if market interest rates rise. Because investors generally look
to REITs for a stream of income, the prices of REIT shares may be more sensitive
to changes in interest rates than are other equity securities.

    During periods of declining interest rates, the issuer of a security may
exercise its option to prepay principal earlier than scheduled which is
generally known as call or prepayment risk. If this occurs, the Fund may be
forced to reinvest in lower yielding securities. This is known as reinvestment
risk. Preferred and debt securities frequently have call features that allow the
issuer to repurchase the security prior to its stated maturity. An issuer may
redeem an obligation if the issuer can refinance the debt at a lower cost due to
declining interest rates or an improvement in the credit standing of the issuer.
During periods of rising interest rates, the average life of certain types of
securities may be extended because of slower than expected principal payments.
This may lock in a below market interest rate, increase the security's duration
and reduce the value of the security. This is known as extension risk. Market
interest rates for investment grade fixed-income securities in which the Fund
will invest have recently declined significantly below the recent historical
average rates for such securities. This decline may have increased the risk that
these rates will rise in the future (which would cause the value of the Fund's
net assets to decline) and the degree to which asset values may decline in such
events; however, historical interest rate levels are not necessarily predictive
of future interest rate levels.

CREDIT RISK AND LOWER-RATED SECURITIES RISK

    Credit risk is the risk that a preferred or debt security in the Fund's
portfolio will decline in price or fail to make dividend, interest or principal
payments when due because the issuer of the security experiences a decline in
its financial status. Preferred securities are subordinated to bonds and other
debt instruments in a company's capital structure, in terms of priority to
corporate income, and therefore will be subject to greater credit risk than debt
instruments. The Fund may invest up to 10% (measured at the time of purchase) of
its total assets in preferred or other debt securities that are rated below
investment grade. Securities rated below investment grade are regarded as having
predominately speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, and these bonds are commonly referred to as
'junk bonds.' These securities are subject to a greater risk of default. The
prices of these lower grade securities are more sensitive to negative
developments, such as a decline in the issuer's revenues or a general economic
downturn, than are the prices of higher grade securities. Lower grade securities
tend to be less liquid than investment grade securities. The market values of
lower grade securities tend to be more volatile than investment grade
securities. Preferred stock or debt securities will be considered to be
investment grade if, at the time of investment, such security has a rating of
'BBB' or higher by S&P, 'Baa' or higher by Moody's or an equivalent rating by a
nationally recognized statistical rating agency, or, if unrated, such security
is determined by the Investment Manager to be of comparable quality.

                                       43







<PAGE>

    Lower-rated 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 lower-rated securities may be more complex
than for issuers of higher quality debt securities, and our ability to achieve
our investment objectives may, to the extent we are invested in lower-rated
securities, be more dependent upon such creditworthiness analysis than would be
the case if we were investing in higher quality securities. An issuer of these
securities has a currently identifiable vulnerability to default and the issuer
may be in default or there may be present elements of danger with respect to
principal or interest. We will not invest in securities which are in default at
the time of purchase.

    Lower-rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of lower-rated 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
lower-rated securities will fluctuate if the issuer of lower-rated securities
defaults, the Fund may incur additional expenses to seek recovery.

    The secondary markets in which lower-rated 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 lower-rated 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 lower-rated 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 lower-rated securities.

COUNTERPARTY RISK

    The Fund will be subject to credit risk with respect to the counterparties
to any derivative contracts purchased by the Fund. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery under the derivative contract in bankruptcy or
other reorganization proceeding. The Fund may obtain only a limited recovery or
may obtain no recovery in such circumstances.

SPECIAL RISKS OF SECURITIES LINKED TO THE REAL ESTATE MARKET

    At least 40%, but no more than 60%, of the Fund's total assets will be
concentrated in common stock of real estate companies which will consist
primarily of REITs. The Fund will not invest in real estate directly, but only
in securities issued by real estate companies or REITs. However, because of the
Fund's policy of concentration in the securities of companies in the real estate
industry, the Fund is also subject to the risks associated with the direct
ownership of real estate. These risks include:

      declines in the value of real estate;

                                       44







<PAGE>

      risks related to general and local economic conditions;

      possible lack of availability of mortgage funds;

      overbuilding;

      extended vacancies of properties;

      increased competition;

      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;
      and

      changes in interest rates.

    Thus, the value of the Common 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 and will depend on the general condition of the
economy. An economic downturn could have a material adverse effect on the real
estate markets and on real estate companies in which the Fund invests, which in
turn could result in the Fund not achieving its investment objectives.

    General Real Estate Risks. Real property investments are subject to varying
degrees of risk. The yields available from investments in real estate depend on
the amount of income and capital appreciation generated by the related
properties. Income and real estate values may also be adversely affected by such
factors as applicable laws (e.g., Americans with Disabilities Act and tax laws),
interest rate levels and the availability of financing. If the properties do not
generate sufficient income to meet operating expenses, including, where
applicable, debt service, ground lease payments, tenant improvements,
third-party leasing commissions and other capital expenditures, the income and
ability of the real estate company to make payments of any interest and
principal on its debt securities will be adversely affected. In addition, real
property may be subject to the quality of credit extended and defaults by
borrowers and tenants. The performance of the economy in each of the regions in
which the real estate owned by the portfolio company is located affects
occupancy, market rental rates and expenses and, consequently, has an impact on
the income from such properties and their underlying values. The financial
results of major local employers also may have an impact on the cash flow and
value of certain properties. In addition, real estate investments are relatively
illiquid and, therefore, the ability of real estate companies to vary their
portfolios promptly in response to changes in economic or other conditions is
limited. A real estate company may also have joint venture investments in
certain of its properties and, consequently, its ability to control decisions
relating to such properties may be limited.

    Real property investments are also subject to risks which are specific to
the investment sector or type of property in which the real estate companies are
investing.

    Retail Properties. Retail properties are affected by the overall health of
the applicable economy. A retail property may be adversely affected by the
growth of alternative forms of

                                       45







<PAGE>

retailing, bankruptcy, decline in drawing power, departure or cessation of
operations of an anchor tenant, a shift in consumer demand due to demographic
changes, and/or changes in consumer preference (for example, to discount
retailers) and spending patterns. A retail property may also be adversely
affected if a significant tenant ceases operation at such location, voluntarily
or otherwise. Certain tenants at retail properties may be entitled to terminate
their leases if an anchor tenant ceases operations at such property.

    Office Properties. Office properties generally require their owners to
expend significant amounts for general capital improvements, tenant improvements
and costs of reletting space. In addition, office properties that are not
equipped to accommodate the needs of modern businesses may become functionally
obsolete and thus noncompetitive. Office properties are affected by the overall
health of the economy as well as economic declines in the businesses operated by
their tenants. The risks of such an adverse effect is increased if the property
revenue is dependent on a single tenant or if there is a significant
concentration of tenants in a particular business or industry.

    Hotel Properties. The risks of hotel properties include, among other things,
the necessity of a high level of continuing capital expenditures to keep
necessary furniture, fixtures and equipment updated, competition from other
hotels, increases in operating costs (which increases may not necessarily be
offset in the future by increased room rates), dependence on business and
commercial travelers and tourism, increases in fuel costs and other expenses of
travel, changes to regulation of operating liquor and other licenses, and
adverse effects of general and local economic conditions. Due to the fact that
hotel rooms are generally rented for short periods of time, hotel properties
tend to be more sensitive to adverse economic conditions and competition than
many other commercial properties.

    Also, hotels may be operated pursuant to franchise, management and operating
agreements that may be terminable by the franchiser, the manager or the
operator. Contrarily, it may be difficult to terminate an ineffective operator
of a hotel property subsequent to a foreclosure of such property.

    Healthcare Properties. Healthcare properties and healthcare providers are
affected by several significant factors including federal, state and local laws
governing licenses, certification, adequacy of care, pharmaceutical
distribution, rates, equipment, personnel and other factors regarding
operations; continued availability of revenue from government reimbursement
programs (primarily Medicaid and Medicare); and competition in terms of
appearance, reputation, quality and cost of care with similar properties on a
local and regional basis.

    These governmental laws and regulations are subject to frequent and
substantial changes resulting from legislation, adoption of rules and
regulations, and administrative and judicial interpretations of existing law.
Changes may also be applied retroactively and the timing of such changes cannot
be predicted. The failure of any healthcare operator to comply with governmental
laws and regulations may affect its ability to operate its facility or receive
government reimbursement. In addition, in the event that a tenant is in default
on its lease, a new operator or purchaser at a foreclosure sale will have to
apply in its own right for all relevant licenses if such new operator does not
already hold such licenses. There can be no assurance that such new licenses
could be obtained, and consequently, there can be no assurance that any
healthcare property subject to foreclosure will be disposed of in a timely
manner.

    Multifamily Properties. The value and successful operation of a multifamily
property may be affected by a number of factors such as the location of the
property, the ability of management to

                                       46







<PAGE>

provide adequate maintenance and insurance, types of services provided by the
property, the level of mortgage rates, presence of competing properties, the
relocation of tenants to new projects with better amenities, adverse economic
conditions in the locale, the amount of rent charged and oversupply of units due
to new construction. In addition, multifamily properties may be subject to rent
control laws or other laws affecting such properties, which could impact the
future cash flows of such properties.

    Insurance Issues. Certain of the portfolio companies may, in connection with
the issuance of securities, have disclosed that they carry comprehensive
liability, fire, flood, earthquake extended coverage and rental loss insurance
with policy specifications, limits and deductibles customarily carried for
similar properties. However such insurance is not uniform among the portfolio
companies. Moreover, there are certain types of extraordinary losses that may be
uninsurable, or not economically insurable. Certain of the properties may be
located in areas that are subject to earthquake activity for which insurance may
not be maintained. Should a property sustain damage as a result of an
earthquake, even if the portfolio company maintains earthquake insurance, the
portfolio company may incur substantial losses due to insurance deductibles,
co-payments on insured losses or uninsured losses. Should any type of uninsured
loss occur, the portfolio company could lose its investment in, and anticipated
profits and cash flows from, a number of properties and, as a result, would
impact the Fund's investment performance.

    Credit Risk. REITs may be highly leveraged and financial covenants may
affect the ability of REITs to operate effectively. The portfolio companies are
subject to risks normally associated with debt financing. If the principal
payments of a REIT's debt cannot be refinanced, extended or paid with proceeds
from other capital transactions, such as new equity capital, the REIT's cash
flow may not be sufficient to repay all maturing debt outstanding.

    In addition, a portfolio company's obligation to comply with financial
covenants, such as debt-to-asset ratios and secured debt-to-total asset ratios,
and other contractual obligations may restrict a REIT's range of operating
activity. A portfolio company, therefore, may be limited from incurring
additional indebtedness, selling its assets and engaging in mergers or making
acquisitions which may be beneficial to the operation of the REIT.

    Environmental Issues. In connection with the ownership (direct or indirect),
operation, management and development of real properties that may contain
hazardous or toxic substances, a portfolio company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances and, therefore, may be potentially liable for
removal or remediation costs, as well as certain other costs, including
governmental fines and liabilities for injuries to persons and property. The
existence of any such material environmental liability could have a material
adverse effect on the results of operations and cash flow of any such portfolio
company and, as a result, the amount available to make distributions on the
shares could be reduced.

    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. 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

                                       47







<PAGE>

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.

    Tax Issues. REITs are subject to a highly technical and complex set of
provisions in the Code. It is possible that the Fund may invest in a real estate
company which purports to be a REIT and that the company could fail to qualify
as a REIT. In the event of any such unexpected failure to qualify as a REIT, the
company would be subject to corporate-level taxation, significantly reducing the
return to the Fund on its investment in such company. 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.

SPECIAL RISKS RELATED TO PREFERRED SECURITIES

    There are special risks associated with investing in preferred securities,
including:

    Deferral and Omission. Preferred securities may include provisions that
permit the issuer, at its discretion, to defer or omit distributions for a
stated period without any adverse consequences to the issuer. If the Fund owns a
preferred security that is deferring or omitting its distributions, the Fund may
be required to report income for tax purposes although it has not yet received
such income.

    Subordination. Preferred securities are subordinated to bonds and other debt
instruments in a company's capital structure in terms of priority to corporate
income and liquidation payments, and therefore will be subject to greater credit
risk than more senior debt instruments.

    Liquidity. Preferred securities may be substantially less liquid than many
other securities, such as common stocks or U.S. Government securities.

    Limited Voting Rights. Generally, traditional preferred securities offer no
voting rights with respect to the issuing company unless preferred dividends
have been in arrears for a specified number of periods, at which time the
preferred security holders may elect a number of directors to the issuer's
board. Generally, once all the arrearages have been paid, the preferred security
holders no longer have voting rights. Hybrid-preferred security holders
generally have no voting rights.

    Special Redemption Rights. In certain varying circumstances, an issuer of
preferred securities may redeem the securities prior to a specified date. For
instance, for certain types of preferred securities, a redemption may be
triggered by a change in Federal income tax or securities laws. As with call
provisions, a redemption by the issuer may negatively impact the return of the
security held by the Fund.

    Supply of Hybrid-Preferred Securities. The Financial Accounting Standards
Board currently is reviewing accounting guidelines relating to hybrid-preferred
securities. To the extent that a change in the guidelines could adversely affect
the market for, and availability of, these securities, the Fund may be adversely
affected. The adoption of the Bush Administration's proposal to eliminate the
Federal income tax on dividends may also adversely impact the market and supply
of hybrid-preferred securities if the issuance of such securities becomes less
attractive to issuers.

                                       48







<PAGE>

    New Types of Securities. From time to time, preferred securities, including
hybrid-preferred securities, have been, and may in the future be, offered having
features other than those described herein. The Fund reserves the right to
invest in these securities if the Investment Manager believes that doing so
would be consistent with the Fund's investment objectives and policies. Since
the market for these instruments would be new, the Fund may have difficulty
disposing of them at a suitable price and time. In addition to limited
liquidity, these instruments may present other risks, such as high price
volatility.

GENERAL RISKS OF SECURITIES LINKED TO THE FINANCIAL SERVICES INDUSTRY

    The Fund intends to invest a significant portion, but less than 25%, of its
total assets in securities of companies principally engaged in the financial
services industry, which are prominent issuers of preferred securities. Because
the Fund may invest such amounts in this sector, the Fund may be susceptible to
adverse economic or regulatory occurrences affecting that sector.

    Investing in the financial services sector includes the following risks:

      regulatory actions -- financial services companies may suffer a setback if
      regulators change the rules under which they operate;

      changes in interest rates -- unstable interest rates can have a
      disproportionate effect on the financial services sector;

      concentration of loans -- financial services companies whose securities
      the Fund may purchase may themselves have concentrated portfolios, such as
      a high level of loans to real estate developers, which makes them
      vulnerable to economic conditions that affect that sector; and

      competition -- financial services companies have been affected by
      increased competition, which could adversely affect the profitability or
      viability of such companies.

FOREIGN SECURITIES RISKS

    Under normal market conditions, the Fund may invest up to 20% of its total
assets in U.S. dollar-denominated securities of foreign issuers traded or listed
on a U.S. securities exchange or the U.S. over-the-counter market ('Foreign
Securities'). Typically, the Fund will not hold any Foreign Securities of
issuers in so-called 'emerging markets' (or lesser developed countries), but to
the extent it does, the Fund will not invest more than 10% of its total assets
in such securities. Investments in such securities are particularly speculative.
Investing in Foreign Securities involves certain risks not involved in domestic
investments, including, but not limited to:

      future foreign economic, financial, political and social developments;

      different legal systems;

      the possible imposition of exchange controls or other foreign governmental
      laws or restrictions;

      less governmental supervision;

      regulation changes;

      changes in currency exchange rates;

      less publicly available information about companies due to less rigorous
      disclosure or accounting standards or regulatory practices;

                                       49







<PAGE>

      high and volatile rates of inflation;

      fluctuating interest rates;

      less publicly available information; and

      different accounting, auditing and financial record-keeping standards and
      requirements.

    Investments in Foreign Securities, especially in emerging market countries,
will expose the Fund to the direct or indirect consequences of political, social
or economic changes in the countries that issue the securities or in which the
issuers are located. Certain countries in which the Fund may invest, especially
emerging market countries, have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Many of these countries are
also characterized by political uncertainty and instability. The cost of
servicing external debt will generally be adversely affected by rising
international interest rates because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates. In
addition, with respect to certain foreign countries, there is a risk of:

      the possibility of expropriation of assets;

      confiscatory taxation;

      difficulty in obtaining or enforcing a court judgment;

      economic, political or social instability; and

      diplomatic developments that could affect investments in those countries.

    In addition, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as:

      growth of gross domestic product;

      rates of inflation;

      capital reinvestment;

      resources;

      self-sufficiency; and

      balance of payments position.

    In addition, certain investments in Foreign Securities also may be subject
to foreign withholding taxes.

    Investing in securities of companies in emerging markets may entail special
risks relating to potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, the lack of hedging instruments, and on repatriation of
capital invested. Emerging securities markets are substantially smaller, less
developed, less liquid and more volatile than the major securities markets. The
limited size of emerging securities markets and limited trading value compared
to the volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities,

                                       50







<PAGE>

especially in these markets. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates and corresponding
currency devaluations have had and may continue to have negative effects on the
economies and securities markets of certain emerging market countries.
Typically, the Fund will not hold any Foreign Securities of emerging market
issuers, and, if it does, such securities will not comprise more than 10% of the
Fund's total assets.

    As a result of these potential risks, the Investment Manager may determine
that, notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including the Investment
Manager, have had no or limited prior experience.

OTHER INVESTMENT MANAGEMENT TECHNIQUES RISK

    Strategic Transactions in which the Fund may engage also involve certain
risks and special considerations, including engaging in hedging and risk
management transactions such as interest rate transactions, options, futures,
swaps and other derivatives transactions. Strategic Transactions will be entered
into to seek to manage the risks of the Fund's portfolio of securities, but may
have the effect of limiting the gains from favorable market movements. Strategic
Transactions involve risks, including (1) that the loss on the Strategic
Transaction position may be larger than the gain in the portfolio position being
hedged and (2) that the derivative instruments used in Strategic Transactions
may not be liquid and may require the Fund to pay additional amounts of money.
Successful use of Strategic Transactions depends on the Investment Manager's
ability to predict correctly market movements, which, of course, cannot be
assured. Losses on Strategic Transactions may reduce the Fund's net asset value
and its ability to pay dividends if they are not offset by gains on the
portfolio positions being hedged. The Fund may also lend the securities it owns
to others, which allows the Fund the opportunity to earn additional income.
Although the Fund will require the borrower of the securities to post collateral
for the loan and the terms of the loan will require that the Fund be able to
reacquire the loaned securities if certain events occur, the Fund is still
subject to the risk that the borrower of the securities may default, which could
result in the Fund losing money, which would result in a decline in the Fund's
net asset value. The Fund may also purchase securities for delayed settlement.
This means that the Fund is generally obligated to purchase the securities at a
future date for a set purchase price, regardless of whether the value of the
securities is more or less than the purchase price at the time of settlement.

CONVERTIBLE SECURITIES RISK

    Although to a lesser extent than with fixed-income securities, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities

                                       51







<PAGE>

investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

COMMON STOCK RISK

    While common stock has historically generated higher average returns than
fixed income securities, common stock has also experienced significantly more
volatility in those returns. An adverse event, such as an unfavorable earnings
report, may depress the value of common stock held by the Fund. Also, the price
of common stock is sensitive to general movements in the stock market. A drop in
the stock market may depress the price of common stock held by the Fund.

TAX RISK

    The Fund may invest in preferred securities or other securities the Federal
income tax treatment of which may not be clear or may be subject to
recharacterization by the Internal Revenue Service. It could be more difficult
for the Fund to comply with the tax requirements applicable to regulated
investment companies if the tax characterization of the Fund's investments or
the tax treatment of the income from such investments were successfully
challenged by the Internal Revenue Service. See 'Taxation.'


    In addition, investors should note that the Fund is not expected to generate
significant income that qualifies for the DRD or the reduced rates of tax that
apply to qualified dividend income. See 'Taxation.'


RESTRICTED AND ILLIQUID SECURITIES RISK

    The Fund may invest, on an ongoing basis, in restricted securities and other
investments that may be illiquid. Illiquid securities are securities that are
not readily marketable and may include some restricted securities, which are
securities that may not be resold to the public without an effective
registration statement under the Securities Act or, if they are unregistered,
may be sold only in a privately negotiated transaction or pursuant to an
exemption from registration. Illiquid investments involve the risk that the
securities will not be able to be sold at the time desired by the Fund or at
prices approximating the value at which the Fund is carrying the securities on
its books.

LEVERAGE RISK

    The Fund intends to use leverage by issuing Fund Preferred Shares,
representing approximately 35% of the Fund's total capital after their issuance
or alternatively, through borrowing. Leverage is a speculative technique and
there are special risks and costs associated with leveraging. For a more
detailed description of the risks associated with leverage, see 'Use of
Leverage.'

INTEREST RATE TRANSACTIONS RISK

    The Fund may enter into a swap or cap transaction to attempt to protect
itself from increasing dividend or interest expenses resulting from increasing
short-term interest rates. A decline in interest rates may result in a decline
in the value of the swap or cap which may result in a decline in the net asset
value of the Fund. A sudden and dramatic decline in interest rates

                                       52







<PAGE>

may result in a significant decline in the net asset value of the Fund. See
'Interest Rate Transactions.'

RISK OF 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 certain offering costs in connection with this
offering and any offering of Fund Preferred Shares. Whether investors will
realize gains or losses upon the sale of the shares will depend not upon the
Fund's net asset value but 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.

                         ADDITIONAL RISK CONSIDERATIONS

PORTFOLIO TURNOVER RISK

    We may engage in portfolio trading when considered appropriate, but
short-term trading will not be used as the primary means of achieving the Fund's
investment objectives. 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.'

INFLATION RISK

    Inflation risk is the risk that the value of assets or income from
investment will be worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of the Common Shares and
distributions can decline. In addition, during any periods of rising inflation,
Fund Preferred share dividend rates would likely increase, which would tend to
further reduce returns to holders of Common Shares.

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

                                       53







<PAGE>

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 (other than U.S. Government
securities or the securities of other regulated investment companies) of a
single issuer, or two or more issuers which the Fund controls and are engaged in
the same, similar or related trades or businesses and (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 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
presents greater risk to you than an investment in a diversified company.

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.'

MARKET DISRUPTION RISK


    The terrorist attacks in the U.S. on September 11, 2001 had a disruptive
effect on the securities markets. The war in Iraq and instability in the Middle
East also has resulted in recent market volatility and may have long-term
effects on the U.S. and worldwide financial markets and may cause further
economic uncertainties in the U.S. and worldwide. The Fund does not know how
long the securities markets will continue to be affected by these events and
cannot predict the effects of the war or similar events in the future on
the U.S. economy and securities markets.


                           HOW THE FUND MANAGES RISK

INVESTMENT LIMITATIONS

    The Fund has adopted certain investment limitations designed to limit
investment risk. These limitations are fundamental and may not be changed
without the approval of the holders of a majority of the outstanding common
shares and, if issued, Fund Preferred Shares voting together as a single class,
and the approval of the holders of a majority of the Preferred Shares voting as
a separate class. Among other restrictions, the Fund may not invest more than
25% of its managed assets in securities of issuers in any one industry except
for the real estate industry.

    The Fund may become subject to guidelines that are more limiting than its
investment restrictions in order to obtain and maintain ratings from Moody's,
S&P or another nationally

                                       54







<PAGE>

recognized rating agency on the Fund Preferred Shares that it intends to issue.
The Fund does not anticipate that such guidelines would have a material adverse
effect on the Fund's common shareholders or the Fund's ability to achieve its
investment objectives. See 'Investment Objectives and Policies' in the SAI for a
complete list of the fundamental and non-fundamental investment policies of the
Fund.

MANAGEMENT OF INVESTMENT PORTFOLIO AND CAPITAL STRUCTURE TO LIMIT LEVERAGE RISK

    The Fund may take certain actions if short-term interest rates increase or
market conditions otherwise change (or the Fund anticipates such an increase or
change) and the Fund's leverage begins (or is expected) to adversely affect
Common Shareholders. In order to attempt to offset such a negative impact of
leverage on Common Shareholders, the Fund may shorten the average maturity of
its investment portfolio (by investing in short-term securities) or may reduce
its indebtedness or extend the maturity of outstanding Fund Preferred Shares or
otherwise reduce borrowings. The Fund may also attempt to reduce the leverage by
redeeming or otherwise purchasing Fund Preferred Shares. As explained above
under 'Use of Leverage -- Leverage Risks,' the success of any such attempt to
limit leverage risk depends on the Investment Manager's ability to accurately
predict interest rate or other market changes. Because of the difficulty of
making such predictions, the Fund may never attempt to manage its capital
structure in the manner described in this paragraph.

    If market conditions suggest that additional leverage would be beneficial,
the Fund may sell previously unissued Fund Preferred Shares or Fund Preferred
Shares that the Fund previously issued but later repurchased or otherwise
increase borrowings.

STRATEGIC TRANSACTIONS

    The Fund may use various investment strategies designed to limit the risk of
fluctuations of fixed income securities and to preserve capital. These
strategies include using swaps, financial futures contracts, options on
financial futures or options based on either an index of long-term securities or
on taxable debt securities whose prices, in the opinion of the Investment
Manager, correlate with the prices of the Fund's investments.

LIMITED ISSUANCE OF FUND PREFERRED SHARES

    Under the 1940 Act, the Fund could issue Fund Preferred Shares having a
total liquidation value (original purchase price of the shares being liquidated
plus any accrued and unpaid dividends) of up to one-half of the value of the
asset coverage of the Fund. If the total liquidation value of the Fund Preferred
shares was ever more than one-half of the value of the Fund's asset coverage,
the Fund would not be able to declare dividends on the Common Shares until the
liquidation value, as a percentage of the Fund's assets, was reduced. The Fund
intends to issue Fund Preferred shares representing about 35% of the Fund's
total capital immediately after the time of issuance. This higher than required
margin of net asset value provides a cushion against later fluctuations in the
value of the Fund's portfolio and will subject Common Shareholders to less
income and net asset value volatility than if the Fund were more leveraged. The
Fund intends to purchase or redeem Fund Preferred Shares, if necessary, to keep
the liquidation value of the Fund Preferred Shares below one-half of the value
of the Fund's asset coverage.

                                       55







<PAGE>

LIMITED BORROWINGS

    Under the requirements of the 1940 Act, the Fund, immediately after any
borrowings, must have an asset coverage of at least 300%. With respect to any
such borrowings, asset coverage means the ratio which the value of the total
assets of the Fund, less all liabilities and indebtedness not represented by
senior securities (as defined in the 1940 Act), bears to the aggregate amount of
such borrowings represented by senior securities issued by the Fund. Certain
types of borrowings may result in the Fund being subject to covenants in credit
agreements relating to asset coverages or portfolio composition or otherwise. In
addition, the Fund may be subject to certain restrictions imposed by guidelines
of one or more NRSROs which may issue ratings for commercial paper or notes
issued by the Fund. Such restrictions may be more stringent than those imposed
by the 1940 Act.

                             MANAGEMENT OF THE FUND

    The business and affairs of the Fund are managed under the direction of 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
agreement with its Investment Manager, 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 objectives and policies of the Fund and to the general
supervision of the Directors. The names and business addresses of the Directors
and officers of the Fund and their principal occupations and other affiliations
during the past five years are set forth under 'Management of the Fund' in the
SAI.

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 primarily in REITs with approximately $7.5 billion of assets under
management as of May 31, 2003, including more than $630.0 million in REIT
preferred securities. Its current clients include pension plans, endowment funds
and registered investment companies, including the Fund, Cohen & Steers
Advantage Income Realty Fund, Inc., Cohen & Steers Quality Income Realty Fund,
Inc., Cohen & Steers Premium Income Realty 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 Equity Income Fund,
Inc., which are open-end investment companies.


INVESTMENT MANAGEMENT AGREEMENT

    Under its Investment 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

                                       56







<PAGE>

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.

    For its services under the Investment Management Agreement, the Fund pays
the Investment Manager a monthly management fee computed at the annual rate of
..65% of the average daily managed asset value of the Fund. Managed asset value
is the net asset value of the Common Shares plus the liquidation preference of
any Fund Preferred Shares and the principal amount of any borrowings used for
leverage. In addition to the monthly management fee, the Fund pays all other
costs and expenses of its operations, including compensation of its Directors,
custodian, transfer agency and dividend disbursing expenses, legal fees,
expenses of independent auditors, expenses of repurchasing shares, expenses of
issuing any Fund Preferred Shares, listing expenses, expenses of preparing,
printing and distributing shareholder reports, notices, proxy statements and
reports to governmental agencies, and taxes, if any. When the Fund is utilizing
leverage, the fees paid to the Investment Manager for investment advisory and
management services will be higher than if the Fund did not utilize leverage
because the fees paid will be calculated based on the Fund's managed assets,
which includes the liquidation preference of any Fund Preferred Shares and the
principal amount of borrowings for leverage. See 'Use of Leverage.'

    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. Mr. Cohen is
    a 'controlling person' of the Investment Manager on the basis of his
    ownership of the Investment Manager's stock.

        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.
    Mr. Steers is a 'controlling person' of the Investment Manager on the basis
    of his ownership of the Investment Manager's stock.

        Greg E. Brooks -- Mr. Brooks joined Cohen & Steers Capital Management,
    Inc., the Fund's Investment Manager, as a Vice President in April 2000 and
    has been a Senior Vice President since January 2002. Prior to joining Cohen
    & Steers in 2000, Mr. Brooks was an investment analyst with another real
    estate securities investment manager. Mr. Brooks is a Chartered Financial
    Analyst.

        William F. Scapell -- Mr. Scapell joined Cohen & Steers Capital
    Management, Inc., the Fund's Investment Manager, as a Senior Vice President
    in February 2003. Prior to joining Cohen & Steers, Mr. Scapell was a
    director in the fixed income research department of Merrill Lynch & Co.,
    Inc., where he was also its chief strategist for preferred securities.
    Before joining Merrill Lynch's research department, Mr. Scapell worked in
    Merrill Lynch Treasury with a focus on balance sheet management. Prior to
    working for Merrill Lynch, Mr. Scapell was employed at the Federal Reserve
    Bank of New York in both bank supervision and monetary policy roles.
    Mr. Scapell is a Chartered Financial Analyst.

                                       57







<PAGE>

ADMINISTRATION AND SUB-ADMINISTRATION AGREEMENT

    Under its Administration Agreement with the Fund, the Investment Manager
provides certain administrative and accounting functions for the Fund, including
providing administrative services necessary for the operations of the Fund and
furnishing office space and facilities required for conducting the business of
the Fund.

    In accordance with the Administration Agreement and with the approval of the
Board of Directors of the Fund, the Fund has entered into an agreement with
State Street Bank as sub-administrator under a fund accounting and
administration agreement (the 'Sub-Administration Agreement'). Under the
Sub-Administration Agreement, State Street Bank has assumed responsibility for
certain fund administration services.


    Under the Administration Agreement, the Fund pays the Investment Manager an
amount equal to, on an annual basis, .06% of the Fund's average daily total net
assets up to $1 billion, .04% of the Fund's average daily total net assets in
excess of $1 billion up to $1.5 billion and .02% of the Fund's average daily
total net assets in excess of $1.5 billion. Under the Sub-Administration
agreement, the Fund pays State Street Bank a monthly administration fee. The
sub-administration fee paid by the Fund to State Street Bank is computed on the
basis of the net assets in the Fund at an annual rate equal to .03% of the first
$200.0 million in assets, .02% of the next $200.0 million and .01% of assets in
excess of $400.0 million, with a minimum fee of $120,000. The aggregate fee paid
by the Fund and the other funds advised by the Investment Manager to State
Street Bank is computed by multiplying the total number of funds by each break
point in the above schedule in order to determine the aggregate break points to
be used in calculating the total fee paid by the Cohen & Steers family of funds
(i.e., six funds at $200.0 million or $1.2 billion at .04%, etc.). The Fund is
then responsible for its pro rata amount of the aggregate administration fee.
State Street Bank also serves as the Fund's custodian and EquiServe Trust
Company, NA has been retained to serve as the Fund's transfer agent, dividend
disbursing agent and registrar. See 'Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar.'


                          DIVIDENDS AND DISTRIBUTIONS

LEVEL RATE DIVIDEND POLICY

    Subject to the determination of the Board of Directors to implement a
Managed Dividend Policy, as discussed below, commencing with the Fund's first
dividend, the Fund intends to make regular monthly cash distributions to Common
Shareholders at a level rate based on the projected performance of the Fund,
which rate is a fixed dollar amount that may be adjusted from time to time.
Distributions can only be made from net investment income after paying accrued
dividends on, or redeeming or liquidating, Fund Preferred Shares, if any, and
making interest and required principal payments on Borrowings, if any, as well
as making any required payments on any interest rate transactions. The Fund's
ability to maintain a Level Rate Dividend Policy will depend on a number of
factors, including the stability of income received from its investments and
dividends payable on Fund Preferred Shares, if any, and interest and required
principal payments on Borrowings, if any. Over time, all the net investment
income of the Fund will be distributed. At least annually, the Fund intends to
distribute all of its net capital gain and ordinary taxable income after paying
any accrued dividends on, or redeeming or liquidating, any Fund Preferred
Shares, if any, or making interest and required principal payments on
Borrowings, if any. Initial distributions

                                       58







<PAGE>

to Common Shareholders are expected to be declared approximately 45 days, and
paid approximately 60 to 75 days, from the commencement of this offering,
depending upon market conditions. The net income of the Fund consists of all
income accrued on portfolio assets less all expenses of the Fund. Expenses of
the Fund are accrued each day. In addition, the Fund currently expects that a
portion of its distributions will consist of amounts in excess of investment
company taxable income and net capital gain derived from the non-taxable
components of the cash flow from the real estate underlying the Fund's portfolio
investments. Accordingly, a Level Rate Dividend Policy may require certain
distributions that may be deemed a return of capital for tax purposes. To permit
the Fund to maintain a more stable monthly distribution, the Fund will initially
distribute less than the entire amount of net investment income earned in a
particular period. The undistributed net investment income would be available to
supplement future distributions. As a result, the distributions paid by the Fund
for any particular monthly period may be more or less than the amount of net
investment income actually earned by the Fund during the period. Undistributed
net investment income will be added to the Fund's net asset value and,
correspondingly, distributions from undistributed net investment income will be
deducted from the Fund's net asset value. See 'Taxation.'

MANAGED DIVIDEND POLICY


    In reliance on an exemptive order, issued by the Securities and Exchange
Commission, the Fund may, subject to the determination of its Board of
Directors, implement a Managed Dividend Policy. Under a Managed Dividend Policy,
the Fund would intend to distribute a monthly fixed percentage of net asset
value to Common Shareholders. As with the Level Dividend Rate Policy,
distributions would be made only after paying dividends on, or redeeming or
liquidating, Fund Preferred Shares, if any, and making interest and required
principal payments on borrowings, if any. Under a Managed Dividend Policy, if,
for any monthly distribution, net investment income and net realized capital
gain were less than the amount of the distribution, the difference would be
distributed from the Fund's assets. Accordingly, a Managed Dividend Policy may
require certain distributions that may be deemed a return of capital for tax
purposes. The Fund's final distribution for each calendar year would include any
remaining net investment income and net realized capital gain undistributed
during the year. Pursuant to the requirements of the 1940 Act and other
applicable laws, a notice would accompany each monthly distribution with respect
to the estimated source of the distribution made. In the event the Fund
distributed in any calendar year amounts in excess of net investment income and
net realized capital gain (such excess, the 'Excess'), such distribution would
decrease the Fund's total assets and, therefore, have the likely effect of
increasing the Fund's expense ratio. There is a risk that the Fund would not
eventually realize capital gains in an amount corresponding to a distribution of
the Excess. In addition, in order to make such distributions, the Fund may have
to sell a portion of its investment portfolio at a time when independent
investment judgment might not dictate such action. There is no guarantee that
the Board of Directors will determine to implement a Managed Dividend Policy.
The Board of Directors reserves the right to change the dividend policy from
time to time.


DIVIDEND REINVESTMENT PLAN

    The Fund has a Dividend Reinvestment Plan (the 'Plan') commonly referred to
as an 'opt-out' plan. Each shareholder will have all distributions of dividends
and capital gains automatically

                                       59







<PAGE>

reinvested in additional Common Shares by EquiServe Trust Company, NA 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 Common Shares
under the Plan in the open market or (ii) distribute newly issued Common 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
Common 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 Common Shares in the open market, on the New York
Stock Exchange or elsewhere for the participants' accounts or (ii) distribute
newly issued Common Shares of the Fund on behalf of the participants. The Plan
Agent will receive cash from the Fund with which to buy Common 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 Common
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. The number of shares to be issued will be
computed at a per share rate equal to the greater of (i) the net asset value or
(ii) 95% of the closing market price per share on the payment date.

    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 a distribution 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 Common 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 Common Share
credited to such account. In the alternative, upon receipt of the participant's
instructions, Common 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 confirmations of all acquisitions made for the participant as soon as
practicable but no later than 60 days after such acquisition. Common 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
Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common 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. Common 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

                                       60







<PAGE>

reinvestment of distributions. There are no other charges to participants for
reinvesting dividends or capital gain distributions.

    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. See 'Taxation.'

    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 by
telephone at 800-426-5523.

                              CLOSED-END STRUCTURE

    The Fund is a recently 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 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 best 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. See 'Repurchase of Shares.'
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, it would be required to redeem all Fund
Preferred Shares then outstanding (requiring in turn that it liquidate a portion
of its investment portfolio) and the Fund's Common Shares would no longer be
listed on the New

                                       61







<PAGE>

York Stock Exchange. 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. Although 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. During the
pendency of any tender offer, the Fund will publish how Common Shareholders may
readily ascertain the net asset value. For more information see 'Repurchase of
Shares' in the SAI. Repurchase of the Common Shares 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 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 and
may adversely affect the ability of the Fund to achieve its investment
objectives. To the extent the Fund may need to liquidate investments to fund
repurchases of shares, this may result in portfolio turnover which will result
in additional expenses being borne by the Fund. The Board of Directors currently
considers the following factors to be relevant to a potential decision to
repurchase shares: 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. Any share repurchases or tender offers will be made in
accordance with the requirements of the Securities Exchange Act of 1934, as
amended, and the 1940 Act. See 'Taxation' for a description of the potential tax
consequences of a share repurchase.

                                    TAXATION

    The following brief tax discussion assumes you are a U.S. shareholder and
that you hold your shares as a capital asset. 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 current and accumulated earnings and
profits will, except in the case of capital gain dividends described below,

                                       62







<PAGE>


be taxable to you as ordinary income. For taxable years beginning on or before
December 31, 2008, distributions of investment income designated by the Fund as
derived from qualified dividend income will be taxed in the hands of individuals
at the rates applicable to long-term capital gain, provided holding period and
other requirements are met. The Fund does not expect a significant portion of
Fund distributions to be derived from qualified dividend income. Distributions
of net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, designated as capital gain dividends are
taxable to you as long-term capital gains, regardless of how long you have held
your Fund shares. Long-term capital gain rates for individuals have been
temporarily reduced to 15% (with lower rates for individuals in the 10% and 15%
rate brackets) for taxable years beginning on or before December 31, 2008.


    A distribution of an amount in excess of the Fund's current and accumulated
earnings and profits 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, or have shares repurchased by the Fund, you
may realize a capital gain or loss which will be long-term or short-term,
depending generally on your holding period for the shares.

    We may be required to withhold U.S. Federal income tax on all taxable
distributions and redemption proceeds payable if you

      fail to provide us with your correct taxpayer identification number;

      fail to make required certifications; or

      have been notified by the Internal Revenue Service 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.

    The Fund intends to qualify as a regulated investment company under Federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of the sum of its investment company taxable income
(as that term is defined in the Code, but without regard to the deduction for
dividends paid) and net tax-exempt interest, the Fund will not be required to
pay Federal income taxes on any income it distributes to shareholders. If the
Fund distributes less than an amount equal to the sum of 98% of its ordinary
income for the calendar year and 98% of its capital gain net income for the
one-year period ending on October 31 of such calendar year, plus such amounts
from previous years that were not distributed, then the Fund will be subject to
a nondeductible 4% excise tax on the undistributed amounts.

    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.



                                       63







<PAGE>

                             DESCRIPTION OF SHARES

COMMON SHARES

    The Fund is authorized to issue 100,000,000 shares of Common Shares, $.001
par value. The Common Shares have no preemptive, conversion, exchange or
redemption rights. Each share has equal voting, dividend, distribution and
liquidation rights. The Common Shares outstanding are, and those offered hereby
when issued, will be, fully paid and nonassessable. Common Shareholders are
entitled to one vote per share. All voting rights for the election of Directors
are noncumulative, which means that, assuming there are no Fund Preferred Shares
outstanding, the holders of more than 50% of the Common 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 Common Shares will not be able to elect any
Directors. Whenever Fund Preferred Shares or borrowings are outstanding, holders
of Common Shares will not be entitled to receive any distributions from the Fund
unless all accrued dividends on the Fund Preferred Shares and interest and
principal payments on borrowings have been paid, and unless the applicable asset
coverage requirements under the 1940 Act would be satisfied after giving effect
to the distribution. See 'Fund Preferred Shares' below. The Fund's Common Shares
have been approved for listing on the New York Stock Exchange upon notice of
issuance under the symbol 'RNP.' Under the rules of the New York Stock Exchange
applicable to listed companies, the Fund will be required to hold an annual
meeting of shareholders in each year. The foregoing description and the
descriptions below under 'Fund Preferred Shares' and '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.

    Net asset value will be reduced immediately following the offering by the
amount of the sales load and offering expenses paid by the Fund. The Investment
Manager has agreed to pay all organizational expenses and offering costs (other
than sales load) that exceed $.05 per Common Share. See 'Use of Proceeds.'


    As of the date of this prospectus, Cohen & Steers Capital Management, Inc.
owned of record and beneficially 4,200 shares of the Fund's Common Shares,
constituting 100% of the outstanding shares of the Fund, and thus, until the
public offering of the shares is completed, will control the Fund.


FUND NET ASSET VALUE

    The Fund will determine the net asset value of its shares daily, 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. Any swap transaction that the Fund enters into may,
depending on the applicable interest rate environment, have a positive or
negative value for purposes of calculating net asset value. Any cap transaction
that the Fund enters into may, depending on the applicable interest rate
environment, have no value or a positive value. In addition, accrued payments to
the Fund under such transactions will be assets of the Fund and accrued payments
by the Fund will be liabilities of the Fund.


    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


                                       64







<PAGE>


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 (NASDAQ traded securities
are valued at the NASDAQ official closing price). 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.

FUND PREFERRED SHARES

    The Fund's Articles of Incorporation authorize the Board of Directors,
without approval of the Common Stockholders, to classify any unissued shares of
the Fund's common stock into preferred shares, par value $.001 per share, in one
or more classes or series, with rights as determined by the Board of Directors.

    The Fund's Board of Directors has indicated its intention to authorize an
offering of Fund Preferred Shares (representing approximately 35% of the Fund's
capital immediately after the time the Fund Preferred Shares are issued)
approximately one to three months after completion of the offering of Common
Shares. Any such decision is subject to market conditions, the Fund's receipt of
a AAA/Aaa credit rating on the Fund Preferred Shares and to the Board's
continuing belief that leveraging the Fund's capital structure through the
issuance of Fund Preferred Shares is likely to achieve the benefits to the
Common Shareholders described in this prospectus. The Board of Directors has
indicated that the preference on distribution, liquidation preference and
redemption provisions of the Fund Preferred Shares will likely be as stated
below.

    Limited Issuance of Fund Preferred Shares. Under the 1940 Act, the Fund
could issue Fund Preferred Shares with an aggregate liquidation value of up to
one-half of the value of the Fund's total assets less liabilities other than
borrowings, measured immediately after issuance of the Fund Preferred Shares.
'Liquidation value' means the original purchase price of the shares being
liquidated plus any accrued and unpaid dividends. In addition, the Fund is not
permitted to declare any cash dividend or other distribution on its Common
Shares unless the liquidation value

                                       65







<PAGE>

of the Fund Preferred Shares is less than one-half of the value of the Fund's
total assets less liabilities other than borrowings (determined after deducting
the amount of such dividend or distribution) immediately after the distribution.
If the Fund sells all the Common Shares and Fund Preferred Shares discussed in
this prospectus, the liquidation value of the Fund Preferred Shares is expected
to be approximately 35% of the value of the Fund's total assets less liabilities
other than borrowings. The Fund intends to purchase or redeem Fund Preferred
Shares, if necessary, to keep that fraction below one-half.

    Distribution Preference. The Fund Preferred Shares will have complete
priority over the Common Shares.

    Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, holders of
Fund Preferred Shares will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus
accumulated and unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to holders of Common Shares.

    Voting Rights. Fund Preferred Shares are required to be voting shares and to
have equal voting rights with Common Shares. Except as otherwise indicated in
this Prospectus or the SAI and except as otherwise required by applicable law,
holders of Fund Preferred Shares will vote together with Common Shareholders as
a single class.

    Holders of Fund Preferred Shares, voting as a separate class, will be
entitled to elect two of the Fund's Directors. The remaining Directors will be
elected by Common Shareholders and holders of Fund Preferred Shares, voting
together as a single class. In the unlikely event that two full years of accrued
dividends are unpaid on the Fund Preferred Shares, the holders of all
outstanding Fund Preferred Shares, voting as a separate class, will be entitled
to elect a majority of the Fund's Directors until all dividends in arrears have
been paid or declared and set apart for payment. In order for the Fund to take
certain actions or enter into certain transactions, a separate class vote of
holders of Fund Preferred Shares will be required, in addition to the combined
single class vote of the holders of Fund Preferred Shares and Common Shares.

    Redemption, Purchase and Sale of Fund Preferred Shares. The terms of the
Fund Preferred Shares may provide that they are redeemable at certain times, in
whole or in part, at the original purchase price per share plus accumulated
dividends. The terms may also state that the Fund may tender for or purchase
Fund Preferred Shares and resell any shares so tendered. Any redemption or
purchase of Fund Preferred Shares by the Fund will reduce the leverage
applicable to Common Shares, while any resale of shares by the Fund will
increase such leverage. See 'Use of Leverage.'

    The discussion above describes the Board of Directors' present intention
with respect to a possible offering of Fund Preferred Shares. If the Board of
Directors determines to authorize such an offering, the terms of the Fund
Preferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Articles of Incorporation.

        CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS

    The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure. Commencing with the first annual meeting of shareholders,
the Board of Directors will be divided into three classes, having initial terms
of one, two and three years, respectively. At the annual meeting of shareholders
in each

                                       66







<PAGE>

year thereafter, the term of one class will expire and directors will be elected
to serve in that class for terms of three years. This provision could delay for
up to two years the replacement of a majority of the Board of Directors. A
director may be removed from office only for cause and only by a vote of the
holders of at least 75% of the outstanding shares of the Fund entitled to vote
on the matter.

    The affirmative vote of at least 75% of the entire Board of Directors is
required to authorize the conversion of the Fund from a closed-end to an
open-end investment company. Such conversion also requires the affirmative vote
of the holders of at least 75% of the votes entitled to be cast thereon by the
shareholders of the Fund unless it is approved by a vote of at least 75% of the
Continuing Directors (as defined below), in which event such conversion requires
the approval of the holders of a majority of the votes entitled to be cast
thereon by the shareholders of the Fund. A 'Continuing Director' is any member
of the Board of Directors of the Fund who (i) is not a person or affiliate of a
person who enters or proposes to enter into a Business Combination (as defined
below) with the Fund (an 'Interested Party') and (ii) who has been a member of
the Board of Directors of the Fund for a period of at least 12 months, or has
been a member of the Board of Directors since the Fund's initial public offering
of Common Shares, or is a successor of a Continuing Director who is unaffiliated
with an Interested Party and is recommended to succeed a Continuing Director by
a majority of the Continuing Directors then on the Board of Directors of the
Fund. The affirmative vote of at least 75% of the votes entitled to be cast
thereon by shareholders of the Fund will be required to amend the Articles of
Incorporation to change any of the provisions in this paragraph and the
preceding paragraph.

    The affirmative votes of at least 75% of the entire Board of Directors and
the holders of at least (i) 80% of the votes entitled to be cast thereon by the
shareholders of the Fund and (ii) in the case of a Business Combination (as
defined below), 66 2/3% of the votes entitled to be cast thereon by the
shareholders of the Fund other than votes held by an Interested Party who is (or
whose affiliate is) a party to a Business Combination (as defined below) or an
affiliate or associate of the Interested Party, are required to authorize any of
the following transactions:

        (i) merger, consolidation or statutory share exchange of the Fund with
    or into any other entity;

        (ii) issuance or transfer by the Fund (in one or a series of
    transactions in any 12-month period) of any securities of the Fund to any
    person or entity for cash, securities or other property (or combination
    thereof) having an aggregate fair market value of $1,000,000 or more,
    excluding (a) issuances or transfers of debt securities of the Fund,
    (b) sales of securities of the Fund in connection with a public offering,
    (c) issuances of securities of the Fund pursuant to a dividend reinvestment
    plan adopted by the Fund, (d) issuances of securities of the Fund upon the
    exercise of any stock subscription rights distributed by the Fund and
    (e) portfolio transactions effected by the Fund in the ordinary course of
    business;

        (iii) sale, lease, exchange, mortgage, pledge, transfer or other
    disposition by the Fund (in one or a series of transactions in any 12 month
    period) to or with any person or entity of any assets of the Fund having an
    aggregate fair market value of $1,000,000 or more except for portfolio
    transactions (including pledges of portfolio securities in connection with
    borrowings) effected by the Fund in the ordinary course of its business
    (transactions within clauses (i), (ii) and (iii) above being known
    individually as a 'Business Combination');

        (iv) any voluntary liquidation or dissolution of the Fund or an
    amendment to the Fund's Articles of Incorporation to terminate the Fund's
    existence; or

                                       67







<PAGE>

        (v) any shareholder proposal as to specific investment decisions made or
    to be made with respect to the Fund's assets as to which shareholder
    approval is required under Federal or Maryland law.

    However, the shareholder vote described above will not be required with
respect to the foregoing transactions (other than those set forth in (v) above)
if they are approved by a vote of at least 75% of the Continuing Directors (as
defined above). In that case, if Maryland law requires shareholder approval, the
affirmative vote of a majority of votes entitled to be cast thereon shall be
required and if Maryland law does not require shareholder approval, no
shareholder approval will be required. The Fund's By-Laws contain provisions the
effect of which is to prevent matters, including nominations of directors, from
being considered at a shareholders' meeting where the Fund has not received
notice of the matters generally at least 90 but no more than 120 days prior to
the first anniversary of the preceding year's annual meeting.

    The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interest of the Fund's
shareholders generally.

    Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. These
provisions could have the effect of depriving shareholders of an opportunity 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. On the other hand, these provisions may require persons
seeking control of a Fund to negotiate with its management regarding the price
to be paid for the shares required to obtain such control, they promote
continuity and stability and they enhance the Fund's ability to pursue long-term
strategies that are consistent with its investment objectives.

                                       68









<PAGE>

                                  UNDERWRITING

    Subject to the terms and conditions stated in the underwriting agreement
dated           , 2003, each underwriter named below, for which Merrill Lynch,
Pierce, Fenner & Smith Incorporated is acting as representative, has severally
agreed to purchase, and the Fund has agreed to sell to such underwriter, the
number of Common Shares set forth opposite the name of such underwriter.

<Table>
<Caption>
                                                                NUMBER OF
                          UNDERWRITER                         COMMON SHARES
                          -----------                         -------------
<S>                                                           <C>
Merrill Lynch, Pierce, Fenner & Smith
           Incorporated.....................................
A.G. Edwards & Sons, Inc. ..................................
Deutsche Bank Securities Inc. ..............................
Legg Mason Wood Walker, Incorporated........................
Raymond James & Associates, Inc. ...........................
RBC Dain Rauscher Inc. .....................................
U.S. Bancorp Piper Jaffray Inc. ............................
Wachovia Securities, Inc. ..................................
Wells Fargo Securities, LLC.................................
Advest, Inc. ...............................................
BB&T Capital Markets, a division of Scott & Stringfellow,
  Inc. .....................................................
Robert W. Baird & Co. Incorporated..........................
H&R Block Financial Advisors, Inc. .........................
Fahnestock & Co. Inc. ......................................
J.J.B. Hilliard, W.L. Lyons, Inc. ..........................
Janney Montgomery Scott LLC.................................
McDonald Investments Inc., a KeyCorp Company................
Quick & Reilly, Inc. .......................................
Stifel, Nicolaus & Company, Incorporated....................
TD Waterhouse Investor Services, Inc. ......................
                                                                 ------
           Total............................................
                                                                 ------
                                                                 ------
</Table>

    The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the Common Shares sold under the
purchase agreement if any of the Common Shares are purchased. In the
underwriting agreement, the Fund and the Investment Manager have agreed to
indemnify the underwriters against certain liabilities, including liabilities
arising under the Securities Act, or to contribute payments the underwriters may
be required to make for any of those liabilities.

    The underwriters propose to initially offer some of the Common Shares
directly to the public at the public offering price set forth on the cover page
of this prospectus and some of the Common Shares to certain dealers at the
public offering price less a concession not in excess of $   per share. The
sales load investors in the Fund will pay of $1.125 per share is equal to 4.5%
of the initial offering price. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $   per share on sales to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.

                                       69







<PAGE>

    The following table shows the public offering price, sales load and proceeds
before expenses to the Fund. The information assumes either no exercise or full
exercise by the underwriters of their overallotment option.

<Table>
<Caption>
                                                   PER SHARE   WITHOUT OPTION   WITH OPTION
                                                   ---------   --------------   -----------
<S>                                                <C>         <C>              <C>
Public offering price............................    $25.00          $              $
Sales load.......................................    $1.125          $              $
Estimated offering expense.......................      $.05          $              $
Proceeds, before expenses, to the Fund...........   $23.875          $              $
</Table>

    The expenses of the offering are estimated at           and are payable by
the Fund. The Fund has agreed to pay the underwriters $.0083 per Common Share as
a partial reimbursement of expenses incurred in connection with the offering.
The Investment Manager has agreed to pay all organizational expenses and
offering costs of the Fund (other than sales load) that exceed $.05 per share of
the Fund's Common Shares.

    The Fund has granted the underwriters an option to purchase up to
additional Common Shares at the public offering price, less the sales load,
within 45 days from the date of this prospectus solely to cover any
overallotments. If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the preceding table.

    Until the distribution of the Common Shares is complete, Securities and
Exchange Commission rules may limit underwriters and selling group members from
bidding for and purchasing our Common Shares. However, the representatives may
engage in transactions that stabilize the price of our Common Shares, such as
bids or purchases to peg, fix or maintain that price.

    If the underwriters create a short position in our Common Shares in
connection with the offering, i.e., if they sell more Common Shares than are
listed on the cover of this prospectus, the representatives may reduce that
short position by purchasing Common Shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the overallotment option described above. The underwriters may also
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of Common Shares sold in this offering for
their account may be reclaimed by the syndicate if such Common Shares are
repurchased by the syndicate in stabilizing or covering transactions. Purchases
of our Common Shares to stabilize its price or to reduce a short position may
cause the price of our Common Shares to be higher than it might be in the
absence of such purchases.

    Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above may have on the price of our Common Shares. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.

    The Fund has agreed not to offer or sell any additional Common Shares for a
period of 180 days after the date of the purchase agreement without the prior
written consent of the underwriters, except for the sale of the Common Shares to
the underwriters pursuant to the underwriting agreement.

                                       70







<PAGE>

    The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Fund's portfolio transactions after they
have ceased to be underwriters, and may also act as placement agent for issuers
whose securities the Fund purchases in direct placement transactions. The
underwriters are active underwriters of, and dealers in, securities and act as
market makers in a number of such securities, and therefore can be expected to
engage in portfolio transactions with the Fund.

    The common shares will be sold to ensure that New York Stock Exchange
distribution standards (i.e., round lots, public shares and aggregate market
value) will be met.

    The Investment Manager has also agreed to pay a fee to Merrill Lynch,
payable quarterly at the annual rate of .15% of the Fund's managed assets during
the continuance of the Investment Management Agreement between the Investment
Manager and the Fund. Merrill Lynch has agreed to provide certain after-market
support services designed to maintain the visibility of the Fund on an ongoing
basis, and Merrill Lynch has additionally agreed to provide to the Investment
Manager relevant information, studies or reports regarding the Fund and the
closed-end investment company and asset management industry. The Investment
Manager may also offer to pay certain other underwriters that reach a specified
sales threshold an additional commission payable from the Investment Manager's
own assets at an annual rate of .10% of the Fund's managed assets attributable
to the Common Shares sold by such underwriters in this offering. In
consideration for such payment, those additional underwriters that reach the
specified threshold will provide certain informational services on an ongoing
basis. Such payments will be paid quarterly and will continue for the duration
of the Investment Management Agreement or other advisory agreement between the
Investment Manager and the Fund. The sum amount of the fee payable to Merrill
Lynch, any fees payable to additional qualifying underwriters, plus the amount
paid by the Fund as the $.0083 per common share reimbursement to the
underwriters, will not exceed 4.5% of the aggregate initial offering price of
the Common Shares offered hereby; provided, that in determining when the maximum
amount has been paid, the value of each of the quarterly payments shall be
discounted at the annual rate of 10% to the closing date of this offering.

    The principal business address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated is 4 World Financial Center, New York, New York 10080.

       CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

    State Street Bank and Trust Company, whose principal business address is 225
Franklin Street, Boston, MA 02110, has been retained to act as custodian of the
Fund's investments and EquiServe Trust Company, NA, whose principal business
address is 150 Royall Street, Canton, MA 02021 to serve as the Fund's transfer
and dividend disbursing agent and registrar. Neither State Street Bank nor
EquiServe Trust Company, NA has any 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.

                                       71







<PAGE>

                             VALIDITY OF THE SHARES


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


                                       72









<PAGE>

          TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION


<Table>
<S>                                                           <C>
Investment Objectives and Policies..........................     3
Use of Leverage.............................................    11
Investment Restrictions.....................................    13
Management of the Fund......................................    15
Compensation of Directors and Certain Officers..............    18
Investment Advisory and Other Services......................    19
Portfolio Transactions and Brokerage........................    21
Determination of Net Asset Value............................    22
Repurchase of Shares........................................    22
Taxation....................................................    24
Performance Information.....................................    29
Counsel and Independent Accountants.........................    31
Statement of Assets and Liabilities.........................    31
Ratings of Investments (Appendix A).........................   A-1
</Table>


                                       73







<PAGE>

                      [THIS PAGE INTENTIONALLY LEFT BLANK]







<PAGE>

                      [THIS PAGE INTENTIONALLY LEFT BLANK]







<PAGE>

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

                                            SHARES

                              [COHEN & STEERS LOGO]

                                 COHEN & STEERS
                      REIT AND PREFERRED INCOME FUND, INC.
                                 COMMON SHARES
                                $25.00 PER SHARE

                               -----------------
                                   PROSPECTUS
                               -----------------
                              MERRILL LYNCH & CO.
                           A.G. EDWARDS & SONS, INC.
                            DEUTSCHE BANK SECURITIES
                             LEGG MASON WOOD WALKER
                                  INCORPORATED
                                 RAYMOND JAMES
                               RBC CAPITAL MARKETS
                           U.S. BANCORP PIPER JAFFRAY
                              WACHOVIA SECURITIES
                          WELLS FARGO SECURITIES, LLC
                                  ADVEST, INC.
                              BB&T CAPITAL MARKETS
                             ROBERT W. BAIRD & CO.
                       H&R BLOCK FINANCIAL ADVISORS, INC.
                             FAHNESTOCK & CO. INC.
                       J.J.B. HILLIARD, W.L. LYONS, INC.
                          JANNEY MONTGOMERY SCOTT LLC
                           MCDONALD INVESTMENTS INC.
                              QUICK & REILLY, INC.
                           STIFEL, NICOLAUS & COMPANY
                                  INCORPORATED
                                 TD WATERHOUSE

                                          , 2003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------





<PAGE>

                   SUBJECT TO COMPLETION, DATED JUNE 20, 2003


    THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION ('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 AND STEERS LOGO]

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

                      STATEMENT OF ADDITIONAL INFORMATION
                                          , 2003

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT SHOULD BE READ
 IN CONJUNCTION WITH THE PROSPECTUS OF COHEN & STEERS REIT AND PREFERRED INCOME
   FUND, INC., DATED           , 2003, 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 Objectives and Policies..........................    3
Use of Leverage.............................................   11
Investment Restrictions.....................................   13
Management of the Fund......................................   15
Compensation of Directors and Certain Officers..............   18
Investment Advisory and Other Services......................   19
Portfolio Transactions and Brokerage........................   21
Determination of Net Asset Value............................   22
Repurchase of Shares........................................   22
Taxation....................................................   24
Performance Information.....................................   29
Counsel and Independent Accountants.........................   31
Statement of Assets and Liabilities.........................   31
Ratings of Investments (Appendix A).........................  A-1
</Table>


                                       2







<PAGE>
                      STATEMENT OF ADDITIONAL INFORMATION

    Cohen & Steers REIT and Preferred Income Fund, Inc. (the 'Fund') is a
recently organized, non-diversified, closed-end management investment company
organized as a Maryland corporation on March 25, 2003. 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 OBJECTIVES 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, 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 non-fundamental
investment policies without written notice to shareholders.

INVESTMENTS IN REAL ESTATE COMPANIES AND REAL ESTATE INVESTMENT TRUSTS

    Under normal market conditions, we will invest at least 40%, but no more
than 60%, of our total assets in common stocks issued by real estate companies
or real estate investment trusts or 'REITs.'

    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.

    Real Estate Investment Trusts. A REIT is a company dedicated to owning, and
usually operating, income producing real estate, or to financing real estate.
REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid
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. A Hybrid REIT combines the characteristics of both Equity REITs
and Mortgage REITs. It is anticipated, although not required, that under normal
market conditions at least 90% of the Fund's investments in REITs will consist
of securities issued by Equity REITs.

PREFERRED SECURITIES


    Under normal market conditions, the Fund will invest at least 40%, but no
more than 60%, of its total assets in preferred securities. Initially, the
preferred component of the Fund will be comprised primarily of hybrid-preferred
and other taxable preferred securities. The taxable preferred securities in
which the Fund intends to invest do not qualify for the dividends received
deduction (the 'DRD') under Section 243 of the Internal Revenue Code of 1986, as
amended (the 'Code') and are not expected to provide significant benefits under
the rules relating to 'qualified dividend income.' The DRD generally allows
corporations to deduct from their income 70% of dividends received. Pursuant to
recently enacted legislation, individuals will generally be taxed at long-term
capital gain rates on qualified dividend income. Accordingly, any corporate
shareholder who otherwise would qualify for the DRD, and any individual
shareholder who otherwise would qualify to be taxed at long-term capital gain
rates on qualified dividend income, should assume that none of the distributions
the shareholder receives from the Fund will qualify for the DRD or provide
significant benefits under the rules relating to qualified dividend income.


                                       3





<PAGE>

    There are two basic types of preferred securities: traditional preferred
securities and hybrid-preferred securities. When used in this SAI and the
related prospectus, taxable preferred securities refer generally to
hybrid-preferred securities as well as certain types of traditional preferred
securities that are not eligible for the DRD (and are not expected to provide
significant benefits under the rules relating to qualified dividend income),
such as REIT preferred securities.



    Traditional Preferred Securities. Traditional preferred securities pay fixed
or adjustable rate dividends 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. In order to be payable, distributions on
preferred securities must be declared by the issuer's board of directors. Income
payments on typical preferred securities currently outstanding are cumulative,
causing dividends and distributions to accrue even if not declared by the board
of directors or otherwise made payable. There is no assurance that dividends or
distributions on the preferred securities in which the Fund invests will be
declared or otherwise made payable. Preferred stockholders usually have no right
to vote for corporate directors or on other matters. Shares of preferred
securities have a liquidation value that generally equals the original purchase
price at the date of issuance. The market value of preferred securities may be
affected by favorable and unfavorable changes impacting companies in the
utilities, real estate and financial services sectors, which are prominent
issuers of preferred securities, and by actual and anticipated changes in tax
laws, such as changes in corporate income tax rates, the rates applicable to
qualified dividend income and the DRD. Because the claim on an issuer's earnings
represented by preferred securities may become onerous when interest rates fall
below the rate payable on such securities, the issuer may redeem the securities.
Thus, in declining interest rate environments in particular, the Fund's holdings
of higher rate-paying fixed rate preferred securities may be reduced and the
Fund would be unable to acquire securities paying comparable rates with the
redemption proceeds.


    Hybrid-Preferred Securities. The hybrid-preferred securities market is
divided into the '$25 par' and the 'institutional' segments. The $25 par segment
is typified by securities that are listed on the New York Stock Exchange, trade
and are quoted 'flat,' i.e., without accrued dividend income, and are typically
callable at par value five years after their original issuance date. The
institutional segment is typified by $1,000 par value securities that are not
exchange-listed, trade and are quoted on an 'accrued income' basis, and
typically have a minimum of ten years of call protection (at premium prices)
from the date of their original issuance.

    Hybrid-preferred securities are treated in a similar fashion to traditional
preferred securities by several regulatory agencies, including the Federal
Reserve Bank, and by credit rating agencies, for various purposes, such as the
assignment of minimum capital ratios, over-collateralization rates and
diversification limits.

    Within the category of hybrid-preferred securities are senior debt
instruments that trade in the broader preferred securities market. These debt
instruments, which are sources of long-term capital for the issuers, have
structural features similar to preferred stock such as maturities ranging from
30 years to perpetuity, call features, exchange listings and the inclusion of
accrued interest in the trading price. Similar to other hybrid-preferred
securities, these debt instruments usually do not offer equity capital
treatment. CORTS'r' and PINES'r' are two examples of senior debt instruments
which are structured and trade as hybrid-preferred securities.

    See 'Investment Objectives and Policies -- Portfolio
Composition -- Hybrid-Preferred Securities' in the Fund's prospectus for a
general description of hybrid-preferred securities.

SHORT-TERM FIXED INCOME SECURITIES

    For temporary defensive purposes or to keep cash on hand fully invested, and
following the offering pending investment in securities that meet the Fund's
investment objectives, the Fund may invest up to 100% of its total assets in
cash equivalents and short-term fixed income securities. Short-term fixed income
investments are defined to include, without limitation, the following:

                                       4





<PAGE>
    (1) U.S. Government securities, including bills, notes and bonds differing
        as to maturity and rates of interest that are either issued or
        guaranteed by the U.S. Treasury or by U.S. Government agencies or
        instrumentalities. U.S. Government securities include securities issued
        by (a) the Federal Housing Administration, Farmers Home Administration,
        Export-Import Bank of the United States, Small Business Administration,
        and Government National Mortgage Association, whose securities are
        supported by the full faith and credit of the United States; (b) the
        Federal Home Loan Banks, Federal Intermediate Credit Banks, and
        Tennessee Valley Authority, whose securities are supported by the right
        of the agency to borrow from the U.S. Treasury; (c) the Federal National
        Mortgage Association, whose securities are supported by the
        discretionary authority of the U.S. Government to purchase certain
        obligations of the agency or instrumentality; and (d) the Student Loan
        Marketing Association, whose securities are supported only by its
        credit. While the U.S. Government provides financial support to such
        U.S. Government-sponsored agencies or instrumentalities, no assurance
        can be given that it always will do so since it is not so obligated by
        law. The U.S. Government, its agencies and instrumentalities do not
        guarantee the market value of their securities. Consequently, the value
        of such securities may fluctuate.

    (2) Certificates of deposit issued against funds deposited in a bank or a
        savings and loan association. Such certificates are for a definite
        period of time, earn a specified rate of return, and are normally
        negotiable. The issuer of a certificate of deposit agrees to pay the
        amount deposited plus interest to the bearer of the certificate on the
        date specified thereon. Certificates of deposit purchased by the Fund
        may not be fully insured by the Federal Deposit Insurance Corporation.

    (3) Repurchase agreements, which involve purchases of debt securities. At
        the time the Fund purchases securities pursuant to a repurchase
        agreement, it simultaneously agrees to resell and redeliver such
        securities to the seller, who also simultaneously agrees to buy back the
        securities at a fixed price and time. This assures a predetermined yield
        for the Fund during its holding period, since the resale price is always
        greater than the purchase price and reflects an agreed-upon market rate.
        Such actions afford an opportunity for the Fund to invest temporarily
        available cash. The Fund may enter into repurchase agreements only with
        respect to obligations of the U.S. Government, its agencies or
        instrumentalities; certificates of deposit; or bankers' acceptances in
        which the Fund may invest. Repurchase agreements may be considered loans
        to the seller, collateralized by the underlying securities. The risk to
        the Fund is limited to the ability of the seller to pay the agreed-upon
        sum on the repurchase date; in the event of default, the repurchase
        agreement provides that the Fund is entitled to sell the underlying
        collateral. If the value of the collateral declines after the agreement
        is entered into, and if the seller defaults under a repurchase agreement
        when the value of the underlying collateral is less than the repurchase
        price, the Fund could incur a loss of both principal and interest. The
        Investment Manager monitors the value of the collateral at the time the
        action is entered into and at all times during the term of the
        repurchase agreement. The Investment Manager does so in an effort to
        determine that the value of the collateral always equals or exceeds the
        agreed-upon repurchase price to be paid to the Fund. If the seller were
        to be subject to a Federal bankruptcy proceeding, the ability of the
        Fund to liquidate the collateral could be delayed or impaired because of
        certain provisions of the bankruptcy laws.

    (4) Commercial paper, which consists of short-term unsecured promissory
        notes, including variable rate master demand notes issued by
        corporations to finance their current operations. Master demand notes
        are direct lending arrangements between the Fund and a corporation.
        There is no secondary market for such notes. However, they are
        redeemable by the Fund at any time.

    The Investment Manager will consider the financial condition of the
corporation (e.g., earning power, cash flow and other liquidity ratios) and will
continuously monitor the corporation's ability

                                       5





<PAGE>
to meet all of its financial obligations, because the Fund's liquidity might be
impaired if the corporation were unable to pay principal and interest on demand.
Investments in commercial paper will be limited to commercial paper rated in the
two highest categories by a major rating agency or are unrated but determined to
be of comparable quality by the Investment Manager and which mature within one
year of the date of purchase or carry a variable or floating rate of interest.

LOWER RATED SECURITIES

    The Fund may invest up to 10% of its total assets (measured at the time of
purchase) in securities rated below investment grade such as those rated Ba or B
by Moody's and BB or B by S&P or securities comparably rated by other rating
agencies or in unrated securities determined by the Investment Manager to be of
comparable quality. Securities rated Ba by Moody's are judged to have
speculative elements; their future cannot be considered as well assured and
often the protection of interest and principle payments may be very moderate.
Securities rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability to
default than other speculative grade debt, they face 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
lowest rated security that the Fund will invest in is one rated B by either
Moody's or S&P.

    Lower grade securities, though high yielding, are characterized by high
risk. They may be subject to certain risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
securities. The retail secondary market for lower grade securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Fund to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.

    The prices of debt securities generally are inversely related to interest
rate changes; however, the price volatility caused by fluctuating interest rates
of securities also is inversely related to the coupons of such securities.
Accordingly, below investment grade securities may be relatively less sensitive
to interest rate changes than higher quality securities of comparable maturity
because of their higher coupon. This higher coupon is what the investor receives
in return for bearing greater credit risk. The higher credit risk associated
with below investment grade securities potentially can have a greater effect on
the value of such securities than may be the case with higher quality issues of
comparable maturity.

    Lower grade securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could severely disrupt the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principle and pay interest thereon and increase the incidence of default for
such securities.

    The ratings of Moody's, S&P and other rating agencies represent their
opinions as to the quality of the obligations that they undertake to rate.
Ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principle payments, they do not evaluate
the market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, the Investment Manager
also will independently evaluate these securities and the ability for the
issuers of such securities to pay interest and principal. To the extent that the
Fund invests in lower grade securities that have not been rated by a rating
agency, the Fund's ability to achieve its investment objectives will be more
dependent on the Fund's credit analysis than would be the case when the Fund
invests in rated securities.

STRATEGIC TRANSACTIONS

    Consistent with its investment objective and policies as set forth herein,
the Fund may also enter into certain hedging and risk management transactions.
In particular, the Fund may purchase and sell futures contracts, exchange-listed
and over-the-counter put and call options on securities, financial indices and
futures contracts and may enter into various interest rate transactions

                                       6





<PAGE>
(collectively, 'Strategic Transactions'). Strategic Transactions may be used to
attempt to protect against possible changes in the market value of the Fund's
portfolio resulting from fluctuations in the securities markets and changes in
interest rates, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes or to establish a position in the securities markets as a temporary
substitute for purchasing particular securities. Any or all of these techniques
may be used at any time. There is no particular strategy that requires use of
one technique rather than another. Use of any Strategic Transaction is a
function of market conditions. The Strategic Transactions that the Fund may use
are described below. The ability of the Fund to hedge successfully will depend
on the Investment Manager's ability to predict pertinent market movements, which
cannot be assured.

    Interest Rate Transactions. Among the Strategic Transactions into which the
Fund may enter are interest rate swaps and the purchase or sale of interest rate
caps and floors. The Fund expects to enter into the transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio as a duration management technique or to protect against any increase
in the price of securities the Fund anticipates purchasing at a later date or,
as discussed in the prospectus, to hedge against increased Fund Preferred Share
dividend rates or increases in the Fund's cost of borrowing. For a more complete
discussion of interest rate transactions, see 'Use of Leverage -- Interest Rate
Transactions.'

    Futures Contracts and Options on Futures Contracts. In connection with its
hedging and other risk management strategies, the Fund may also enter into
contracts for the purchase or sale for future delivery ('future contracts') of
debt securities, aggregates of debt securities, financial indices, and U.S.
Government debt securities or options on the foregoing to hedge the value of its
portfolio securities that might result from a change in interest rates or market
movements. The Fund will engage in such transactions only for bona fide hedging
or non-hedging purposes in accordance with CFTC regulations which permit
principals of an investment company registered under the 1940 Act to engage in
such transactions without registering as commodity pool operators. The Fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which the Fund expects to
purchase. Except as stated below, the Fund's futures transactions will be
entered into for traditional hedging purposes -- i.e., futures contracts will be
sold to protect against a decline in the price of securities that the Fund owns,
or futures contracts will be purchased to protect the Fund against an increase
in the price of securities it intends to purchase.

    Although the Fund does not intend to engage in non-hedging transactions, in
accordance with CFTC regulations, the Fund is permitted to engage in non-hedging
transactions, provided that:

        (i) its pro rata share of the sum of the amount of initial margin
    deposits on futures contracts entered into by the Fund and premiums paid for
    unexpired options with respect to such contracts does not exceed 5% of the
    liquidation value of the Fund's assets, after taking into account unrealized
    profits and unrealized losses on such contracts and options (in the case of
    an option that is in-the-money at the time of purchase, the in-the-money
    amount may be excluded in calculating the 5% limitation); or

        (ii) the aggregate 'notional value' (i.e., the size of the contract, in
    contract units, times the current market price (futures position) or strike
    price (options position) of each such unit) of the contract, it does not
    exceed the liquidation value of the Fund, after taking into account
    unrealized profits and unrealized losses on such contracts and options.

    Credit Derivatives. The Fund may engage in credit derivative transactions.
There are two broad categories of credit derivatives: default price risk
derivatives and market spread derivatives. Default price risk derivatives are
linked to the price of reference securities or loans after a default by the
issuer or borrower, respectively. Market spread derivatives are based on the
risk that changes in market factors, such as credit spreads, can cause a decline
in the value of a security, loan or index. There are three basic transactional
forms for credit derivatives: swaps, options and structured instruments. The use
of credit derivatives is a highly specialized activity that involves strategies
and risks different from those associated with ordinary portfolio security
transactions. If

                                       7





<PAGE>
incorrect in its forecasts of default risks, market spreads or other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these techniques were not used. Moreover, even if it
is correct in its forecasts, there is a risk that a credit derivative position
may correlate imperfectly with the price of the asset or liability being hedged.
There is no limit on the amount of credit derivative transactions that may be
entered into by the Fund. The Fund's risk of loss in a credit derivative
transaction varies with the form of the transaction. For example, if the Fund
purchases a default option on a security, and if no default occurs with respect
to the security, the Fund's loss is limited to the premium it paid for the
default option. In contrast, if there is a default by the grantor of a default
option, the Fund's loss will include both the premium that it paid for the
option and the decline in value of the underlying security that the default
option hedged.

    Calls on Securities, Indices and Futures Contracts. In order to enhance
income or reduce fluctuations in net asset value, the Fund may sell or purchase
call options ('calls') on securities, futures contracts and indices based upon
the prices of debt securities that are traded on U.S. securities exchanges and
to the over-the-counter markets. A call option gives the purchaser of the option
the right to buy, and obligates the seller to sell, the underlying security,
futures contract or index at the exercise price at any time or at a specified
time during the option period. All such calls sold by the Fund must be 'covered'
as long as the call is outstanding (i.e., the Fund must own the instrument
subject to the call or other securities or assets acceptable for applicable
segregation and coverage requirements). A call sold by the Fund exposes the Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security, index or futures
contract and may require the Fund to hold an instrument that it might otherwise
have sold. The purchase of a call gives the Fund the right to buy the underlying
instrument or index at a fixed price. Calls on futures contracts on securities
written by the Fund must also be covered by assets or instruments acceptable
under applicable segregation and coverage requirement.

    Puts on Securities, Indices and Futures Contracts. As with calls, the Fund
may purchase put options ('puts') on securities (whether or not it holds such
securities in its portfolio). For the same purposes, the Fund may also sell puts
on securities, financial indices and puts on futures contracts on securities if
the Fund's contingent obligations on such puts are secured by segregated assets
consisting of cash or liquid securities having a value not less than the
exercise price. The Fund will not sell puts if, as a result, more than 50% of
the Fund's assets would be required to cover its potential obligation under its
hedging and other investment transactions. In selling puts, there is a risk that
the Fund may be required to buy the underlying instrument or index at higher
than the current market price.

    The principal risks relating to the use of futures and other Strategic
Transitions are: (i) less than perfect correlation between the prices of the
hedging instrument and the market value of the securities in the Fund's
portfolio; (ii) possible lack of a liquid secondary market for closing out a
position in such instruments; (iii) losses resulting from interest rate or other
market movements not anticipated by the Investment Manager; and (iv) the
obligation to meet additional variation margin or other payment requirements.

    Certain provisions of the Code may restrict or affect the ability of the
Fund to engage in Strategic Transactions. See 'Taxation.'

OTHER INVESTMENT COMPANIES


    The Fund may invest up to 10% of its total assets in securities of other
open- or closed-end investment companies, including exchange traded funds, that
invest primarily in securities of the types in which the Fund may invest
directly. The Fund generally expects to invest in other investment companies
either during periods when it has large amounts of uninvested cash, such as the
period shortly after the Fund receives the proceeds of the offering of its
common shares, or during periods when there is a shortage of attractive
opportunities in the market. As a shareholder in an investment company, the Fund
would bear its ratable share of that investment company's expenses, and would
remain subject to payment of the Fund's advisory and other fees and


                                       8





<PAGE>


expenses with respect to assets so invested. Holders of common shares would
therefore be subject to duplicative expenses to the extent the Fund invests in
other investment companies. The Investment Manager will take expenses into
account when evaluating the investment merits of an investment in an investment
company relative to available bond investments. The securities of other
investment companies may also be leveraged and will therefore be subject to the
same leverage risks to which the Fund is subject. As described in the prospectus
in the sections entitled 'Use of Leverage' and 'Use of Leverage -- Leverage
Risks,' the net asset value and market value of leveraged shares will be more
volatile and the yield to shareholders will tend to fluctuate more than the
yield generated by unleveraged shares. Investment companies may have investment
policies that differ from those of the Fund. In addition, to the extent the Fund
invests in other investment companies, the Fund will be dependent upon the
investment and research abilities of persons other than the Investment Manager.


RESTRICTED AND ILLIQUID SECURITIES

    When purchasing securities that have not been registered under the
Securities Act, and are not readily marketable, the Fund will endeavor, to the
extent practicable, to obtain the right to registration at the expense of the
issuer. Generally, there will be a lapse of time between the Fund's decision to
sell any such security and the registration of the security permitting sale.
During any such period, the price of the securities will be subject to market
fluctuations. In addition, the Fund may not be able to readily dispose of such
securities at prices that approximate those at which the Fund could sell such
securities if they were more widely traded and, as a result of such illiquidity,
the Fund may have to sell other investments or engage in borrowing transactions
if necessary to raise cash to meet its obligations.

    The Fund may purchase certain securities eligible for resale to qualified
institutional buyers as contemplated by Rule 144A under the Securities Act
('Rule 144A Securities'). Rule 144A provides an exemption from the registration
requirements of the Securities Act for the resale of certain restricted
securities to certain qualified institutional buyers. One effect of Rule 144A is
that certain restricted securities may be considered liquid, though no assurance
can be given that a liquid market for Rule 144A Securities will develop or be
maintained. However, where a substantial market of qualified institutional
buyers has developed for certain unregistered securities purchased by the Fund
pursuant to Rule 144A, the Fund intends to treat such securities as liquid
securities in accordance with procedures approved by the Fund's Board of
Directors. Because it is not possible to predict with assurance how the market
for Rule 144A Securities will develop, the Fund's Board of Directors has
directed the Investment Manager to monitor carefully the Fund's investments in
such securities with particular regard to trading activity, availability of
reliable price information and other relevant information. To the extent that,
for a period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, the Fund's investing in such securities may
have the effect of increasing the level of illiquidity in its investment
portfolio during such period.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES

    The Fund may purchase securities on a 'when-issued' basis and may purchase
or sell securities on a 'forward commitment' basis in order to acquire the
security or to hedge against anticipated changes in interest rates and prices.
When such transactions are negotiated, the price, which is generally expressed
in yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. When-issued securities
and forward commitments may be sold prior to the settlement date, but the Fund
will enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. If the Fund
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
might incur a gain or loss. At the time the Fund enters into a transaction on a
when-issued or forward commitment basis, it will designate on its books and
records cash or liquid debt securities

                                       9





<PAGE>
equal to at least the value of the when-issued or forward commitment securities.
The value of these assets will be monitored daily to ensure that their marked to
market value will at all times equal or exceed the corresponding obligations of
the Fund. There is always a risk that the securities may not be delivered and
that the Fund may incur a loss. Settlements in the ordinary course, which may
take substantially more than three business days, are not treated by the Fund as
when-issued or forward commitment transactions and accordingly are not subject
to the foregoing restrictions.

    Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, actual or anticipated, in the level of interest rates. Securities
purchased with a forward commitment or when-issued basis may expose the Fund to
risks because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risks that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when the Fund
is fully invested may result in greater potential fluctuation in the value of
the Fund's net assets and its net asset value per share.

REVERSE REPURCHASE AGREEMENTS

    The Fund may enter into reverse repurchase agreements with respect to its
portfolio investments subject to the investment restrictions set forth herein.
Reverse repurchase agreements involve the sale of securities held by the Fund
with an agreement by the Fund to repurchase the securities at an agreed upon
price, date and interest payment. The use by the Fund of reverse repurchase
agreements involves many of the same risks of leverage described under 'Use of
Leverage -- Leverage Risks,' since the proceeds derived from such reverse
repurchase agreements may be invested in additional securities. At the time the
Fund enters into a reverse repurchase agreement, it may designate on its books
and records liquid instruments having a value not less than the repurchase price
(including accrued interest). If the Fund designates liquid instruments on its
books and records, a reverse repurchase agreement will not be considered a
borrowing by the Fund; however, under circumstances in which the Fund does not
designate liquid instruments on its books and records, such reverse repurchase
agreement will be considered a borrowing for the purpose of the Fund's
limitation on borrowings. Reverse repurchase agreements involve the risk that
the market value of the securities acquired in connection with the reverse
repurchase agreement may decline below the price of the securities the Fund has
sold but is obligated to repurchase. Also, reverse repurchase agreements involve
the risk that the market value of the securities retained in lieu of sale by the
Fund in connection with the reverse repurchase agreement may decline in price.

    If the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision. Also, the Fund would bear the risk of loss to the extent that the
proceeds of the reverse repurchase agreement are less than the value of the
securities subject to such agreement.

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

                                       10





<PAGE>
dealers' (as designated by the Federal Reserve Bank of New York) in U.S.
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 a 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 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.

                                USE OF LEVERAGE

    Subject to market conditions and the Fund's receipt of AAA/Aaa credit rating
on the Fund Preferred Shares, approximately one to three months after the
completion of the offering of the Common Shares, the Fund intends to offer Fund
Preferred Shares representing approximately 35% of the Fund's capital
immediately after their issuance. The issuance of Fund Preferred Shares will
leverage the Common Shares. As an alternative to the Fund Preferred Shares, the
Fund may leverage through borrowings. Any borrowings will have seniority over
the Common Shares.

    Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after the issuance the value of the Fund's total assets is at
least 200% of the liquidation value of the outstanding preferred shares (i.e.,
such liquidation value may not exceed 50% of the Fund's total assets less
liabilities other than borrowing). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its Common Shares unless, at
the time of such declaration, the value of the Fund's total assets less
liabilities other than borrowing is at least 200% of such liquidation value. If
Fund Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Fund Preferred Shares from time to time to the extent
necessary in order to maintain coverage of any Fund Preferred Shares of at least
200%. If the Fund has Fund Preferred Shares outstanding, two of the Fund's
Directors will be elected by the holders of Fund Preferred Shares, voting
separately as a class. The remaining Directors of the Fund will be elected by
holders of Common Shares and Fund Preferred Shares voting together as a single
class. In the event the Fund failed to pay dividends on Fund Preferred Shares
for two years, Fund Preferred Shareholders would be entitled to elect a majority
of the Directors of the Fund. The failure to pay dividends or make distributions
could result in the Fund ceasing to qualify as a regulated investment company
under the Code, which could have a material adverse effect on the value of the
Common Shares. See 'Description of Shares -- Fund Preferred Shares' in the
Prospectus.

    Under the 1940 Act, the Fund generally is not permitted to borrow unless
immediately after the borrowing the value of the Fund's total assets less
liabilities other than the borrowing is at least 300% of the principal amount of
such borrowing (i.e., such principal amount may not exceed 33 1/3% of the Fund's
total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total assets, less liabilities other than
the borrowings, is at least 300% of such principal amount. If the Fund borrows,
the Fund intends, to the extent possible, to prepay all or a portion of the
principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default and entitle the debt holders to
elect a majority of the board of directors.

    The Fund may be subject to certain restrictions imposed by either guidelines
of one or more rating agencies which may issue ratings for Fund Preferred Shares
or, if the Fund borrows from a lender, by the lender. These guidelines may
impose asset coverage or portfolio composition requirements that are more
stringent than those imposed on the Fund by the 1940 Act. It is not anticipated
that these covenants or guidelines will impede the Investment Manager from
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies. In addition

                                       11





<PAGE>
to other considerations, to the extent that the Fund believes that the covenants
and guidelines required by the rating agencies would impede its ability to meet
its investment objectives, or if the Fund is unable to obtain the rating on the
Fund Preferred Shares (expected to be AAA/Aaa), the Fund will not issue the Fund
Preferred Shares.

    During the time in which the Fund is utilizing leverage, the fees paid to
the Investment Manager for investment advisory and management services will be
higher than if the Fund did not utilize leverage because the fees paid will be
calculated based on the Fund's managed assets. Only the Fund's Common
Shareholders bear the cost of the Fund's fees and expenses.

    The Fund 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 otherwise might require untimely dispositions of
Fund securities.

LEVERAGE RISK

    Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Shares. These include the possibility of
higher volatility of the net asset value of the Common Shares and potentially
more volatility in the market value of the Common Shares. So long as the Fund is
able to realize a higher net return on its investment portfolio than the then
current cost of any leverage together with other related expenses, the effect of
the leverage will be to cause holders of Common Shares to realize a higher
current net investment income than if the Fund were not so leveraged. On the
other hand, to the extent that the then current cost of any leverage, together
with other related expenses, approaches the net return on the Fund's investment
portfolio, the benefit of leverage to holders of Common Shares will be reduced,
and if the then current cost of any leverage were to exceed the net return on
the Fund's portfolio, the Fund's leveraged capital structure would result in a
lower rate of return to Common Shareholders than if the Fund were not so
leveraged.

    Any decline in the net asset value of the Fund's investments will be borne
entirely by Common Shareholders. Therefore, if the market value of the Fund's
portfolio declines, the leverage will result in a greater decrease in net asset
value to Common Shareholders than if the Fund were not leveraged. Such greater
net asset value decrease will also tend to cause a greater decline in the market
price for the Common Shares. To the extent that the Fund is required or elects
to redeem any Fund Preferred Shares or prepay any borrowings, the Fund may need
to liquidate investments to fund such redemptions or prepayments. Liquidation at
times of adverse economic conditions may result in capital loss and reduce
returns to Common Shareholders.

    In addition, such redemption or prepayment likely would result in the Fund
seeking to terminate early all or a portion of any swap or cap transaction.
Early termination of the swap could result in a termination payment by or to the
Fund. Early termination of a cap could result in a termination payment to the
Fund.

    Unless and until the borrowings for leverage or Fund Preferred Shares are
issued, the Common Shares will not be leveraged and the disclosure regarding
these strategies will not apply.

INTEREST RATE TRANSACTIONS

    In order to reduce the interest rate risk inherent in our underlying
investments and capital structure, we may enter into interest rate swap or cap
transactions. Interest rate swaps involve the Fund's agreement with the swap
counterparty to pay a fixed rate payment in exchange for the counterparty paying
the Fund a variable rate payment that is intended to approximate the Fund's
variable rate payment obligation on the Fund Preferred Shares or any variable
rate borrowing. The payment obligation would be based on the notional amount of
the swap. We may use an interest rate cap, which would require us to pay a
premium to the cap counterparty and would entitle us, to the extent that a
specified variable rate index exceeds a predetermined fixed rate, to receive
from the counterparty payment of the difference based on the notional amount. We
would use interest rate swaps or caps only with the intent to reduce or
eliminate the risk that an increase in

                                       12





<PAGE>
short-term interest rates could have on the performance of the Fund's Common
Shares as a result of leverage.

    The use of interest rate swaps and caps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. Depending on the state of
interest rates in general, our use of interest rate swaps or caps could enhance
or harm the overall performance on the Fund's Common Shares. To the extent there
is a decline in interest rates, the value of the interest rate swap or cap could
decline, and could result in a decline in the net asset value of the Common
Shares. In addition, if short-term interest rates are lower than our rate of
payment on the interest rate swap, this will reduce the performance of the
Fund's Common Shares. If, on the other hand, short-term interest rates are
higher than our rate of payment on the interest rate swap, this will enhance the
performance of the Fund's Common Shares. Buying interest rate caps could enhance
the performance of the Fund's Common Shares by providing a ceiling on leverage
expenses. Buying interest rate caps could also decrease the net income of the
Fund's Common Shares in the event that the premium paid by the Fund to the
counterparty exceeds the additional amount the Fund would have been required to
pay had it not entered into the cap agreement. The Fund has no current intention
of selling an interest rate swap or cap. We would not enter into interest rate
swap or cap transactions in an aggregate notional amount that exceeds the
outstanding amount of the Fund's leverage.

    Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counter-party defaults, the
Fund would not be able to use the anticipated net receipts under the swap or cap
to offset the dividend payments on the Fund Preferred Shares or rate of interest
on borrowings. Depending on whether the Fund would be entitled to receive net
payments from the counterparty on the swap or cap, which in turn would depend on
the general state of short-term interest rates at that point in time, such
default could negatively impact the performance of the Fund's Common Shares.
Although this will not guarantee that the counter-party does not default, the
Fund will not enter into an interest rate swap or cap transaction with any
counter-party that the Investment Manager believes does not have the financial
resources to honor its obligation under the interest rate swap or cap
transaction. Further, the Investment Manager will continually monitor the
financial stability of a counter-party to an interest rate swap or cap
transaction in an effort to proactively protect the Fund's investments. In
addition, at the time the interest rate swap or cap transaction reaches its
scheduled termination date, there is a risk that the Fund will not be able to
obtain a replacement transaction or that the terms of the replacement will not
be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the performance of the Fund's Common Shares. The Fund will
usually enter into swaps or caps on a net basis; that is, the two payment
streams will be netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments.

    The Fund may choose or be required to redeem some or all of the Fund
Preferred Shares or prepay any borrowings. This redemption would likely result
in the Fund seeking to terminate early all or a portion of any swap or cap
transaction. Such early termination of a swap could result in termination
payment by or to the Fund. An early termination of a cap could result in a
termination payment to the Fund.

                            INVESTMENT RESTRICTIONS

    The investment objectives 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;

                                       13





<PAGE>
        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, mortgages on 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
    REITs, and securities secured by real estate or interests therein and the
    Fund may hold and sell real estate or mortgages on 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), through
    the use of repurchase agreements, and by the purchase of debt securities;


         6. Invest more than 25% of its total assets in securities of issuers in
    any one industry other than the real estate industry, in which at least 25%
    of the Fund's total assets will be invested; provided, however, that such
    limitation shall not apply to obligations issued or guaranteed by the United
    States Government or by its agencies or instrumentalities;



         7. Purchase preferred stock and debt securities rated below investment
    grade and unrated securities of comparable quality, if, as a result, more
    than 10% of the Fund's total assets would then be invested in such
    securities;



         8. 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 Section 12(d)(1) of the 1940 Act, or any exemption granted
    under the 1940 Act (b) acquire securities of any investment company as part
    of a merger, consolidation or similar transaction;



        9. 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;



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



        11. Purchase securities on margin, except short-term credits as are
    necessary for the purchase and sale of securities.



    The investment restrictions numbered 1 through 6 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 approval
of the holders of a 'majority of the outstanding' Common Shares and the Fund
Preferred Shares voting together as a single class, and of the holders of a
'majority of the outstanding' Fund Preferred Shares voting as a separate class.
When used with respect to particular shares of the Fund, a 'majority of the
outstanding' shares means (i) 67% or more of the shares present at a meeting, if
the holders of more than 50% of the shares are present or represented by proxy,
or (ii) more than 50% of the shares, whichever is less. Investment restrictions
numbered 7 through 11 above are non-fundamental and may be changed at any time
by vote of a majority of the Board of Directors.


    Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after the issuance the value of the Fund's total assets is at
least 200% of the liquidation value of the outstanding preferred shares (i.e.,
such liquidation value may not exceed 50% of the Fund's total assets less
liabilities other than borrowing). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its Common Shares unless, at
the time of such declaration, the value of the Fund's total assets less
liabilities other than borrowing is at least 200% of such liquidation value. If
Fund Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Fund Preferred Shares from time to time to the extent
necessary in order to maintain coverage of any Fund Preferred Shares of at least
200%. If the Fund has Fund Preferred Shares outstanding, two of the Fund's
Directors will be elected by the

                                       14





<PAGE>
holders of Fund Preferred Shares, voting separately as a class. The remaining
Directors of the Fund will be elected by holders of Common Shares and Fund
Preferred Shares voting together as a single class. In the event the Fund failed
to pay dividends on Fund Preferred Shares for two years, Fund Preferred
Shareholders would be entitled to elect a majority of the Directors of the Fund.

    Under the 1940 Act, the Fund generally is not permitted to borrow unless
immediately after the borrowing the value of the Fund's total assets less
liabilities other than the borrowing is at least 300% of the principal amount of
such borrowing (i.e., such principal amount may not exceed 33 1/3% of the Fund's
total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total assets, less liabilities other than
the borrowings, is at least 300% of such principal amount. If the Fund borrows,
the Fund intends, to the extent possible, to prepay all or a portion of the
principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default and entitle the debt holders to
elect a majority of the board of directors.

                             MANAGEMENT OF THE FUND

    The business and affairs of the Fund are managed under the direction of 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 Manager, 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 objectives and policies of the Fund and to the general
supervision of the Directors. As of April 30, 2003, the Directors and officers
as a group beneficially owned, directly or indirectly, less than 1% of the
outstanding shares of the Fund.

    Basic information about the identity and experience of each Director and
officer is set forth in the charts below. Each such Director and officer is also
a director or officer of Cohen & Steers Advantage Income Realty Fund, Inc.,
Cohen & Steers Quality Income Realty Fund, Inc., Cohen & Steers Premium Income
Realty Fund, Inc. and Cohen & Steers Total Return Realty Fund, Inc., which are
closed-end investment companies advised by the Investment Manager, and Cohen &
Steers Equity 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 advised by the Investment Manager.

    The Directors of the Fund, their addresses, their ages, the length of time
served, their principal occupations for at least the past five years, the number
of portfolios they oversee within the Fund complex, and other directorships held
by the Director are set forth below.

<Table>
<Caption>
                                                                                  NUMBER OF
                                                                                 FUNDS WITHIN
                                                                 PRINCIPAL           FUND
                                                                OCCUPATION         COMPLEX
                                                                DURING PAST      OVERSEEN BY
                                                                  5 YEARS          DIRECTOR
                             POSITION HELD       TERM OF     (INCLUDING OTHER     (INCLUDING    LENGTH OF
  NAME, ADDRESS AND AGE        WITH FUND         OFFICE     DIRECTORSHIPS HELD)   THE FUND)    TIME SERVED
  ---------------------        ---------         ------     -------------------   ---------    -----------
<S>                        <C>                 <C>          <C>                  <C>           <C>
INTERESTED DIRECTORS

Robert H. Steers ........  Director, Chairman  Until Next   Chairman of Cohen &      9         Since
757 Third Avenue           of the Board, and   Election of  Steers Capital                     Inception
New York, New York             Secretary       Directors    Management, Inc.,
Age: 50                                                     the Fund's
                                                            Investment Manager.
</Table>

                                                  (table continued on next page)

                                       15





<PAGE>
(table continued from previous page)


<Table>
<Caption>
                                                                                  NUMBER OF
                                                                                 FUNDS WITHIN
                                                                 PRINCIPAL           FUND
                                                                OCCUPATION         COMPLEX
                                                                DURING PAST      OVERSEEN BY
                                                                  5 YEARS          DIRECTOR
                             POSITION HELD       TERM OF     (INCLUDING OTHER     (INCLUDING    LENGTH OF
  NAME, ADDRESS AND AGE        WITH FUND         OFFICE     DIRECTORSHIPS HELD)   THE FUND)    TIME SERVED
  ---------------------        ---------         ------     -------------------   ---------    -----------
<S>                        <C>                 <C>          <C>                  <C>           <C>
Martin Cohen ............      Director,       Until Next   President of Cohen       9         Since
757 Third Avenue             President and     Election of  & Steers Capital                   Inception
New York, New York             Treasurer       Directors    Management, Inc.,
Age: 54                                                     the Fund's
                                                            Investment Manager.

DISINTERESTED DIRECTORS

Gregory C. Clark ........       Director       Until Next   Private Investor.        9            Since
99 Jane Street                                 Election of  Prior thereto,                      Inception
New York, New York                             Directors    President of
Age: 56                                                     Wellspring
                                                            Management Group
                                                            (investment
                                                            advisory firm).

Bonnie Cohen ............       Director       Until Next   Consultant. Prior        9            Since
1824 Phelps Place, N.W.                        Election of  thereto,                            Inception
Washignton, D.C.                               Directors    Undersecretary of
Age: 60                                                     State, United
                                                            States Department
                                                            of State. Director
                                                            of Wellsford Real
                                                            Properties Inc.

George Grossman .........       Director       Until Next   Attorney-at-law.         9            Since
17 Elm Place                                   Election of                                      Inception
Rye, New York                                  Directors
Age: 49

Richard J. Norman .......       Director       Until Next   Private Investor.        9            Since
7520 Hackamore Drive                           Election of  Prior thereto,                      Inception
Potomac, Maryland                              Directors    Investment
Age: 59                                                     Representative of
                                                            Morgan Stanley Dean
                                                            Witter.

Willard H. Smith, Jr. ...       Director       Until Next   Board member of          9            Since
7231 Encelia Drive                             Election of  Essex Property                      Inception
La Jolla, California                           Directors    Trust Inc.,
Age: 66                                                     Highwoods
                                                            Properties, Inc.,
                                                            Realty Income
                                                            Corporation and
                                                            Crest Net Lease,
                                                            Inc. Managing
                                                            Director at Merrill
                                                            Lynch & Co., Equity
                                                            Capital Markets
                                                            Division from 1983
                                                            to 1995.
</Table>


                                       16





<PAGE>

    The officers of the Fund, their addresses, their ages, and their principal
occupations for at least the past five years are set forth below.


<Table>
<Caption>
                                    POSITION(S)
                                     HELD WITH
    NAME, ADDRESS AND AGE              FUND          PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------  -------------------  -------------------------------------------
<S>                             <C>                  <C>
Greg E. Brooks ...............  Vice President       Senior Vice President of Cohen & Steers
757 Third Avenue                                     Capital Management, Inc., the Fund's
New York, New York                                   Investment Manager, since 2002 and a Vice
Age: 36                                              President of the Fund's Investment Manager
                                                     since 2000. Prior thereto, he was an
                                                     investment analyst with another real estate
                                                     securities investment manager.

William F. Scapell ...........  Vice President       Senior Vice President of Cohen & Steers
757 Third Avenue                                     Capital Management, Inc., the Fund's
New York, New York                                   Investment Manager, since February 2003.
Age: 36                                              Prior thereto, he was the chief strategist
                                                     for preferred securities at Merrill Lynch &
                                                     Co.

Adam M. Derechin .............  Vice President and   Senior Vice President of Cohen & Steers
757 Third Avenue                Assistant Treasurer  Capital Management, Inc., the Fund's
New York, New York                                   Investment Manager, since 1998 and prior to
Age: 38                                              that Vice President of the Fund's
                                                     Investment Manager.

Lawrence B. Stoller ..........  Assistant Secretary  Senior Vice President and General Counsel
757 Third Avenue                                     of Cohen & Steers Capital Management, Inc.,
New York, New York                                   the Fund's Investment Manager, since 1999.
Age: 39                                              Prior to that, Associate General Counsel,
                                                     Neuberger Berman Management, Inc. (money
                                                     manager); and Assistant General Counsel,
                                                     The Dreyfus Corporation (money manager).
</Table>


    The following table provides information concerning the dollar range of the
Fund's equity securities owned by each Director and the aggregate dollar range
of securities owned in the Cohen & Steers Fund Complex.


<Table>
<Caption>
                                                                                     AGGREGATE DOLLAR
                                                                                     RANGE OF EQUITY
                                                                                    SECURITIES IN THE
                                                              DOLLAR RANGE OF         COHEN & STEERS
                                                            EQUITY SECURITIES IN           FUND
                                                               THE FUND AS OF         COMPLEX AS OF
                                                                MAY 31, 2003           MAY 31, 2003
                                                               --------------         --------------
<S>                                                         <C>                    <C>
Robert H. Steers..........................................          --                over $100,000
Martin Cohen..............................................          --                over $100,000
Gregory C. Clark..........................................          --                over $100,000
Bonnie Cohen..............................................          --                over $100,000
George Grossman...........................................          --              $50,001 - $100,000
Richard Norman............................................          --                over $100,000
Willard H. Smith, Jr......................................          --              $50,001 - $100,000
</Table>



    Conflicts of Interest. No Director who is not an 'interested person' of the
Fund as defined in the 1940 Act, and no immediate family members, owns any
securities issued by the Investment Manager, or any person or entity (other than
the Fund) directly or indirectly controlling, controlled by, or under common
control with the Investment Manager. Solely as a result of their ownership of
securities of certain of the underwriters, Messrs. Clark and Smith are
technically 'interested persons' of the Fund as defined in the 1940 Act until
after completion of the offering of the common stock and any subsequent offering
of preferred shares. After the completion of the offerings, they will be
non-interested Directors.


                                       17





<PAGE>
BOARD'S ROLE IN FUND GOVERNANCE

    Committees. The Fund's Board of Directors has one standing committee of the
Board, the Audit Committee, which is composed of all of the Directors who are
not interested persons of the Fund, as defined in the 1940 Act. The function of
the Audit Committee is to assist the Board of Directors in its oversight of the
Fund's financial reporting process.


    Approval of Investment Management Agreement. The Board of Directors,
including a majority of the Directors who are not parties to the Fund's
Investment Management Agreement, or interested persons of any such party
('Disinterested Directors') has the responsibility under the 1940 Act to approve
the Fund's Investment Management Agreement for its initial term and annually
thereafter at a meeting called for the purpose of voting on such matter. The
Investment Management Agreement was approved for an initial two-year term by the
Fund's Directors, including a majority of the Disinterested Directors, at a
meeting held on May 28, 2003. In determining to approve the Investment
Management Agreement, the Directors reviewed the materials provided by the
Investment Manager and considered the following: (1) the level of the management
fees and estimated expense ratio of the Fund as compared to competitive Funds of
a comparable size; (2) the nature and quality of the services rendered by the
Investment Manager; (3) anticipated benefits derived by the Investment Manager
from the relationship with the Fund; (4) the costs of providing services to the
Fund; and (5) the anticipated profitability of the Fund to the Investment
Manager. They also considered the fact that the Investment Manager agreed to pay
all organizational expenses and offering costs, other than the sales load, that
exceeded $.05 per share in connection with the Fund's common stock offering. The
Directors then took into consideration the benefits to be derived by the
Investment Manager in connection with the Investment Management Agreement,
noting particularly the research and related services, within the meaning of
Section 28(e) of the Securities Exchange Act of 1934, as amended, that the
Investment Manager would be eligible to receive by allocating the Fund's
brokerage transactions.


                 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
December 31, 2003 and the aggregate compensation paid by the fund complex of
which the Fund is a part for the fiscal year ended December 31, 2002. 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 $5,500, and a fee of $500 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 the aggregate amount paid to the Director by the
Fund and the seven other funds that each Director serves in the fund complex.
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 OF FUND DIRECTORS            FROM FUND        DIRECTORS
         ------------------------------------------            ---------        ---------
<S>                                                           <C>            <C>
Gregory C. Clark,* Director.................................     $7,500          $52,500
Bonnie Cohen,* Director.....................................     $7,500          $49,000
Martin Cohen,** Director and President......................     $    0          $     0
George Grossman,* Director..................................     $7,500          $52,500
Richard J. Norman,* Director................................     $7,500          $52,500
Willard H. Smith, Jr.,* Director............................     $7,500          $52,500
Robert H. Steers,** Director and Chairman...................     $    0          $     0
</Table>

- ---------

 * Member of the Audit Committee.

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

                                       18







<PAGE>
PRINCIPAL STOCKHOLDERS


    To the knowledge of the Fund, as of May 31, 2003, no current director of
the Fund owned 1% or more of the outstanding Common Shares, and the officers and
directors of the Fund owned, as a group, less than 1% of the Common Shares.

    As of May 31, 2003, no person to the knowledge of the Fund, owned
beneficially more than 5% of the outstanding Common Shares.


                     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 Advantage Income Realty Fund, Inc., Cohen
& Steers Quality Income Realty Fund, Inc., Cohen & Steers Premium Income Realty
Fund, Inc. and Cohen & Steers Total Return Realty Fund, Inc., which are
closed-end investment companies, and Cohen & Steers Equity 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. Mr. Cohen and Mr. Steers are 'controlling persons' of the Investment
Manager on the basis of their ownership of the Investment Manager's stock.

    Pursuant to the Investment 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 Investment Management Agreement, the Fund pays the Investment
Manager a monthly management fee computed at the annual rate of .65% of the
average daily value of the managed assets (which equals the net asset value of
the Common Shares, including the liquidation preference on any Preferred Shares,
plus the principal amount on any borrowings) of the Fund.

    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 an Administration Agreement, the Investment Manager also
performs certain administrative and accounting 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 the periodic updating of the Fund's
registration statement, including prospectus and Statement of Additional
Information, for the purpose of filings with the Securities and Exchange
Commission and state securities administrators and monitoring and maintaining
the effectiveness of such filings, as appropriate; (v) supervising preparation
of periodic reports to the Fund's shareholders and filing of these reports with
the Securities and Exchange Commission, Forms N-SAR filed with the Securities
and Exchange Commission, notices of dividends, capital gains distributions and
tax credits, and attending to routine correspondence and other communications
with individual shareholders; (vi) supervising the daily pricing of the Fund's
investment portfolio and the publication of the net asset value of the


                                       19





<PAGE>

Fund's shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to the Company, including
the Custodian, Transfer Agent and printers; (viii) providing trading desk
facilities for the Fund; (ix) supervising compliance by the Fund with
record-keeping requirements under the 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 (x) providing executive, clerical and
secretarial help needed to carry out these responsibilities. Under the
Administration Agreement, the Fund pays the Investment Manager an amount equal
to, on an annual basis, .06% of the average daily total net assets up to
$1 billion, .04% of the Fund's average daily total net assets in excess of
$1 billion up to $1.5 billion and .02% of the Fund's average daily total net
assets in excess of $1.5 billion.


    In accordance with the terms of the Administration Agreement and with the
approval of the Fund's Board of Directors, the Investment Manager has caused the
Fund to retain State Street Bank and Trust Company ('State Street Bank') as
sub-administrator under a fund accounting and administration agreement (the
'Sub-Administration Agreement'). Under the Sub-Administration Agreement, State
Street Bank 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
Securities and Exchange Commission filings; and (iv) responding to shareholder
inquiries.

    Under the terms of the Sub-Administration Agreement, the Fund pays State
Street Bank a monthly sub-administration fee. The sub-administration fee paid by
the Fund to State Street Bank is computed on the basis of the net assets in the
Fund at an annual rate equal to .030% of the first $200 million in assets, .020%
of the next $200 million, and .010% of assets in excess of $400 million, with a
minimum fee of $120,000. The aggregate fee paid by the Fund and the other funds
advised by the Investment Manager to State Street Bank is computed by
multiplying the total number of funds by each break point in the above schedule
in order to determine the aggregate break points to be used in calculating the
total fee paid by the Cohen & Steers family of funds (i.e., six funds at $200
million or $1.2 billion at .030%, etc.). The Fund is then responsible for its
pro rata amount of the aggregate administration fee.

    The Investment Manager remains responsible for monitoring and overseeing the
performance by State Street Bank, and EquiServe Trust Company, NA, as custodian
and transfer and disbursing agent, 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.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

    State Street Bank, which has its principal business office at 225 Franklin
Street, Boston, MA 02110, has been retained to act as custodian of the Fund's
investments and EquiServe Trust Company, NA, which has its principal business
office at 150 Royall Street, Canton, MA 02021, as the Fund's transfer and
dividend disbursing agent. Neither State Street nor EquiServe has any part in
deciding the Fund's investment policies or which securities are to be purchased
or sold for the Fund's portfolio.

CODE OF ETHICS

    The Fund and Investment Manager have adopted codes of ethics in compliance
with Rule 17j-1 under the 1940 Act. The codes of ethics of the Fund and the
Investment Manager, 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 or reasonably should have known at the time of the
transaction that,

                                       20





<PAGE>
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.

PRIVACY POLICY

    The Fund is committed to maintaining the privacy of its shareholders and to
safeguarding their nonpublic personal information. The following information is
provided to help you understand what personal information the Fund collects, how
we protect that information, and why in certain cases we may share this
information with others.

    The Fund does not receive any nonpublic personal information relating to the
shareholders who purchase shares through an intermediary that acts as the record
owner of the shares. In the case of shareholders who are record owners of the
Fund, we receive nonpublic personal information on account applications or other
forms. With respect to these shareholders, the Fund also has access to specific
information regarding their transactions in the Fund.

    The Fund does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary to service shareholder accounts. The Fund restricts access to
nonpublic personal information about its shareholders to Cohen & Steers
employees with a legitimate business need for the information.

                      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 markup. 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

                                       21





<PAGE>
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.

                        DETERMINATION OF NET ASSET VALUE

    The Fund will determine the net asset value of its shares daily, 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. Any swap transaction that the Fund enters into may,
depending on the applicable interest rate environment, have a positive or
negative value for purposes of calculating net asset value. Any cap transaction
that the Fund enters into may, depending on the applicable interest rate
environment, have no value or a positive value. In addition, accrued payments to
the Fund under such transactions will be assets of the Fund and accrued payments
by the Fund will be liabilities of the Fund.


    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 NASDAQ traded securities are valued at the NASDAQ
official closing price. 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.

                              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 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

                                       22





<PAGE>
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. During the pendency of a tender offer, the Fund will publish how Common
Shareholders may readily ascertain the net asset value. 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 use the accumulation of
cash 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, as amended, 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 objectives 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 U.S. 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
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.

                                       23





<PAGE>
                                    TAXATION

    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 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
advisers 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 elect to be treated as, and to qualify annually as, a
regulated investment company under the Code.

    To qualify for the favorable U.S. Federal income tax treatment generally
accorded to regulated investment companies, 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 holdings 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, 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 (other than U.S. Government securities or
the securities of other regulated investment companies) of a single issuer, or
two or more issuers which the Fund controls and are engaged in the same, similar
or related trades or businesses; and (c) distribute at least 90% of the sum of
its investment company taxable income (as that term is defined in the Code, but
without regard to the deduction for dividends paid) and net tax-exempt interest
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
gain (the excess of net long-term capital gain over net short-term capital
loss), 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 gain. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
(described below) are subject to a nondeductible 4% excise tax. To prevent
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 were not distributed during those years and on which the Fund paid no
Federal income tax. 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.

    If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all

                                       24





<PAGE>

distributions out of earnings and profits (including distributions of net
capital gain) would be taxed to shareholders as ordinary income. Such
distributions generally would be eligible (i) to be treated as qualified
dividend income in the case of individual shareholders and (ii) for the DRD in
the case of corporate shareholders.


DISTRIBUTIONS


    Dividends paid out of the Fund's current and accumulated earnings and
profits will, except in the case of capital gain dividends described below, be
taxable to a U.S. shareholder as ordinary income to the extent of the Fund's
earnings and profits. If a portion of the Fund's income consists of qualifying
dividends paid by U.S. corporations (other than REITs), a portion of the
dividends paid by the Fund to corporate shareholders, if properly designated,
may be eligible for the DRD. In addition, for taxable years beginning on or
before December 31, 2008, distributions of investment income designated by the
Fund as derived from qualified dividend income will be taxed in the hands of
individuals at the rates applicable to long-term capital gain, provided holding
period and other requirements are met. The Fund does not expect a significant
portion of Fund distributions to be eligible for the DRD or derived from
qualified dividend income. Distributions of net capital gain, 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. Long-term
capital gain rates for individuals have been temporarily reduced to 15% (with
lower rates for individuals in the 10% and 15% rate brackets) for taxable years
beginning on or before December 31, 2008. 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.



    The Internal Revenue Service ('IRS') currently requires that a regulated
investment company that has two or more classes of stock allocate to each such
class proportionate amounts of each type of its income (such as ordinary income,
capital gains, dividends qualifying for the DRD and qualified dividend income)
based upon the percentage of total dividends paid out of earnings or profits to
each class for the tax year. Accordingly, the Fund intends each year to allocate
capital gain dividends, dividends qualifying for the DRD and dividends derived
from qualified dividend income, if any, between its Common Shares and Fund
Preferred Shares in proportion to the total dividends paid out of earnings or
profits to each class with respect to such tax year.


    Distributions will be treated in the manner described above regardless of
whether such distributions are paid in cash or invested in additional shares of
the Fund.

    The Fund may elect to retain its net capital gain or a portion thereof for
investment and be taxed at corporate rates on the amount retained. In such case,
it may designate the retained amount as undistributed capital gains in a notice
to its shareholders who will be treated as if each received a distribution of
his pro rata share of such gain, with the result that each shareholder will
(i) be required to report his pro rata share of such gain on his tax return as
long-term capital gain, (ii) receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain and (iii) increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.

    Shareholders will be notified annually as to the U.S. federal tax status of
distributions.

    Although the Fund may realize tax-exempt income on certain investments, it
will generally be unable to pass through to its shareholders the tax-exempt
nature of that income.

SALE OR EXCHANGE OF FUND SHARES

    Upon the sale or other disposition of shares of the Fund which a shareholder
holds as a capital asset, such 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.

                                       25





<PAGE>
    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 gain received by the shareholder (or amounts designated as
undistributed capital gains) with respect to such shares.

NATURE OF FUND'S INVESTMENTS

    Certain of the Fund's investment practices are subject to special and
complex Federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gain into higher taxed
short-term capital gain or ordinary income, (iii) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (iv)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions
and may make certain tax elections in order to mitigate the effect of these
provisions.

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.

INVESTMENT IN NON-U.S. SECURITIES

    The Fund's investment in non-U.S. securities may be subject to non-U.S.
withholding taxes. In that case, the Fund's yield on those securities would be
decreased. Shareholders will generally not be entitled to claim a credit or
deduction with respect to foreign taxes paid by the Fund.

    In addition, if the Fund acquires an equity interest in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties or capital
gains) or that hold at least 50% of their assets in investments producing such
passive income ('passive foreign investment companies'), the Fund could be
subject to U.S. Federal income tax and additional interest charges on gains and
certain distributions with respect to those equity interests, even if all the
income or gain is timely distributed to its shareholders. The Fund will not be
able to pass through to its shareholders any credit or deduction for such taxes.
An election may generally be available to ameliorate these adverse tax
consequences but any such election could require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. These investments could
also result in the treatment of capital gains as ordinary income. The Fund
intends to manage its holdings to limit the tax liability from these
investments.

INVESTMENTS IN SECURITIES OF UNCERTAIN TAX CHARACTER

    The Fund may invest in preferred securities or other securities the U.S.
Federal income tax treatment of which may not be clear or may be subject to
recharacterization by the IRS. To the extent the tax treatment of such
securities or the income from such securities differs from the tax treatment
expected by the Fund, it could affect the timing or character of income
recognized by the Fund, requiring the Fund to purchase or sell securities, or
otherwise change its portfolio, in order to comply with the tax rules applicable
to regulated investment companies under the Code.

                                       26





<PAGE>
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS

    The Fund may invest in REITs that hold residual interests in real estate
mortgage investment conduits ('REMICs'). Under 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 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.

BORROWINGS

    If the Fund utilizes leverage through borrowing, it may be restricted by
loan covenants with respect to the declaration of, and payment of, dividends in
certain circumstances. Limits on the Fund's payments of dividends may prevent
the Fund from meeting the distribution requirements, described above, and may,
therefore, jeopardize the Fund's qualification for taxation as a regulated
investment company and possibly subject the Fund to the 4% excise tax. The Fund
will endeavor to avoid restrictions on its ability to make dividend payments.

BACKUP WITHHOLDING

    The Fund may be required to withhold U.S. Federal income tax on all taxable
distributions and redemption proceeds 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 IRS 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 (a '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 -- Investment in
Real Estate Investment Trusts' above)), which tax is generally withheld from
such distributions.

    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

                                       27





<PAGE>
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 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 on distributions of net capital
gain 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. Any gain that a foreign shareholder realizes upon the
sale or exchange of such shareholder's shares of the Fund will ordinarily be
exempt from U.S. tax unless (i) in the case of a shareholder that is a
nonresident alien individual, 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 (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 actually or constructively held more
than 5% of the shares of the Fund, in which event described in (ii), the gain
would be taxed in the same manner as for a U.S. shareholder as discussed above
and a 10% U.S. federal withholding tax generally would be imposed on the amount
realized on the disposition of such shares to be credited against the foreign
shareholder's U.S. Federal 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.



TAX SHELTER REPORTING REGULATIONS

    Under recently promulgated Treasury regulations, if a shareholder recognizes
a loss with respect to shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder in any single
taxable year (or a greater loss over a combination of years), the shareholder
must file with the IRS a disclosure statement on Form 8886. Direct shareholders
of portfolio securities are in many cases excepted from this reporting
requirement, but under current guidance, shareholders of a regulated investment
company are not excepted. Future guidance may extend the current exception from
this reporting requirement to shareholders of most or all regulated investment
companies. The fact that a loss is reportable under these regulations does not
affect the legal determination of whether the taxpayer's treatment of the loss
is proper. Shareholders should consult their tax advisors to determine the
applicability of these regulations in light of their individual circumstances.

                                       28





<PAGE>
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.

                            PERFORMANCE INFORMATION

    From time to time, the Fund may quote the Fund's total return, aggregate
total return or yield in advertisements or in reports and other communications
to shareholders. The Fund's performance will vary depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or other investments that pay
a fixed yield for a stated period of time. Investors comparing the Fund's
performance with that of other investment companies should give consideration to
the quality and maturity of the respective investment companies' portfolio
securities.

AVERAGE ANNUAL TOTAL RETURN

    The Fund's 'average annual total return' figures described in the Prospectus
are computed according to a formula prescribed by the Securities and Exchange
Commission. The formula can be expressed as follows:

                                               P(1 + T)'pp'n = ERV
  Where: P = a hypothetical initial payment of $1,000
         T = average annual total return
         n = number of years
       ERV = Ending Redeemable Value of a hypothetical $1,000 investment
             made at the beginning of a 1-, 5-, or 10-year period at the
             end of a 1-, 5-, or 10-year period (or fractional portion
             thereof), assuming reinvestment of all dividends and
             distributions.


YIELD

    Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ('net investment income') and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:

                                   a-b
                          = --------------------
                            2[(cd + 1)'pp'6 - 1]

  Where: a = dividends and interest earned during the period,
         b = expenses accrued for the period (net of reimbursements),
         c = the average daily number of shares outstanding during the
             period that were entitled to receive dividends, and
         d = the maximum offering price per share on the last day of the
             period.

    In reports or other communications to shareholders of the Fund or in
advertising materials, the Fund may compare its performance with that of (i)
other investment companies listed in the rankings prepared by Lipper Analytical
Services, Inc., publications such as Barrons, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications or (ii) the Standard and Poor's Index of 500
Stocks, the Dow Jones Industrial Average, Dow Jones Utility Index, the National
Association of Real Estate Investment Trusts (NAREIT) Equity REIT Index, the
Salomon Brothers Broad Investment Grade Bond Index (BIG), Morgan Stanley Capital
International Europe Australia Far East (MSCI EAFE) Index, the NASDAQ Composite
Index, and other relevant indices and industry publications. The Fund may also
compare the historical volatility of its portfolio to the volatility of such
indices during the

                                       29





<PAGE>
same time periods. (Volatility is a generally accepted barometer of the market
risk associated with a portfolio of securities and is generally measured in
comparison to the stock market as a whole -- the beta -- or in absolute
terms -- the standard deviation.)

INCOME POTENTIAL

REITS AND PREFERREDS may
offer an attractive dividend yield.

<Table>
<Caption>
                                                        Current Yield
                                                    As of March 31, 2003

                                         REIT and       10-Year    S&P 500   Money Market
                                      Preferred Index   Treasury             Funds Average
<S>                                   <C>               <C>        <C>       <C>
                                           7.0%           3.7%       1.9%         0.8%
</Table>

Sources: NAREIT, Bloomberg, Merrill Lynch. The REIT and Preferred Index is made
up of unmanaged benchmarks weighed 50% in REITs and 50% in preferred securities.

TOTAL RETURN POTENTIAL WITH
LOW EXPECTED VOLATILITY

REITS AND PREFERREDS have
historically provided stock
market returns with bond-like
volatility.

<Table>
<Caption>
                                                Performance and Volatility
                                              Ten Years Ended March 31, 2003

                                         REIT and           S&P 500       10-Year
                                      Preferred Index                     Treasury
<S>                                   <C>                  <C>            <C>
Total Return.........................     8.5%                8.7%          6.8%
Standard Deviation...................     6.9%               15.6%          6.8%
</Table>

Sources: NAREIT, Bloomberg, Merrill Lynch

PORTFOLIO DIVERSIFICATION
POTENTIAL

REITS AND PREFERREDS can
provide portfolio diversification
for investors due to their low
correlation with stocks and bonds.

<Table>
                                                Correlation to Stocks and Bonds
                                                Ten Years Ended March 31, 2003

                                         REIT and           S&P 500       10-Year
                                      Preferred Index                     Treasury
<S>                                   <C>                   <C>          <C>
                                           1.00               0.28          0.15
</Table>

Sources: NAREIT, Bloomberg, Merrill Lynch

    Returns are historical and include change in share price and reinvestment of
dividends and capital gains. REITs are represented by the National Association
of Real Estate Investment Trusts (NAREIT) Equity REIT Index, an unmanaged
portfolio representing the Equity REIT market. Preferred securities are
represented by the Merrill Lynch Fixed Rate Preferred Stock Index. The Fund may
invest in both floating rate and fixed rate preferred securities. This is not
the Fund's performance, and the Fund will not seek to replicate any index. You
cannot invest directly in an index. There is no guarantee that Fund performance
will equal or exceed the REIT and Preferred Index performance. The Standard and
Poor's 500 Composite Index (S&P 500) is an unmanaged index of 500 large
capitalization, publicly traded stocks representing a variety of industries. The
10-Year Treasury is an index of 10-year bonds issued by the U.S. Treasury.
Treasury securities are backed by the full faith and credit of the U.S.
Government, while real estate securities and preferred securities are not.
Correlation coefficients are based on monthly return data. The Money Market
Funds average is represented by iMoneyNet Money Fund Report Averages. Past
performance is no guarantee of future results.

                                       30





<PAGE>
    Marketing materials for the Fund may make reference to other closed-end
investment companies for which the Investment Manager serves as investment
adviser. The past performance of any other Cohen & Steers Fund is not a
guarantee of future performance for 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. PricewaterhouseCoopers LLP
have been appointed as independent accountants for the Fund. The statement of
assets and liabilities of the Fund as of June 6, 2003 included in this Statement
of Additional Information has been so included in reliance on the report of
PricewaterhouseCoopers LLP, New York, New York, independent accountants, given
on the authority of the firm as experts in auditing and accounting.


     COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
        STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 6, 2003


<Table>
<S>                                                           <C>
Assets:
    Cash....................................................  $100,275
    Deferred Offering Costs.................................   885,000
                                                              --------
        Total Assets........................................   985,275
                                                              --------
Liabilities
    Accrued expenses........................................   885,000
                                                              --------
        Total Liabilities...................................   885,000
                                                              --------
Net Assets applicable to 4,200 shares of $.001 par value
  common stock outstanding..................................  $100,275
                                                              --------
                                                              --------
Net asset value per Common Shares outstanding ($100,275
  divided by 4,200 Common shares outstanding)...............  $  23.88
                                                              --------
                                                              --------
</Table>





NOTES TO FINANCIAL STATEMENT



NOTE 1: ORGANIZATION



    Cohen & Steers REIT and Preferred Income Fund, Inc. (the 'Fund') was
incorporated under the laws of the State of Maryland on March 25, 2003 and is
registered under the Investment Company Act of 1940 (the 'Act'), as amended, as
a closed-end non-diversified management investment company. The Fund has been
inactive since that date except for matters relating to the Fund's
establishment, designation, registration of the Fund's shares of common stock
('Shares') under the Securities Act of 1933, and the sale of 4,200 shares
('Initial Shares') for $100,275 to Cohen & Steers Capital Management, Inc. (the
'Advisor'). The proceeds of such initial Shares in the Fund were invested in
cash. There are 100,000,000 shares of $0.01 par value common stock authorized.



    Cohen & Steers Capital Management, Inc. has agreed to pay all organization
expenses (approximately $15,000) and pay all offering costs (other than the
sales load) that exceed $0.05 per Common Share.



NOTE 2: ACCOUNTING POLICIES



    The preparation of the financial statement in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statement. Actual results could differ from these
estimates. In the normal course of business, the Fund enters into contracts that
contain a variety of representations which provide general indemnifications. The
Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund expects the risk of loss to be remote.


                                       31





<PAGE>

NOTE 3: INVESTMENT MANAGEMENT AGREEMENT



    The Fund has entered into an Investment Management Agreement with the
Advisor, under which the Advisor will provide general investment advisory and
administrative services for the Fund. For providing these services, facilities
and for bearing the related expenses, the Advisor will receive a fee from the
Fund, accrued daily and paid monthly, at an annual rate equal to 0.65% of the
average daily managed assets. Managed asset value is the net asset value of the
Common Shares plus the liquidation preference of any Fund Preferred Shares and
the principal amount of any borrowings used for leverage.


                                       32





<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors of
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.:


In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Cohen & Steers REIT
and Preferred Income Fund, Inc. (the 'Fund') at June 6, 2003 in conformity with
accounting principles generally accepted in the United States of America. This
financial statement is the responsibility of the Fund's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.



New York, New York
June 9, 2003


                                       33







<PAGE>
                                                                      APPENDIX A

                             RATINGS OF INVESTMENTS

    Description of certain ratings assigned by S&P and Moody's:

S&P

LONG-TERM

    'AAA' -- An obligation rated 'AAA' has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

    'AA' -- An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

    'A' -- An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

    'BBB' -- An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

    'BB,' 'B,' 'CCC,' 'CC,' and 'C' -- Obligations rated 'BB,' 'B,' 'CCC,' 'CC,'
and 'C' are regarded as having significant speculative characteristics. 'BB'
indicates the least degree of speculation and 'C' the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.

    'BB' -- An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

    'B' -- An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB,' but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

    'CCC' -- An obligation rated 'CCC' is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

    'CC' -- An obligation rated 'CC' is currently highly vulnerable to
nonpayment.

    'C' -- A subordinated debt or preferred stock obligation rated 'C' is
currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action taken,
but payments on this obligation are being continued. A 'C' also will be assigned
to a preferred stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.

    'D' -- An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation 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. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

    'r' -- The symbol 'r' is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or

                                      A-1





<PAGE>
commodities; obligations exposed to severe prepayment risk -- such as
interest-only or principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.

    'N.R.' -- The designation 'N.R.' indicates that no rating has been
requested, that there is insufficient information on which to base a rating, or
that S&P does not rate a particular obligation as a matter of policy.

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

SHORT-TERM

    'A-1' -- A short-term obligation rated 'A-1' is rated in the highest
category by S&P. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are given a plus
sign (+) designation. This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.

    'A-2' -- A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

    'A-3' -- A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

    'B' -- A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet is
financial commitment on the obligation.

    'C' -- A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.

    'D' -- A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation 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. The 'D' rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

MOODY'S

LONG-TERM

    'Aaa' -- Bonds rated 'Aaa' 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 rated 'Aa' 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 risk appear somewhat larger than the 'Aaa'
securities.

    'A' -- Bonds rated 'A' 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 some time in the future.

                                      A-2





<PAGE>
    'Baa' -- Bonds rated 'Baa' are considered as 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' -- Bonds rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

    'B' -- Bonds rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

    'Caa' -- Bonds rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

    'Ca' -- Bonds rated 'Ca' represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

    'C' -- Bonds rated 'C' are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

    Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from 'Aa' through 'Caa'. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

PRIME RATING SYSTEM (SHORT-TERM)

    Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:

        Leading market positions in well-established industries.

        High rates of return on funds employed.

        Conservative capitalization structure with moderate reliance on debt and
    ample asset protection.

        Broad margins in earnings coverage of fixed financial charges and high
    internal cash generation.

        Well-established access to a range of financial markets and assured
    sources of alternate liquidity.

    Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

    Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

    Issuers rated Not Prime do not fall within any of the Prime rating
categories.

                                      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


<Table>
<S>  <C>
(a)  -- (i) Articles of Incorporation*
     -- (ii) Articles of Amendment**
(b)  -- By-Laws*
(c)  -- Not Applicable
(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)  -- (i) Form of Investment Management Agreement*
     -- (ii) Not Applicable
(h)  -- Form of Underwriting Agreement**
(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 between the Fund
        and the Investment Manager*
     -- (iii) Form of Administration Agreement between the Fund
        and State Street Bank and Trust Company*
(l)  -- (i) Opinion and Consent of Simpson Thacher & Bartlett
        LLP**
     -- (ii) Opinion and Consent of Venable, Baetjer and Howard,
        LLP**
(m)  -- Not Applicable
(n)  -- Consent of Independent Accountants**
(o)  -- Not Applicable
(p)  -- Form of Investment Representation Letter*
(q)  -- Not Applicable
(r)  -- (i) Code of Ethics of the Fund**
     -- (ii) Code of Ethics of Investment Manager**
(s)  -- Power of Attorney**
</Table>


- ---------
 * Previously filed with the Fund's Registration Statement.


** Filed herewith.


ITEM 25. MARKETING ARRANGEMENTS

    See Exhibit 2(h).

                                      C-1





<PAGE>
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.......................................  $ 141,575
New York Stock Exchange listing fee*........................    250,000
Printing and engraving expenses*............................    750,000
Auditing fees and expenses*.................................     45,000
Legal fees and expenses*....................................    450,000
NASD Fees*..................................................     30,000
Miscellaneous*..............................................    250,000
                                                             ----------
    Total*.................................................. $1,916,575
                                                             ----------
                                                             ----------
</Table>


- ---------

* Estimated.

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 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. The
liability of Cohen & Steers Capital Management, Inc., the Registrant's
investment manager (the 'Investment Manager'), for any loss suffered by the
Registrant or its shareholders is set forth in Section 5 of the Investment
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).

    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 caption 'Management of
the Fund' 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.

                                      C-2





<PAGE>
    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 and Director of Research
James S. Corl...................................  Senior Vice President and Director of Investment
                                                    Strategy
John J. McCombe.................................  Senior Vice President
Adam M. Derechin................................  Senior Vice President
Lawrence B. Stoller.............................  Senior Vice President and General Counsel
Greg E. Brooks..................................  Senior Vice President
William F. Scapell..............................  Senior Vice President
Kevin P. Norton.................................  Senior Vice President
Rahul Bhattacharjee.............................  Vice President
Jay J. Chen.....................................  Vice President
Terrance R. Ober................................  Vice President
Victor M. Gomez.................................  Vice President -- Finance and Treasurer
Anthony Dotro...................................  Vice President
Robert Tisler...................................  Vice President
Mark Freed......................................  Vice President
Norbert Berrios.................................  Vice President
</Table>

    Cohen & Steers Capital Management, Inc. acts as Investment Manager of, in
addition to the Registrant, the following registered investment companies:

    Cohen & Steers Advantage Income Realty Fund, Inc.

    Cohen & Steers Institutional Realty Shares, Inc.

    Cohen & Steers Equity Income Fund, Inc.

    Cohen & Steers Premium Income Realty Fund, Inc.

    Cohen & Steers Quality Income Realty Fund, Inc.

    Cohen & Steers Realty Shares, Inc.

    Cohen & Steers Total Return Realty Fund, Inc.

    Cohen & Steers Special Equity Fund, Inc.

    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, State Street Bank
and Trust Company. 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.

                                      C-3





<PAGE>
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-4







<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of the Securities Act and the 1940 Act, 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    day of June, 2003.


                                          COHEN & STEERS REIT AND PREFERRED
                                          INCOME FUND, INC.

                                          By:        /s/ ROBERT H. STEERS
                                              ..................................
                                                      ROBERT H. STEERS
                                                          CHAIRMAN

    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 20, 2003
   .......................................
                (MARTIN COHEN)


By:        /s/ ROBERT H. STEERS             Director, Chairman and Secretary        June 20, 2003
   .......................................
              (ROBERT H. STEERS)
</Table>


                                      C-5



                          STATEMENT OF DIFFERENCES
                          ------------------------

 The registered trademark symbol shall be expressed as.................. 'r'
 The service mark symbol shall be expressed as.......................... 'sm'
 Characters normally expressed as superscript shall be preceded by...... 'pp'



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A
<SEQUENCE>3
<FILENAME>ex99-2aii.txt
<DESCRIPTION>EXHIBIT 2(A)(II)
<TEXT>



<PAGE>

                              ARTICLES OF AMENDMENT

                                       OF

          COHEN & STEERS REIT AND PREFERRED BALANCED INCOME FUND, INC.


                  Cohen & Steers REIT and Preferred Balanced Income Fund, Inc.,
a Maryland corporation having its principal office in the State of Maryland in
Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies
that:
                  FIRST: The charter of the Corporation is hereby amended by
striking out Article SECOND of the Articles of Incorporation and inserting in
lieu thereof the following:

                           "SECOND: The name of the corporation (hereinafter
                  called the "Corporation") is Cohen & Steers REIT and Preferred
                  Income Fund, Inc."

                  SECOND: The charter of the Corporation is hereby amended by
striking out Article EIGHTH of the Articles of Incorporation and inserting in
lieu thereof the following:

                           "EIGHTH: (1) Notwithstanding any other provision of
                  these Articles of Incorporation, the affirmative vote of the
                  holders of (a) eighty percent (80%) of the votes entitled to
                  be cast thereon by stockholders of the Corporation and (b) in
                  the case of a Business Combination (as defined below), 66 2/3%
                  of the votes entitled to be cast thereon by stockholders of
                  the Corporation other than votes entitled to be cast thereon
                  by an Interested Party (as defined below) who is (or whose
                  Affiliate or Associate (each as defined below) is) a party to
                  a Business Combination (as defined below) or by an Affiliate
                  or Associate of the Interested Party, in addition to the
                  affirmative vote of seventy-five percent (75%) of the entire
                  Board of Directors, shall be required to advise, approve,
                  adopt or authorize any of the following:




<PAGE>



                           (i) a merger, consolidation or statutory share
         exchange of the Corporation with or into another person;

                           (ii) issuance or transfer by the Corporation (in one
         or a series of transactions in any 12 month period) of any securities
         of the Corporation to any person or entity for cash, securities or
         other property (or combination thereof) having an aggregate fair market
         value of $1,000,000 or more, excluding (a) issuances or transfers of
         debt securities of the Corporation, (b) sales of securities of the
         Corporation in connection with a public offering, (c) issuances of
         securities of the Corporation pursuant to a dividend reinvestment plan
         adopted by the Corporation, (d) issuances of securities of the
         Corporation upon the exercise of any stock subscription rights
         distributed by the Corporation and (e) portfolio transactions effected
         by the Corporation in the ordinary course of business;

                           (iii) sale, lease, exchange, mortgage, pledge,
         transfer or other disposition by the Corporation (in one or a series of
         transactions in any 12 month period) to or with any person or entity of
         any assets of the Corporation having an aggregate fair market value of
         $1,000,000 or more except for portfolio transactions (including pledges
         of portfolio securities in connection with borrowings) effected by the
         Corporation in the ordinary course of its business (transactions within
         clauses (i), (ii) and (iii) above being known individually as a
         "Business Combination");

                           (iv) the voluntary liquidation or dissolution of the
         Corporation, or an amendment to these Articles of Incorporation to
         terminate the Corporation's existence; or

                           (v) any stockholder proposal as to specific
         investment decisions made or to be made with respect to the
         Corporation's assets.

                           However, the stockholder vote described in Paragraph
         (1) of this Article EIGHTH will not be required with respect to the
         foregoing transactions (other than those set forth in (v) above) if
         they are approved by a vote of seventy-five percent (75%) of the
         Continuing Directors (as defined below). In that case, if Maryland law
         requires stockholder approval, the affirmative vote of a majority of
         the votes entitled to be cast shall be required, and if Maryland law
         does not require stockholder approval, no stockholder approval will be
         required.

                           (i) "Continuing Director" means any member of the
         Board of Directors of the Corporation who is not an Interested Party or
         an Affiliate of an Interested Party and has been a member of the Board
         of Directors for a period of at least 12 months, or has been a member
         of the Board of Directors since the Corporation's initial public
         offering of its Common Stock, or is a successor of a Continuing
         Director who is unaffiliated with an Interested Party and is
         recommended to succeed a Continuing Director by a majority of the
         Continuing Directors then on the Board of Directors.


                                       2




<PAGE>


                           (ii) "Interested Party" shall mean any person, other
         than an investment company advised by the Corporation's initial
         investment manager, or any of its Affiliates, that enters, or proposes
         to enter, into a Business Combination with the Corporation.

                           (iii) "Affiliate" and "Associate" shall have the
         meaning ascribed to each such respective term in Rule 12b-2 of the
         General Rules and Regulations under the Securities Exchange Act of
         1934, as amended.

                           (2) Continuing Directors of the Corporation acting by
         vote of at least 75% shall have the power and duty to determine, on the
         basis of information known to them after reasonable inquiry, all facts
         necessary to determine (a) whether a person is an Affiliate or
         Associate of another, and (b) whether the assets that are the subject
         of any Business Combination have, or the consideration to be received
         for the issuance or transfer of securities by the Corporation in any
         Business Combination has, an aggregate Fair Market Value of $1,000,000
         or more.

                           (3) Notwithstanding any other provision of these
         Articles of Incorporation, the affirmative vote of seventy-five percent
         (75%) of the entire Board of Directors shall be required to advise,
         approve, adopt or authorize the conversion of the Corporation from a
         "closed-end company" to an "open-end company" (as those terms are
         defined in the Investment Company Act of 1940, as amended), and any
         amendments to Article THIRD and otherwise to these Articles of
         Incorporation necessary to effect the conversion. Such conversion or
         any such amendment shall also require the approval of the holders of
         seventy-five percent (75%) of the votes entitled to be cast thereon by
         stockholders of the Corporation unless approved by a vote of
         seventy-five percent (75%) of the Continuing Directors (as defined
         above), in which event such conversion and amendment shall require the
         approval of the holders of a majority of the votes entitled to be cast
         thereon by stockholders of the Corporation."

                  THIRD: The foregoing charter amendment was duly approved
unanimously by the Board of Directors of the Corporation. No stock entitled to
be voted on the matter was outstanding or subscribed for at the time of
approval.



                                       3




<PAGE>



                  IN WITNESS WHEREOF, Cohen & Steers REIT and Preferred Balanced
Income Fund, Inc. has caused these Articles of Amendment to be signed in its
name and on its behalf by its President and attested by its Secretary on
April __, 2003.

                           COHEN & STEERS REIT AND PREFERRED BALANCED
                           INCOME FUND, INC.


                           By: /s/ Martin Cohen
                               ------------------------------
                               Martin Cohen
                               President


Attest:

/s/ Robert H. Steers
- ---------------------------
Robert H. Steers
Secretary


                  The UNDERSIGNED President of Cohen & Steers REIT and Preferred
Balanced Income Fund, Inc., who executed on behalf of said Corporation the
foregoing Articles of Amendment of which this certificate is made a part, hereby
acknowledges same in the name and on behalf of said Corporation and further
certifies that, to the best of his knowledge, information and belief all matters
and facts set forth herein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.

                                                     /s/ Martin Cohen
                                                     ------------------------
                                                     Martin Cohen
                                                     President


                                       4





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H
<SEQUENCE>4
<FILENAME>ex99-2h.txt
<DESCRIPTION>EXHIBIT 2(H)
<TEXT>


<PAGE>



               Cohen & Steers REIT and Preferred Income Fund, Inc.
                            (a Maryland corporation)

                              [     ] Common Shares
                           (Par Value $.001 Per Share)

                           FORM OF PURCHASE AGREEMENT

                                                                  June [ ], 2003

Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
A.G. Edwards & Sons, Inc.
Deutsche Bank Securities Inc.
Legg Mason Wood Walker, Incorporated
Raymond James & Associates, Inc.
RBC Dain Rauscher Inc.
U.S. Bancorp Piper Jaffray Inc.
Wachovia Securities, Inc.
Wells Fargo Securities, LLC
Advest, Inc.
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
Robert W. Baird & Co. Incorporated
H&R Block Financial Advisors, Inc.
Fahnestock & Co. Inc.
J.J.B. Hilliard, W.L. Lyons, Inc.
Janney Montgomery Scott LLC
McDonald Investments Inc., a KeyCorp Company
Quick & Reilly, Inc.
Stifel, Nicolaus & Company, Incorporated
TD Waterhouse Investor Services, Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
                Incorporated
North Tower
World Financial Center
New York, New York 10080

Ladies and Gentlemen:

         Cohen & Steers REIT and Preferred Income Fund, Inc., a Maryland
corporation (the "Fund"), and the Fund's investment manager, Cohen & Steers
Capital Management, Inc., a New York corporation (the "Investment Manager"),
each confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and A.G. Edwards & Sons, Inc.,
Deutsche Bank Securities Inc., Legg Mason Wood Walker, Incorporated, Raymond
James & Associates, Inc., RBC Dain Rauscher Inc., U.S. Bancorp Piper Jaffray
Inc., Wachovia Securities, Inc., Wells Fargo Securities, LLC, Advest, Inc., BB&T
Capital Markets, a division of Scott & Stringfellow, Inc., Robert W. Baird & Co.




<PAGE>


Incorporated, H&R Block Financial Advisors, Inc., Fahnestock & Co. Inc., J.J.B.
Hilliard, W.L. Lyons, Inc., Janney Montgomery Scott LLC, McDonald Investments
Inc., a KeyCorp Company, Quick & Reilly, Inc., Stifel, Nicolaus & Company,
Incorporated and TD Waterhouse Investor Services, Inc. and each of the other
Underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch and A.G. Edwards & Sons, Inc.,
Deutsche Bank Securities Inc., Legg Mason Wood Walker, Incorporated, Raymond
James & Associates, Inc., RBC Dain Rauscher Inc., U.S. Bancorp Piper Jaffray
Inc., Wachovia Securities, Inc., Wells Fargo Securities, LLC, Advest, Inc., BB&T
Capital Markets, a division of Scott & Stringfellow, Inc., Robert W. Baird & Co.
Incorporated, H&R Block Financial Advisors, Inc., Fahnestock & Co. Inc., J.J.B.
Hilliard, W.L. Lyons, Inc., Janney Montgomery Scott LLC, McDonald Investments
Inc., a KeyCorp Company, Quick & Reilly, Inc., Stifel, Nicolaus & Company,
Incorporated and TD Waterhouse Investor Services, Inc. are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Fund and the purchase by the Underwriters, acting
severally and not jointly, of the respective number of common shares, par value
$.001 per share, of the Fund ("Common Shares") set forth in said Schedule A, and
with respect to the grant by the Fund to the Underwriters, acting severally and
not jointly, of the option described in Section 2(b) hereof to purchase all or
any part of [ ] additional Common Shares to cover over-allotments, if any. The
aforesaid [ ] Common Shares (the "Initial Securities") to be purchased by the
Underwriters and all or any part of the [ ] Common Shares subject to the option
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities."

         The Fund understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.

         The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. 333-104047 and No.
811-21326) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus or prospectuses, and a notification on Form N-8A of registration of
the Fund as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the Commission under
the 1933 Act and the 1940 Act (the "Rules and Regulations"). Promptly after
execution and delivery of this Agreement, the Fund will either (i) prepare and
file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A")
of the Rules and Regulations and paragraph (c) or (h) of Rule 497 ("Rule 497")
of the Rules and Regulations or (ii) if the Fund has elected to rely upon Rule
434 ("Rule 434") of the Rules and Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 497. The
information included in any such prospectus or in any such Term Sheet, as the
case may be, that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective, if applicable, (a) pursuant to paragraph (b) of
Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph
(d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, including in each case any statement of additional
information incorporated therein by reference, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities, including the statement of additional information
incorporated therein by reference, is herein called the "Prospectus." If Rule
434 is

                                       2






<PAGE>



relied on, the term "Prospectus" shall refer to the preliminary prospectus dated
June [ ], 2003 together with the Term Sheet and all references in this Agreement
to the date of the Prospectus shall mean the date of the Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").

         All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be.

         SECTION 1. Representations and Warranties.

         (a) Representations and Warranties by the Fund and the Investment
Manager. The Fund and the Investment Manager jointly and severally represent and
warrant to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agree with each Underwriter, as follows:

                  (i) Compliance with Registration Requirements. Each of the
         Registration Statement and any Rule 462(b) Registration Statement has
         become effective under the 1933 Act and no stop order suspending the
         effectiveness of the Registration Statement or any Rule 462(b)
         Registration Statement has been issued under the 1933 Act, or order of
         suspension or revocation of registration pursuant to Section 8(e) of
         the 1940 Act, and no proceedings for any such purpose have been
         instituted or are pending or, to the knowledge of the Fund or the
         Investment Manager, are contemplated by the Commission, and any request
         on the part of the Commission for additional information has been
         complied with.

                  At the respective times the Registration Statement, any Rule
         462(b) Registration Statement and any post-effective amendments thereto
         became effective and at the Closing Time (and, if any Option Securities
         are purchased, at the Date of Delivery), the Registration Statement,
         the Rule 462(b) Registration Statement, the notification of Form N-8A
         and any amendments and supplements thereto complied and will comply in
         all material respects with the requirements of the 1933 Act, the 1940
         Act and the Rules and Regulations and did not and will not contain an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein not misleading. Neither the Prospectus nor any amendments or
         supplements thereto, at the time the Prospectus or any such amendment
         or supplement was issued and at the Closing Time (and, if any Option
         Securities are purchased, at the Date of Delivery), included or will
         include an untrue statement of a material fact or omitted or will omit
         to state a material fact necessary in order to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading (except that this representation and warranty does not
         apply to statements in or omissions from the Registration Statement or
         the Prospectus made in reliance upon and in conformity with information
         relating to the Underwriters furnished to the Fund by or on behalf of
         the Underwriters expressly for use therein). If Rule 434 is used, the
         Fund will comply with the requirements of Rule 434 and the Prospectus
         shall not be "materially different," as such term is used in Rule 434,
         from the prospectus included in the Registration Statement at the time
         it became effective.

                  Each preliminary prospectus and the prospectus filed as part
         of the Registration Statement as originally filed or as part of any
         amendment thereto, or filed pursuant to Rule 497 under the 1933 Act,
         complied when so filed in all material respects with the Rules and
         Regulations and each preliminary prospectus and the Prospectus
         delivered to the Underwriters for

                                       3






<PAGE>



         use in connection with this offering was identical to the
         electronically transmitted copies thereof filed with the Commission
         pursuant to EDGAR, except to the extent permitted by Regulation S-T.

                  If a Rule 462(b) Registration Statement is required in
         connection with the offering and sale of the Securities, the Fund has
         complied or will comply with the requirements of Rule 111 under the
         1933 Act Regulations relating to the payment of filing fees thereof.

                  (ii) Independent Accountants. The accountants who certified
         the statement of assets and liabilities included in the Registration
         Statement have represented to the Fund that they are independent public
         accountants as required by the 1933 Act and the Rules and Regulations.

                  (iii) Financial Statements. The statement of assets and
         liabilities included in the Registration Statement and the Prospectus,
         together with the related notes, presents fairly the financial position
         of the Fund at the date indicated; said statement has been prepared in
         conformity with generally accepted accounting principles ("GAAP").

                  (iv) No Material Adverse Change. Since the respective dates as
         of which information is given in the Registration Statement and the
         Prospectus, except as otherwise stated therein, (A) there has been no
         material adverse change in the condition, financial or otherwise, or in
         the earnings, business affairs or business prospects (other than as a
         result of a change in the financial markets generally) of the Fund,
         whether or not arising in the ordinary course of business (a "Material
         Adverse Effect"), (B) there have been no transactions entered into by
         the Fund, other than those in the ordinary course of business, which
         are material with respect to the Fund, and (C) there has been no
         dividend or distribution of any kind declared, paid or made by the Fund
         on any class of its capital stock.

                  (v) Good Standing of the Fund. The Fund has been duly
         organized and is validly existing as a corporation in good standing
         under the laws of the State of Maryland and has corporate power and
         authority to own, lease and operate its properties and to conduct its
         business as described in the Prospectus and to enter into and perform
         its obligations under this Agreement; and the Fund is duly qualified as
         a foreign corporation to transact business and is in good standing in
         each other jurisdiction in which such qualification is required,
         whether by reason of the ownership or leasing of property or the
         conduct of business, except where the failure so to qualify or to be in
         good standing would not result in a Material Adverse Effect.

                  (vi) No Subsidiaries. The Fund has no subsidiaries.

                  (vii) Investment Company Status. The Fund is duly registered
         with the Commission under the 1940 Act as a closed-end, non-diversified
         management investment company, and to the Fund's knowledge no order of
         suspension or revocation of such registration has been issued or
         proceedings therefor initiated or threatened by the Commission.

                  (viii) Officers and Directors. No person is serving or acting
         as an officer, director or investment manager of the Fund except in
         accordance with the provisions of the 1940 Act and the Rules and
         Regulations and the Investment Advisers Act of 1940, as amended (the
         "Advisers Act"), and the rules and regulations of the Commission
         promulgated under the Advisers Act (the "Advisers Act Rules and
         Regulations"). Except as disclosed in the Registration Statement and
         the Prospectus (or any amendment or supplement to either of them), no
         director of the Fund is an "interested person" (as defined in the 1940
         Act) of the Fund or an "affiliated person" (as defined in the 1940 Act)
         of any Underwriter listed in Schedule A hereto.

                  (ix) Capitalization. The authorized, issued and outstanding
         common shares of the Fund is as set forth in the Prospectus as of the
         date thereof under the caption "Description of

                                       4






<PAGE>



         Shares." All issued and outstanding common shares of the Fund have been
         duly authorized and validly issued and are fully paid and
         non-assessable and have been offered and sold or exchanged by the Fund
         in compliance with all applicable laws (including, without limitation,
         federal and state securities laws); none of the outstanding common
         shares of the Fund was issued in violation of the preemptive or other
         similar rights of any securityholder of the Fund.

                  (x) Authorization and Description of Securities. The
         Securities to be purchased by the Underwriters from the Fund have been
         duly authorized for issuance and sale to the Underwriters pursuant to
         this Agreement and, when issued and delivered by the Fund pursuant to
         this Agreement against payment of the consideration set forth herein,
         will be validly issued and fully paid and non-assessable. The Common
         Shares conform to all statements relating thereto contained in the
         Prospectus and such description conforms to the rights set forth in the
         instruments defining the same; no holder of the Securities will be
         subject to personal liability by reason of being such a holder; and the
         issuance of the Securities is not subject to the preemptive or other
         similar rights of any securityholder of the Fund.

                  (xi) Absence of Defaults and Conflicts. The Fund is not in
         violation of its articles of incorporation or by-laws, or in default in
         the performance or observance of any obligation, agreement, covenant or
         condition contained in any contract, indenture, mortgage, deed of
         trust, loan or credit agreement, note, lease or other agreement or
         instrument to which it is a party or by which it may be bound, or to
         which any of the property or assets of the Fund is subject
         (collectively, "Agreements and Instruments") except for such violations
         or defaults that would not result in a Material Adverse Effect; and the
         execution, delivery and performance of this Agreement, the Investment
         Management Agreement, the Administration Agreement, the
         Sub-Administration Agreement, the Custodian Agreement and the Transfer
         Agent and Service Agreement referred to in the Registration Statement
         (as used herein, the "Management Agreement," the "Administration
         Agreement," the "Sub-Administration Agreement," the "Custodian
         Agreement" and the "Transfer Agency Agreement," respectively) and the
         consummation of the transactions contemplated herein and in the
         Registration Statement (including the issuance and sale of the
         Securities and the use of the proceeds from the sale of the Securities
         as described in the Prospectus under the caption "Use of Proceeds") and
         compliance by the Fund with its obligations hereunder have been duly
         authorized by all necessary corporate action and do not and will not,
         whether with or without the giving of notice or passage of time or
         both, conflict with or constitute a breach of, or default or Repayment
         Event (as defined below) under, or result in the creation or imposition
         of any lien, charge or encumbrance upon any property or assets of the
         Fund pursuant to, the Agreements and Instruments (except for such
         conflicts, breaches or defaults or liens, charges or encumbrances that
         would not result in a Material Adverse Effect), nor will such action
         result in any violation of the provisions of the articles of
         incorporation or by-laws of the Fund or any applicable law, statute,
         rule, regulation, judgment, order, writ or decree of any government,
         government instrumentality or court, domestic or foreign, having
         jurisdiction over the Fund or any of its assets, properties or
         operations. As used herein, a "Repayment Event" means any event or
         condition which gives the holder of any note, debenture or other
         evidence of indebtedness (or any person acting on such holder's behalf)
         the right to require the repurchase, redemption or repayment of all or
         a portion of such indebtedness by the Fund.

                  (xii) Absence of Proceedings. There is no action, suit,
         proceeding, inquiry or investigation before or brought by any court or
         governmental agency or body, domestic or foreign, now pending, or, to
         the knowledge of the Fund or the Investment Manager, threatened,
         against or affecting the Fund, which is required to be disclosed in the
         Registration Statement (other than as disclosed therein), or which
         might reasonably be expected to result in a Material Adverse Effect, or
         which might reasonably be expected to materially and adversely affect
         the

                                       5






<PAGE>



         properties or assets of the Fund or the consummation of the
         transactions contemplated in this Agreement or the performance by the
         Fund of its obligations hereunder. The aggregate of all pending legal
         or governmental proceedings to which the Fund is a party or of which
         any of its property or assets is the subject which are not described in
         the Registration Statement, including ordinary routine litigation
         incidental to the business, could not reasonably be expected to result
         in a Material Adverse Effect.

                  (xiii) Accuracy of Exhibits. There are no contracts or
         documents which are required to be described in the Registration
         Statement or the Prospectus or to be filed as exhibits thereto by the
         1933 Act, the 1940 Act or by the Rules and Regulations which have not
         been so described and filed as required.

                  (xiv) Absence of Further Requirements. No filing with, or
         authorization, approval, consent, license, order, registration,
         qualification or decree of, any court or governmental authority or
         agency is necessary or required for the performance by the Fund of its
         obligations hereunder, in connection with the offering, issuance or
         sale of the Securities hereunder or the consummation of the
         transactions contemplated by this Agreement, except such as have been
         already obtained or as may be required under the 1933 Act, the 1940
         Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
         or under the rules of the National Association of Securities Dealers,
         Inc ("NASD") or state securities laws.

                  (xv) Possession of Licenses and Permits. The Fund possesses
         such permits, licenses, approvals, consents and other authorizations
         (collectively, "Governmental Licenses") issued by the appropriate
         federal, state, local or foreign regulatory agencies or bodies
         necessary to operate its properties and to conduct the business as
         contemplated in the Prospectus; the Fund is in compliance with the
         terms and conditions of all such Governmental Licenses, except where
         the failure so to comply would not, singly or in the aggregate, have a
         Material Adverse Effect; all of the Governmental Licenses are valid and
         in full force and effect, except when the invalidity of such
         Governmental Licenses or the failure of such Governmental Licenses to
         be in full force and effect would not have a Material Adverse Effect;
         and the Fund has not received any notice of proceedings relating to the
         revocation or modification of any such Governmental Licenses which,
         singly or in the aggregate, if the subject of an unfavorable decision,
         ruling or finding, would result in a Material Adverse Effect.

                  (xvi) Advertisements. Any advertising, sales literature or
         other promotional material (including "prospectus wrappers," "broker
         kits," "road show slides" and "road show scripts" and "electronic road
         show presentations") authorized in writing by or prepared by the Fund
         or the Investment Manager used in connection with the public offering
         of the Securities (collectively, "sales material") does not contain an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein not misleading. Moreover, all sales material complied and will
         comply in all material respects with the applicable requirements of the
         1933 Act, the 1940 Act, the Rules and Regulations and the rules and
         interpretations of the NASD.

                  (xvii) Subchapter M. The Fund intends to direct the investment
         of the proceeds of the offering described in the Registration Statement
         in such a manner as to comply with the requirements of Subchapter M of
         the Internal Revenue Code of 1986, as amended ("Subchapter M of the
         Code" and the "Code," respectively), and intends to qualify as a
         regulated investment company under Subchapter M of the Code.

                  (xviii) Distribution of Offering Materials. The Fund has not
         distributed and, prior to the later to occur of (A) the Closing Time
         and (B) completion of the distribution of the Shares, will

                                       6






<PAGE>



         not distribute any offering material in connection with the offering
         and sale of the Shares other than the Registration Statement, a
         preliminary prospectus, the Prospectus or the sales materials.

                  (xix) Accounting Controls. The Fund maintains a system of
         internal accounting controls sufficient to provide reasonable
         assurances that (A) transactions are executed in accordance with
         management's general or specific authorization and with the applicable
         requirements of the 1940 Act, the Rules and Regulations and the Code;
         (B) transactions are recorded as necessary to permit preparation of
         financial statements in conformity with generally accepted accounting
         principles and to maintain accountability for assets and to maintain
         compliance with the books and records requirements under the 1940 Act
         and the Rules and Regulations; (C) access to assets is permitted only
         in accordance with the management's general or specific authorization;
         and (D) the recorded accountability for assets is compared with
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences.

                  (xx) Absence of Undisclosed Payments. To the Fund's knowledge,
         neither the Fund nor any employee or agent of the Fund has made any
         payment of funds of the Fund or received or retained any funds, which
         payment, receipt or retention of funds is of a character required to be
         disclosed in the Prospectus.

                  (xxi) Material Agreements. This Agreement, the Management
         Agreement, the Administration Agreement, the Sub-Administration
         Agreement, the Custodian Agreement and the Transfer Agency Agreement
         have each been duly authorized by all requisite action on the part of
         the Fund, executed and delivered by the Fund, as of the dates noted
         therein and each complies with all applicable provisions of the 1940
         Act. Assuming due authorization, execution and delivery by the other
         parties thereto with respect to the Management Agreement, the
         Sub-Administration Agreement, the Custodian Agreement and the Transfer
         Agency Agreement, each of the Management Agreement, the Administration
         Agreement, the Sub-Administration Agreement, the Custodian Agreement
         and the Transfer Agency Agreement constitutes a valid and binding
         agreement of the Fund, enforceable in accordance with its terms, except
         as affected by bankruptcy, insolvency, fraudulent conveyance,
         reorganization, moratorium and other similar laws relating to or
         affecting creditors' rights generally, general equitable principles
         (whether considered in a proceeding in equity or at law).

                  (xxii) Registration Rights. There are no persons with
         registration rights or other similar rights to have any securities
         registered pursuant to the Registration Statement or otherwise
         registered by the Fund under the 1933 Act.

                  (xxiii) NYSE Listing. The Securities have been duly authorized
         for listing, upon notice of issuance, on the New York Stock Exchange
         ("NYSE") and the Fund's registration statement on Form 8-A under the
         1934 Act has become effective.

         (b) Representations and Warranties by the Investment Manager. The
Investment Manager represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of
each Date of Delivery (if any) referred to in Section 2(b) hereof as follows:

                  (i) Good Standing of the Investment Manager. The Investment
         Manager has been duly organized and is validly existing and in good
         standing as a corporation under the laws of the State of New York with
         full corporate power and authority to own, lease and operate its
         properties and to conduct its business as described in the Prospectus
         and is duly qualified as a foreign corporation to transact business and
         is in good standing in each other jurisdiction in which such
         qualification is required except where the failure so to register or to
         qualify does not have a material adverse effect on the condition
         (financial or other), business, business prospects, properties, net
         assets or results of operations of the Investment Manager or on the
         ability of the

                                       7






<PAGE>



         Investment Manager to perform its obligations under this Agreement and
         the Management Agreement.

                  (ii) Investment Manager Status. The Investment Manager is duly
         registered and in good standing with the Commission as an investment
         manager under the Advisers Act, and is not prohibited by the Advisers
         Act or the 1940 Act, or the rules and regulations under such acts, from
         acting under the Management Agreement or Administration Agreement for
         the Fund as contemplated by the Prospectus.

                  (iii) Description of Investment Manager. The description of
         the Investment Manager in the Registration Statement and the Prospectus
         (and any amendment or supplement to either of them) complied and comply
         in all material respects with the provisions of the 1933 Act, the 1940
         Act, the Advisers Act, the Rules and Regulations and the Advisers Act
         Rules and Regulations and is true and correct and does not contain any
         untrue statement of a material fact or omit to state any material fact
         required to be stated therein or necessary in order to make the
         statements therein, in light of the circumstances under which they were
         made, not misleading.

                  (iv) Capitalization. The Investment Manager has the financial
         resources available to it necessary for the performance of its services
         and obligations as contemplated in the Prospectus, this Agreement and
         under the Management Agreement and Administration Agreement to which it
         is a party.

                  (v) Authorization of Agreements; Absence of Defaults and
         Conflicts. This Agreement, the Management Agreement, the Administration
         Agreement and the Additional Compensation Agreement have each been duly
         authorized, executed and delivered by the Investment Manager, and the
         Management Agreement and the Administration Agreement each constitute a
         valid and binding obligation of the Investment Manager, enforceable in
         accordance with its terms, except as affected by bankruptcy,
         insolvency, fraudulent conveyance, reorganization, moratorium and other
         similar laws relating to or affecting creditors' rights generally and
         general equitable principles (whether considered in a proceeding in
         equity or at law); and neither the execution and delivery of this
         Agreement, the Management Agreement or the Administration Agreement nor
         the performance by the Investment Manager of its obligations hereunder
         or thereunder will conflict with, or result in a breach of any of the
         terms and provisions of, or constitute, with or without the giving of
         notice or lapse of time or both, a default under, any agreement or
         instrument to which the Investment Manager is a party or by which it is
         bound, the certificate of incorporation, the by-laws or other
         organizational documents of the Investment Manager, or to the
         Investment Manager's knowledge, by any law, order, decree, rule or
         regulation applicable to it of any jurisdiction, court, federal or
         state regulatory body, administrative agency or other governmental
         body, stock exchange or securities association having jurisdiction over
         the Investment Manager or its properties or operations; and no consent,
         approval, authorization or order of any court or governmental authority
         or agency is required for the consummation by the Investment Manager of
         the transactions contemplated by this Agreement, the Management
         Agreement or the Administration Agreement, except as have been obtained
         or may be required under the 1933 Act, the 1940 Act, the 1934 Act or
         state securities laws.

                  (vi) No Material Adverse Change. Since the respective dates as
         of which information is given in the Registration Statement and the
         Prospectus, except as otherwise stated therein, there has not occurred
         any event which should reasonably be expected to have a material
         adverse effect on the ability of the Investment Manager to perform its
         obligations under this Agreement and the Management Agreement and
         Administration Agreement to which it is a party.

                                       8





<PAGE>



                  (vii) Absence of Proceedings. There is no action, suit,
         proceeding, inquiry or investigation before or brought by any court or
         governmental agency or body, domestic or foreign, now pending, or, to
         the knowledge of the Investment Manager, threatened against or
         affecting the Investment Manager or any "affiliated person" of the
         Investment Manager (as such term is defined in the 1940 Act) or any
         partners, directors, officers or employees of the foregoing, whether or
         not arising in the ordinary course of business, which might reasonably
         be expected to result in any material adverse change in the condition,
         financial or otherwise, or earnings, business affairs or business
         prospects of the Investment Manager, materially and adversely affect
         the properties or assets of the Investment Manager or materially impair
         or adversely affect the ability of the Investment Manager to function
         as an investment manager or perform its obligations under the
         Management Agreement or the Administration Agreement, or which is
         required to be disclosed in the Registration Statement and the
         Prospectus.

                  (viii) Absence of Violation or Default. The Investment Manager
         is not in violation of its certificate of incorporation, by-laws or
         other organizational documents or in default under any agreement,
         indenture or instrument except for such violations or defaults that
         would not result in a material adverse change in the condition,
         financial or otherwise, or in the earnings, business affairs or
         business prospects of the Investment Manager or the Fund.

         (c) Officer's Certificates. Any certificate signed by any officer of
the Fund or the Investment Manager delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Fund or the Investment Manager, as the case may be, to each Underwriter as
to the matters covered thereby.

         SECTION 2. Sale and Delivery to Underwriters; Closing.

         (a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Fund agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Fund, at the price per share set forth in Schedule B, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.

         (b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Fund hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional [ ] Common Shares in the aggregate
at the price per share set forth in Schedule B, less an amount per share equal
to any dividends or distributions declared by the Fund and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 45 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Fund setting forth
the number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date of Delivery")
shall be determined by the Representatives, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the Option Securities, each of the Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
Option Securities then being purchased which the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as
Merrill Lynch in its discretion shall make to eliminate any sales or purchases
of a fractional number of Option Securities.

                                       9





<PAGE>



         (c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as shall be agreed upon by the Representatives and the Fund, at
10:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Fund (such time and date of payment and delivery being
herein called "Closing Time").

         In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Fund, on each Date of Delivery as specified in the notice from the
Representatives to the Fund.

         Payment shall be made to the Fund by wire transfer of immediately
available funds to a bank account designated by the Fund, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

         (d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in the City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

         SECTION 3. Covenants.

         (a) The Fund and the Investment Manager, jointly and severally,
covenant with each Underwriter as follows:

                  (i) Compliance with Securities Regulations and Commission
         Requests. The Fund, subject to Section 3(a)(ii), will comply with the
         requirements of Rule 430A or Rule 434, as applicable, and will notify
         the Representatives immediately, and confirm the notice in writing, (i)
         when any post-effective amendment to the Registration Statement shall
         become effective, or any supplement to the Prospectus or any amended
         Prospectus shall have been filed, (ii) of the receipt of any comments
         from the Commission, (iii) of any request by the Commission for any
         amendment to the Registration Statement or any amendment or supplement
         to the Prospectus or for additional information, and (iv) of the
         issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement or of any order preventing
         or suspending the use of any preliminary prospectus, or of the
         suspension of the qualification of the Securities for offering or sale
         in any jurisdiction, or of the initiation or threatening of any
         proceedings for any of such purposes. The Fund will promptly effect the
         filings necessary pursuant to Rule 497 and will take such steps as it
         deems necessary to ascertain promptly whether the form of prospectus
         transmitted for filing under Rule 497 was received for filing by the

                                       10





<PAGE>



         Commission and, in the event that it was not, it will promptly file
         such prospectus. The Fund will make every reasonable effort to prevent
         the issuance of any stop order, or order of suspension or revocation of
         registration pursuant to Section 8(e) of the 1940 Act, and, if any such
         stop order or order of suspension or revocation of registration is
         issued, to obtain the lifting thereof at the earliest possible moment.

                  (ii) Filing of Amendments. The Fund will give the
         Representatives notice of its intention to file or prepare any
         amendment to the Registration Statement (including any filing under
         Rule 462(b)), any Term Sheet or any amendment, supplement or revision
         to either the prospectus included in the Registration Statement at the
         time it became effective or to the Prospectus, will furnish the
         Representatives with copies of any such documents a reasonable amount
         of time prior to such proposed filing or use, as the case may be, and
         will not file or use any such document to which the Representatives or
         counsel for the Underwriters shall reasonably object.

                  (iii) Delivery of Registration Statements. The Fund has
         furnished or will deliver to the Representatives and counsel for the
         Underwriters, without charge, signed copies of the Registration
         Statement as originally filed and of each amendment thereto (including
         exhibits filed therewith or incorporated by reference therein) and
         signed copies of all consents and certificates of experts, and will
         also deliver to the Representatives, without charge, a conformed copy
         of the Registration Statement as originally filed and of each amendment
         thereto (without exhibits) for each of the Underwriters. The copies of
         the Registration Statement and each amendment thereto furnished to the
         Underwriters will be identical to the electronically transmitted copies
         thereof filed with the Commission pursuant to EDGAR, except to the
         extent permitted by Regulation S-T.

                  (iv) Delivery of Prospectuses. The Fund has delivered to each
         Underwriter, without charge, as many copies of each preliminary
         prospectus as such Underwriter reasonably requested, and the Fund
         hereby consents to the use of such copies for purposes permitted by the
         1933 Act prior to the date of the Prospectus. The Fund will furnish to
         each Underwriter, without charge, during the period when the Prospectus
         is required to be delivered under the 1933 Act or the 1934 Act, such
         number of copies of the Prospectus (as amended or supplemented) as such
         Underwriter may reasonably request. The Prospectus and any amendments
         or supplements thereto furnished to the Underwriters will be identical
         to the electronically transmitted copies thereof filed with the
         Commission pursuant to EDGAR, except to the extent permitted by
         Regulation S-T.

                  (v) Continued Compliance with Securities Laws. If at any time
         when a prospectus is required by the 1933 Act to be delivered in
         connection with sales of the Securities, any event shall occur or
         condition shall exist as a result of which it is necessary, in the
         opinion of counsel for the Underwriters or for the Fund, to amend the
         Registration Statement or amend or supplement the Prospectus in order
         that the Prospectus will not include any untrue statements of a
         material fact or omit to state a material fact necessary in order to
         make the statements therein not misleading in the light of the
         circumstances existing at the time it is delivered to a purchaser, or
         if it shall be necessary, in the opinion of such counsel, at any such
         time to amend the Registration Statement or amend or supplement the
         Prospectus in order to comply with the requirements of the 1933 Act or
         the Rules and Regulations, the Fund will promptly prepare and file with
         the Commission, subject to Section 3(a)(ii), such amendment or
         supplement as may be necessary to correct such statement or omission or
         to make the Registration Statement or the Prospectus comply with such
         requirements, and the Fund will furnish to the Underwriters such number
         of copies of such amendment or supplement as the Underwriters may
         reasonably request.

                  (vi) Blue Sky Qualifications. The Fund will use its best
         efforts, in cooperation with the Underwriters, to qualify the
         Securities for offering and sale under the applicable securities

                                       11






<PAGE>



         laws of such states and other jurisdictions of the United States as the
         Representatives may designate and to maintain such qualifications in
         effect for a period of not less than one year from the later of the
         effective date of the Registration Statement and any Rule 462(b)
         Registration Statement; provided, however, that the Fund shall not be
         obligated to file any general consent to service of process or to
         qualify as a foreign corporation or as a dealer in securities in any
         jurisdiction in which it is not so qualified or to subject itself to
         taxation in respect of doing business in any jurisdiction in which it
         is not otherwise so subject. In each jurisdiction in which the
         Securities have been so qualified, the Fund will file such statements
         and reports as may be required by the laws of such jurisdiction to
         continue such qualification in effect for a period of not less than one
         year from the effective date of the Registration Statement and any Rule
         462(b) Registration Statement.

                  (vii) Rule 158. The Fund will timely file such reports
         pursuant to the 1934 Act as are necessary in order to make generally
         available to its securityholders as soon as practicable an earnings
         statement for the purposes of, and to provide the benefits contemplated
         by, the last paragraph of Section 11(a) of the 1933 Act.

                  (viii) Use of Proceeds. The Fund will use the net proceeds
         received by it from the sale of the Securities in the manner specified
         in the Prospectus under "Use of Proceeds."

                  (ix) Listing. The Fund will use commercially reasonable
         efforts to effect the listing of the Securities on the NYSE, subject to
         notice of issuance, concurrently with the effectiveness of the
         Registration Statement.

                  (x) Restriction on Sale of Securities. During a period of 180
         days from the date of the Prospectus, the Fund will not, without the
         prior written consent of Merrill Lynch, (A) directly or indirectly,
         offer, pledge, sell, contract to sell, sell any option or contract to
         purchase, purchase any option or contract to sell, grant any option,
         right or warrant to purchase or otherwise transfer or dispose of Common
         Shares or any securities convertible into or exercisable or
         exchangeable for Common Shares or file any registration statement under
         the 1933 Act with respect to any of the foregoing or (B) enter into any
         swap or any other agreement or any transaction that transfers, in whole
         or in part, directly or indirectly, the economic consequence of
         ownership of the Common Shares, whether any such swap or transaction
         described in clause (A) or (B) above is to be settled by delivery of
         Common Shares or such other securities, in cash or otherwise. The
         foregoing sentence shall not apply to (1) the Securities to be sold
         hereunder or (2) Common Shares issued pursuant to any dividend
         reinvestment plan.

                  (xi) Reporting Requirements. The Fund, during the period when
         the Prospectus is required to be delivered under the 1933 Act or the
         1934 Act, will file all documents required to be filed with the
         Commission pursuant to the 1940 Act and the 1934 Act within the time
         periods required by the 1940 Act and the Rules and Regulations and the
         1934 Act and the rules and regulations of the Commission thereunder,
         respectively.

                  (xii) Subchapter M. The Fund will use its best efforts to
         comply with the requirements of Subchapter M of the Code to qualify as
         a regulated investment company under the Code.

                  (xiii) No Manipulation of Market for Securities. The Fund will
         not (a) take, directly or indirectly, any action designed to cause or
         to result in, or that might reasonably be expected to constitute, the
         stabilization or manipulation of the price of any security of the Fund
         to facilitate the sale or resale of the Securities, and (b) until the
         Closing Date, or the Date of Delivery, if any, (i) sell, bid for or
         purchase the Securities or pay any person any compensation for
         soliciting purchases of the Securities or (ii) pay or agree to pay to
         any person any compensation for soliciting another to purchase any
         other securities of the Fund.

                                       12





<PAGE>



                  (xiv) Rule 462(b) Registration Statement. If the Fund elects
         to rely upon Rule 462(b), the Fund shall file a Rule 462(b)
         Registration Statement with the Commission in compliance with Rule
         462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
         Agreement, and the Fund shall at the time of filing either pay to the
         Commission the filing fee for the Rule 462(b) Registration Statement or
         give irrevocable instructions for the payment of such fee pursuant to
         Rule 111(b) under the 1933 Act.

         SECTION 4. Payment of Expenses.

         (a) Expenses. The Fund will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Fund's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(a)(vi) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Securities, (ix) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriters (up to $10,000) in connection with, the review by the NASD of the
terms of the sale of the Securities, (x) the fees and expenses incurred in
connection with the listing of the Securities on the NYSE and (xi) the printing
of any sales material. Also, the Fund shall pay to Merrill Lynch, on behalf of
the Underwriters, $.0083 per share of the securities purchased pursuant to this
agreement as partial reimbursement of expenses incurred in connection with the
offering. The Investment Manager has agreed to pay organizational expenses and
offering costs (other than sales load, but including the partial reimbursement
of expenses described in the preceding sentence) of the Fund that exceed $.05
per Common Share.

         (b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section 9(a)
hereof, the Fund and the Investment Manager, jointly and severally, agree that
they shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.

         SECTION 5. Conditions of Underwriters' Obligations.

         The obligations of the several Underwriters hereunder are subject to
the accuracy of the representations and warranties of the Fund and the
Investment Manager contained in Section 1 hereof or in certificates of any
officer of the Fund or the Investment Manager delivered pursuant to the
provisions hereof, to the performance by the Fund and the Investment Manager of
their respective covenants and other obligations hereunder, and to the following
further conditions:

         (a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act, no notice or
order pursuant to Section 8(e) of the 1940 Act shall have been issued, and no
proceedings with respect to either shall have been initiated or threatened by
the Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of

                                       13






<PAGE>



counsel to the Underwriters. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 497 (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if the
Fund has elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 497.

         (b) Opinion of Counsel for Fund and the Investment Manager. At Closing
Time, the Representatives shall have received the favorable opinions, dated as
of Closing Time, of Simpson Thacher & Bartlett LLP, counsel for the Fund and of
Lawrence B. Stoller, Esq., internal counsel for the Investment Manager, in form
and substance satisfactory to counsel for the Underwriters, together with signed
or reproduced copies of such letters for each of the other Underwriters
substantially to the effect set forth in Exhibit A hereto and to such further
effect as counsel to the Underwriters may reasonably request. Insofar as the
opinions expressed above relate to or are dependent upon matters governed by
Maryland law, Simpson Thacher & Bartlett LLP will be permitted to rely on the
opinion of Venable, Baetjer and Howard, LLP.

         (c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Clifford Chance US LLP, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in clauses (A) (1), (4), (5) (solely as to
the information in the second clause thereof), (6), (7), (11) and the second
paragraph after (A)(15) of the form of opinion of counsel for the Fund in
Exhibit A hereto. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the State of
New York and the federal law of the United States, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Fund and certificates of
public officials.

         (d) Officers' Certificates. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Fund, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of a duly authorized officer
of the Fund and of the chief financial or chief accounting officer of the Fund
and of the President or a Vice President or Managing Director of the Investment
Manager, dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Sections
1(a) and (b) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) each of the Fund and the
Investment Manager, respectively, has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) to the knowledge of such officers, no stop order suspending the
effectiveness of the Registration Statement, or order of suspension or
revocation of registration pursuant to Section 8(e) of the 1940 Act, has been
issued and no proceedings for any such purpose have been instituted or are
pending or are contemplated by the Commission.

         (e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from PricewaterhouseCoopers
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information to the
effect that:

                  (i) They are independent certified public accountants with
         respect to the Fund within the meaning of the 1933 Act and 1940 Act,
         and the applicable rules and regulations thereunder adopted by the
         Commission;

                  (ii) In their opinion, the financial statements of the Fund
         audited by them and included in the Registration Statement comply as to
         form in all material respects with the

                                       14






<PAGE>



         applicable accounting requirements of the 1933 Act and 1940 Act and the
         related rules and regulations adopted by the Commission;

                  (iii) on the basis of procedures (but not an audit in
         accordance with generally accepted auditing standards) consisting of:

                  a.      Reading the minutes of meetings of the Board of
                        Directors of the Fund as set forth in the minute books
                        through a specified date not more than three business
                        days prior to the date of delivery of such letter;

                  b.      Making inquiries of certain officials of the Fund who
                        have responsibility for financial and accounting matters
                        regarding changes in the capital stock, net assets or
                        long-term liabilities of the Fund as compared with the
                        amounts shown in the latest balance sheet included in
                        the Registration Statement or for the period from the
                        date of the latest income statement included in the
                        Registration Statement to a specified date not more than
                        three business days prior to the delivery of such
                        letter.

                  (iv) The letter shall also state that the information set
         forth under the captions "Summary of Fund Expenses," "Use of Leverage"
         and "Description of Shares" which is expressed in dollars (or
         percentages derived from such dollar amounts) and has been obtained
         from accounting records which are subject to controls over financial
         reporting or which has been derived directly from such accounting
         records by analysis or computation, is in agreement with such records
         or computations made therefrom, and such other procedures as the
         Representatives may request and PricewaterhouseCoopers LLP are willing
         to perform and report upon.

         (f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from PricewaterhouseCoopers LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.

         (g) Approval of Listing. At Closing Time, the Securities shall have
been approved for listing on the NYSE, subject only to official notice of
issuance.

         (h) No Objection. The NASD has not raised any objection with respect to
the fairness and reasonableness of the underwriting terms and arrangements.

         (i) Execution of Additional Compensation Agreement. At Closing Time,
Merrill Lynch shall have received the Additional Compensation Agreement, dated
as of the Closing Date, as executed by the Investment Manager.

         (j) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Fund contained herein and the statements in any certificates furnished by
the Fund hereunder shall be true and correct as of each Date of Delivery and, at
the relevant Date of Delivery, the Representatives shall have received:

                  (i) Officers' Certificates. Certificates, dated such Date of
         Delivery, of a duly authorized officer of the Fund and of the chief
         financial or chief accounting officer of the Fund and of the President
         or a Vice President or Managing Director of the Investment Manager
         confirming that the information contained in the certificate delivered
         by each of them at the Closing Time pursuant to Section 5(d) hereof
         remains true and correct as of such Date of Delivery.

                                       15






<PAGE>



                  (ii) Opinions of Counsel for the Fund and the Investment
         Manager. The favorable opinion of Simpson Thacher & Bartlett LLP,
         counsel for the Fund and of Lawrence B. Stoller, Esq., internal counsel
         for the Investment Manager, in form and substance satisfactory to
         counsel for the Underwriters, dated such Date of Delivery, relating to
         the Option Securities to be purchased on such Date of Delivery and
         otherwise to the same effect as the opinion required by Section 5(b)
         hereof.

                  (iii) Opinion of Counsel for the Underwriters. The favorable
         opinion of Clifford Chance US LLP, counsel for the Underwriters, dated
         such Date of Delivery, relating to the Option Securities to be
         purchased on such Date of Delivery and otherwise to the same effect as
         the opinion required by Section 5(c) hereof.

                  (iv) Bring-down Comfort Letter. A letter from
         PricewaterhouseCoopers LLP, in form and substance satisfactory to the
         Representatives and dated such Date of Delivery, substantially in the
         same form and substance as the letter furnished to the Representatives
         pursuant to Section 5(f) hereof, except that the "specified date" in
         the letter furnished pursuant to this paragraph shall be a date not
         more than five days prior to such Date of Delivery.

         (k) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund and the Investment Manager in connection with the organization
and registration of the Fund under the 1940 Act and the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and substance to
the Representatives and counsel for the Underwriters.

         (l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Fund at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7, 8 and 13
shall survive any such termination and remain in full force and effect.

         SECTION 6. Indemnification.

         (a) Indemnification of Underwriters. The Fund and the Investment
Manager, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, as follows:

                  (i) against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, arising out of any untrue statement or
         alleged untrue statement of a material fact contained in the
         Registration Statement (or any amendment thereto), including the Rule
         430A Information and the Rule 434 Information, if applicable, or the
         omission or alleged omission therefrom of a material fact required to
         be stated therein or necessary to make the statements therein not
         misleading or arising out of any untrue statement or alleged untrue
         statement of a material fact included in any preliminary prospectus or
         the Prospectus (or any amendment or supplement thereto), or the
         omission or alleged omission therefrom of a material fact necessary in
         order to make the statements therein, in the light of the circumstances
         under which they were made, not misleading;

                                       16






<PAGE>



                  (ii) against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, to the extent of the aggregate amount
         paid in settlement of any litigation, or any investigation or
         proceeding by any governmental agency or body, commenced or threatened,
         or of any claim whatsoever based upon any such untrue statement or
         omission, or any such alleged untrue statement or omission; provided
         that (subject to Section 6(e) below) any such settlement is effected
         with the written consent of the Fund; and

                  (iii) against any and all expense whatsoever, as incurred
         (including the fees and disbursements of counsel chosen by Merrill
         Lynch), reasonably incurred in investigating, preparing or defending
         against any litigation, or any investigation or proceeding by any
         governmental agency or body, commenced or threatened, or any claim
         whatsoever based upon any such untrue statement or omission, or any
         such alleged untrue statement or omission, to the extent that any such
         expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund or the
Investment Manager by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); provided,
however, that the indemnification contained in this paragraph (a) with respect
to any preliminary prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Securities by such Underwriter to any person if the Fund sustains the burden of
proof that a copy of the Prospectus has not been delivered or sent by the
Underwriters as required to such person within the time required by the 1933 Act
and the 1933 Act Rules and Regulations, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such preliminary prospectus was corrected in such Prospectus.

         (b) Indemnification of Fund, Investment Manager, Directors and
Officers. Each Underwriter severally agrees to indemnify and hold harmless the
Fund and the Investment Manager, their respective directors, each of the Fund's
officers who signed the Registration Statement, and each person, if any, who
controls the Fund or the Investment Manager within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Fund or the Investment
Manager by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).

         (c) Indemnification for Marketing Materials. In addition to the
foregoing indemnification, the Fund and the Investment Manager also, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 6(a),
as limited by the proviso set forth therein, with respect to any sales material.

         (d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve

                                       17






<PAGE>



such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Fund and the Investment Manager. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

         (e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.

         SECTION 7. Contribution.

         If the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Fund and the Investment Manager on
the one hand and the Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Investment Manager on the
one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.

         The relative benefits received by the Fund and the Investment Manager
on the one hand and the Underwriters on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Fund and the total underwriting discount received by the Underwriters
(whether from the Fund or otherwise), in each case as set forth on the cover of
the Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the Securities as
set forth on such cover.

                                       18






<PAGE>



         The relative fault of the Fund and the Investment Manager on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Fund or the Investment Manager or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

         The Fund, the Investment Manager and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

         Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

         No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

         For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Fund and each director of the Investment Manager,
respectively, each officer of the Fund who signed the Registration Statement,
and each person, if any, who controls the Fund or the Investment Manager, within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Fund and the Investment Manager,
respectively. The Underwriters' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the number of Initial Securities set
forth opposite their respective names in Schedule A hereto and not joint.

         SECTION 8. Representations, Warranties and Agreements to Survive
                    Delivery.

         All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Fund or the Investment Manager
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or
controlling person, or by or on behalf of the Fund or the Investment Manager,
and shall survive delivery of the Securities to the Underwriters.

         SECTION 9. Termination of Agreement.

         (a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Fund, at any time at or prior to Closing Time (i) if
there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus (exclusive
of any supplement thereto), any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Fund or the Investment Manager, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective

                                       19






<PAGE>



change in national or international political, financial or economic conditions,
in each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable or inadvisable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in the
Common Shares of the Fund has been suspended or materially limited by the
Commission or the NYSE, or if trading generally on the American Stock Exchange
or the NYSE or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the NASD or any other governmental authority, or
a material disruption has occurred in commercial banking or securities
settlement or clearance services in the United States, or (iv) if a banking
moratorium has been declared by either Federal or New York authorities.

         (b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7, 8 and 13 shall survive such termination and remain in full force and
effect.

         SECTION 10. Default by One or More of the Underwriters.

         If one or more of the Underwriters shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:

         (a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or

         (b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Fund to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting Underwriter.

         No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

         In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Fund to sell the relevant Option Securities, as
the case may be, either the Representatives or the Fund shall have the right to
postpone Closing Time or the relevant Date of Delivery, as the case may be, for
a period not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.

         SECTION 11. Tax Disclosure.

         Notwithstanding any other provision of this Agreement, from the
commencement of discussions with respect to the transactions contemplated
hereby, the Fund (and each employee, representative or other agent of the Fund)
may disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure (as such terms are used in Sections 6011, 6111 and
6112 of the U.S. Code and the Treasury Regulations promulgated thereunder) of
the transactions contemplated by this Agreement

                                       20






<PAGE>



and all materials of any kind (including opinions or other tax analyses) that
are provided relating to such tax treatment and tax structure.

         SECTION 12. Notices.

         All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Underwriters shall be directed to the
Representatives, c/o Merrill Lynch & Co., North Tower, World Financial Center,
New York, New York 10080, attention of Equity Capital Markets; and notices to
the Fund or the Investment Manager shall be directed, as appropriate, to the
office of Cohen & Steers Capital Management, Inc. at 757 Third Avenue, New York,
New York 10017, Attention: Robert H. Steers.

         SECTION 13. Parties.

         This Agreement shall each inure to the benefit of and be binding upon
the Underwriters, the Fund, the Investment Manager and their respective partners
and successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Fund, the Investment Manager and their respective successors
and the controlling persons and officers and directors referred to in Sections 6
and 7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Fund, the
Investment Manager and their respective partners and successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.

         SECTION 14. GOVERNING LAW AND TIME.

         THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN SAID STATE. UNLESS OTHERWISE EXPLICITLY PROVIDED, SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME.

         SECTION 15. Effect of Headings.

         The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

                                       21






<PAGE>



         If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriters, the Fund and the Investment Manager in accordance with its
terms.


                                      Very truly yours,

                                      Cohen & Steers REIT and Preferred Income
                                         Fund, Inc.

                                      By:
                                          -------------------------------------
                                          Name:
                                          Title:

                                      Cohen & Steers Capital Management, Inc.


                                      By:
                                          -------------------------------------
                                          Name:
                                          Title:

CONFIRMED AND ACCEPTED,
  as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
            INCORPORATED
A.G. EDWARDS & SONS, INC.
DEUTSCHE BANK SECURITIES INC.
LEGG MASON WOOD WALKER, INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
RBC DAIN RAUSCHER INC.
U.S. BANCORP PIPER JAFFRAY INC.
WACHOVIA SECURITIES, INC.
WELLS FARGO SECURITIES, LLC
ADVEST, INC.
BB&T CAPITAL MARKETS, A DIVISION OF SCOTT & STRINGFELLOW, INC.
ROBERT W. BAIRD & CO. INCORPORATED
H&R BLOCK FINANCIAL ADVISORS, INC.
FAHNESTOCK & CO. INC.
J.J.B. HILLIARD, W.L. LYONS, INC.
JANNEY MONTGOMERY SCOTT LLC
MCDONALD INVESTMENTS INC., A KEYCORP COMPANY
QUICK & REILLY, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
TD WATERHOUSE INVESTOR SERVICES, INC.

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
                INCORPORATED

                                       22





<PAGE>



By:
   ------------------------------------------------
   Authorized Signatory

For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.

                                       23






<PAGE>



                                   SCHEDULE A


<TABLE>
<CAPTION>
                                                                                               Number of
                               Name of Underwriter                                         Initial Securities
                               -------------------                                         ------------------
<S>                                                                                               <C>
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated.........................................                                 [ ]
A.G. Edwards & Sons, Inc.                                                                         [ ]
Deutsche Bank Securities Inc.                                                                     [ ]
Legg Mason Wood Walker, Incorporated                                                              [ ]
Raymond James & Associates, Inc.                                                                  [ ]
RBC Dain Rauscher Inc.                                                                            [ ]
U.S. Bancorp Piper Jaffray Inc.                                                                   [ ]
Wachovia Securities, Inc.                                                                         [ ]
Wells Fargo Securities, LLC                                                                       [ ]
Advest, Inc.                                                                                      [ ]
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.                                    [ ]
Robert W. Baird & Co. Incorporated                                                                [ ]
H&R Block Financial Advisors, Inc.                                                                [ ]
Fahnestock & Co. Inc.                                                                             [ ]
J.J.B. Hilliard, W.L. Lyons, Inc.                                                                 [ ]
Janney Montgomery Scott LLC                                                                       [ ]
McDonald Investments Inc., a KeyCorp Company                                                      [ ]
Quick & Reilly, Inc.                                                                              [ ]
Stifel, Nicolaus & Company, Incorporated                                                          [ ]
TD Waterhouse Investor Services, Inc.                                                             [ ]

         Total...................................................                                 [ ]
                                                                                                  ===
</TABLE>

                                    Sch A-1






<PAGE>



                                   SCHEDULE B

               COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
                                [ ] Common Shares
                           (Par Value $.001 Per Share)

         1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $25.00.

         2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $[ ], being an amount equal to the initial public
offering price set forth above less $[ ] per share; provided that the purchase
price per share for any Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Fund and
payable on the Initial Securities but not payable on the Option Securities.

                                    Sch B-1






<PAGE>



                                                                       Exhibit A

               FORM OF OPINION OF FUND'S AND INVESTMENT MANAGER'S
                       COUNSEL TO BE DELIVERED PURSUANT TO
                                  SECTION 5(b)

With respect to the Fund:

                  1. The Fund (A) has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the State of
Maryland with full corporate power and authority to conduct its business as
described in the Registration Statement and the Prospectus and to enter into and
perform its obligations under the Purchase Agreement, and (B) is duly registered
and qualified to conduct its business and is in good standing in the State of
New York (which is the only jurisdiction identified by management of the Fund to
us in which the Fund owns or leases property or operates or conducts its
business);

                  2. The statements made in the Prospectus under the caption
"Description of Shares", insofar as they purport to constitute summaries of the
terms of the Fund's common stock, constitute accurate summaries of the terms of
such common stock in all material respects;

                  3. All outstanding shares of capital stock of the Fund have
been duly authorized and validly issued by the Fund, and are fully paid and
nonassessable;

                  4. The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms of the Purchase Agreement, will be validly issued by the Fund, fully paid
and nonassessable. There are no preemptive rights under federal or New York law
or under the Maryland General Corporation Law to subscribe for or purchase
shares of the Fund's capital stock. There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the issuance, voting or
transfer of, any shares of the Fund's capital stock pursuant to the Fund's
charter or by-laws or any agreement or other instrument filed or incorporated by
reference as an exhibit to the Registration Statement;

                  5. The Shares have been authorized for listing, subject to
notice of issuance, on the New York Stock Exchange (the "NYSE"); the form of the
certificate for the Shares conforms to the requirements of the Maryland General
Corporation Law and the NYSE;

                  6. The Registration Statement and all post-effective
amendments, if any, have become effective under the 1933 Act and the 1933 Act
Rules and Regulations and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement or order pursuant to Section 8(e) of
the 1940 Act has been issued and no proceedings for that purpose are pending
before or threatened by the Commission; and any required filing of the
Prospectus pursuant to Rule 497 of the 1933 Act Rules and Regulations has been
made in accordance with Rule 497;

                  7. (A) The Purchase Agreement and each of the Advisory
Agreement dated as of June [ ], 2003 between the Fund and the Investment Manager
(the "Advisory Agreement"), the Administration Agreement dated as of June [ ],
2003 between the Fund and the Investment Manager (the "Administration
Agreement"), the Master Custodian Agreement dated as of June [ ], 2003 and
effective with respect to Fund as of June [ ], 2003 between the Fund and State
Street Bank and Trust Company (the "Custodian Agreement"), the agreement dated
as of June [ ], 2003 and effective with respect to Fund as of June [ ], 2003
between the Fund and State Street Bank and Trust Company (the
"Sub-Administration Agreement"), and the Stock Transfer Agent Services Agreement
dated as of June [ ],

                                      A-1






<PAGE>



2003 between the Fund and Equiserve Trust Company, NA (the "Transfer Agent
Agreement"; collectively with the Advisory Agreement, Administration Agreement,
Custodian Agreement and Sub-Administration Agreement, the "Fund Agreements")
have been duly authorized, executed and delivered by the Fund and (B) the
Advisory Agreement, assuming that the Advisory Agreement is the valid and
legally binding obligations of the other parties thereto, is a valid and legally
binding agreement of the Fund, enforceable against the Fund in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing;

                  8. The issue and sale of the Shares by the Fund and the
compliance by the Fund with the provisions of the Purchase Agreement and the
Fund Agreements will not breach or result in a default under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Fund pursuant to any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument filed or incorporated by reference as
an exhibit to the Registration Statement, nor will such action violate the
charter or by-laws of the Fund or any federal or New York statute or any rule or
regulation thereunder or the Maryland General Corporation Law or any rule or
regulation thereunder or order known to us issued pursuant to any federal or New
York statute or the Maryland General Corporation Law by any court or
governmental agency or body having jurisdiction over the Fund or any of its
properties;

                  9. No consent, approval, authorization, order, registration,
filing or qualification of or with any federal or New York governmental agency
or body or any Maryland governmental agency or body acting pursuant to the
Maryland General Corporation Law or, to our knowledge, any federal or New York
court or any Maryland court acting pursuant to the Maryland General Corporation
Law is required for the issue and sale of the Shares by the Fund and the
compliance by the Fund with all of the provisions of the Purchase Agreement and
the Fund Agreements, except for the registration of the Shares under the 1933
Act and the 1940 Act pursuant to the Registration Statement and under the
Securities Exchange Act of 1934, as amended, pursuant to the Fund's Registration
Statement on Form 8-A, both of which have been filed and have become effective,
and such consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;

                  10. To our knowledge, (A) other than as described or
contemplated in the Registration Statement or Prospectus, there are no legal or
governmental proceedings pending or threatened against the Fund, or to which the
Fund or any of its properties is subject and (B) there are no agreements,
contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;

                  11. The statements made in the Prospectus under the caption
"Management of the Fund", "Description of Shares - Common Shares" and in the
Registration Statement under Item 29 (Indemnification), insofar as they purport
to constitute summaries of the terms of the Maryland General Corporation Law or
any federal statutes, rules and regulations thereunder or contracts and other
documents, constitute accurate summaries of the terms of such statutes, rules
and regulations or contracts and other documents in all material respects;

                  12. The statements made in the Prospectus under the caption
"Taxation" insofar as they purport to constitute summaries of matters of United
States federal tax law and regulations or legal conclusions with respect
thereto, constitute accurate summaries of the matters described therein in all
material respects;

                                      A-2






<PAGE>



                  13. Each of the Fund Agreements complies as to form with all
applicable provisions of the 1933 Act, 1940 Act, the Investment Advisers Act of
1940, as amended (the "Advisers Act"), the 1933 Rules and Regulations and the
rules and regulations under the Advisers Act;

                  14. The Fund is duly registered with the Commission under the
1940 Act and the rules and regulations under the 1940 Act (the "1940 Act Rules
and Regulations") as a closed-end, non-diversified management investment company
and, to our knowledge, no order of suspension or revocation of such registration
under the 1940 Act and the 1940 Act Rules and Regulations has been issued or
proceedings therefor initiated or threatened by the Commission; the provisions
of the charter and by-laws do not violate the provisions of the 1940 Act or the
1940 Act Rules and Regulations; and the provisions of the charter and the
by-laws and the investment policies and restrictions described in the
Registration Statement and the Prospectus under the captions "Investment
Objectives and Policies", "Principal Risks of the Fund", "Additional Risk
Considerations" and "Investment Restrictions" (in the Prospectus and the
statement of additional information incorporated by reference therein) comply in
all material respects with the requirements of the 1933 Act, 1940 Act and the
applicable 1933 Act Rules and Regulations and 1940 Act Rules and Regulations;

                  15. Except as described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
we do not know of any commitment, plan or arrangement to issue (other than in
connection with the reinvestment of dividends) any shares of capital stock of
the Fund or any security convertible into or exchangeable or exercisable for
shares of capital stock of the Fund or to otherwise register such securities for
sale.

                  Insofar as the opinions expressed herein relate to or are
dependent upon matters governed by the laws of the State of Maryland, we have
relied upon the opinion of Venable, Baetjer and Howard LLP.

                  We have not independently verified the accuracy, completeness
or fairness of the statements made or included in the Registration Statement or
the Prospectus and take no responsibility therefor, except as and to the extent
set forth in paragraphs 2, 11 and 12 above. In the course of the preparation by
the Fund of the Registration Statement and the Prospectus, we participated in
conferences with certain officers and employees of the Fund and the Investment
Manager, with representatives of PricewaterhouseCoopers LLP and with counsel to
the Investment Manager. Based upon our examination of the Registration Statement
and the Prospectus, our investigations made in connection with the preparation
of the Registration Statement and the Prospectus and our participation in the
conferences referred to above, (i) we are of the opinion that the Registration
Statement, as of its effective date, the Prospectus, as of its date, and the
notification on Form N-8A, complied as to form in all material respects with the
requirements of the 1933 Act and the 1940 Act and the applicable rules and
regulations of the Commission thereunder, except that in each case we express no
opinion with respect to the financial statements or other financial data
contained or incorporated by reference in the Registration Statement or the
Prospectus, and (ii) we have no reason to believe that the Registration
Statement, at the time the Registration Statement became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or that the Prospectus contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that in each case we express no belief with respect
to the financial statements or other financial data contained or incorporated by
reference in the Registration Statement or the Prospectus.

With respect to the Investment Manager:

                                      A-3






<PAGE>



                  1. The Investment Manager (A) has been duly incorporated and
is validly existing as a corporation under the laws of the State of New York
with full corporate power and authority to conduct its business as described in
the Registration Statement and the Prospectus and (B) is duly registered and
qualified to conduct its business and is in good standing in the State of New
York (which is the only jurisdiction in which the Investment Manager owns or
leases property or operates or conducts its business).

                  2. The Investment Manager is duly registered with the
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") and is not prohibited by the Advisers Act, the
rules and regulations under the Advisers Act (the "Advisers Act Rules and
Regulations"), the 1940 Act, the rules and regulations under the 1940 Act from
acting under the Advisory Agreement dated as of June [ ], 2003 between the Fund
and the Investment Manager (the "Advisory Agreement"), the Administration
Agreement between the Investment Manager and the Fund dated as of June [ ], 2003
(the "Administration Agreement") or the Additional Compensation Agreement
between the Investment Manager and Merrill Lynch dated as of June [ ], 2003, for
the Fund as contemplated by the Prospectus; and to my knowledge, no order of
suspension or revocation of such registration under the Advisers Act and the
Advisers Act Rules and Regulations has been issued and no proceedings for that
purpose are pending before or threatened by the Commission;

                  3. Each of this Agreement, the Advisory Agreement, the
Administration Agreement and the Additional Compensation Agreement has been duly
authorized, executed and delivered by the Investment Manager and assuming that
each is the valid and legally binding agreement of the other parties thereto,
each is a valid and legally binding agreement of the Investment Manager,
enforceable against the Investment Manager in accordance with its terms subject
to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and by general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and fair
dealing;

                  4. Neither the execution, delivery or performance of this
Agreement, the Advisory Agreement, the Administration Agreement or the
Additional Compensation Agreement by the Investment Manager or compliance by the
Investment Manager with the provisions of this Agreement, the Advisory Agreement
or the Administration Agreement nor consummation by the Investment Manager of
the transactions contemplated hereby and thereby will breach or result in a
default under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Investment Manager pursuant to
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Investment Manager is a party or by which its properties
are bound except where breach or default would not reasonably be expected to
have a material adverse effect on the ability of the Investment Manager to
perform its obligations under this Agreement, the Advisory Agreement or the
Administration Agreement, nor will such action violate the charter or by-laws of
the Investment Manager or any federal or New York statute or any rules or
regulations thereunder or order known to me issued pursuant to any federal or
New York statute by any court or governmental agency or body having jurisdiction
over the Investment Manager or any of its properties;

                  5. No consent, approval, authorization, order, registration,
filing or qualification of or with any federal or New York governmental agency
or body or, to my knowledge, any federal or New York court is required on the
part of the Investment Manager for the execution, delivery and performance by
the Investment Manager of this Agreement, the Advisory Agreement, the
Administration Agreement or the Additional Compensation Agreement, except such
consents, approvals, authorizations, orders, registrations, filings or
qualifications as have been obtained or made prior to the date hereof;

                                      A-4






<PAGE>



                  6. To the best of my knowledge, no person is serving as an
officer, director or investment manager of the Fund except in accordance with
the 1940 Act and the Rules and Regulations and the Advisers Act and the Advisers
Act Rules and Regulations. Except as disclosed in the Registration Statement and
Prospectus (of any amendment or supplement to either of them), to the best of my
knowledge, no director of the Fund is an "interested person" (as defined in the
1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of
an Underwriter listed on Schedule A to the Purchase Agreement.

                  7. To my knowledge, there are no legal or governmental
proceedings pending or threatened against the Investment Manager, or to which
the Investment Manager or any of its properties is subject, which are required
to be described in the Registration Statement or Prospectus that are not
described as required or which may reasonably be expected to involve a
prospective material adverse change in the ability of the Investment Manager to
perform its obligations under this Agreement, the Advisory Agreement and the
Administration Agreement.

                  I have not independently verified the accuracy, completeness
or fairness of the statements made or included in the Registration Statement or
the Prospectus and take no responsibility therefor. In the course of the
preparation by the Fund of the Registration Statement and the Prospectus, I
participated in conferences with certain officers and employees of the Fund and
the Investment Manager, with representatives of PricewaterhouseCoopers LLP and
with counsel to the Fund. Based upon my examination of the Registration
Statement and the Prospectus, my investigations made in connection with the
preparation of the Registration Statement and the Prospectus and my
participation in the conferences referred to above, I have no reason to believe
that the Registration Statement, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading or that the Prospectus contains any untrue
statement of material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except I express no belief with respect to
the financial statements or other financial data contained or incorporated by
reference in the Registration Statement or the Prospectus.

                                      A-5




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2L
<SEQUENCE>5
<FILENAME>ex99-2li.txt
<DESCRIPTION>EXHIBIT 2(L)(I)
<TEXT>


<PAGE>



                                                                   June 20, 2003


Cohen & Steers REIT and Preferred
Income Fund, Inc.
757 Third Avenue
New York, New York 10017


Ladies and Gentlemen:

     We have acted as counsel to Cohen & Steers REIT and Preferred Income Fund,
Inc., a closed-end management investment company organized as a Maryland
corporation (the "Company"), in connection with the Registration Statement on
Form N-2, File Nos. 333-104047 and 811-21326 (the "Registration Statement"),
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act") and the
Investment Company Act of 1940, as amended, relating to the issuance by the
Company of shares of its Common Stock, par value $.001 per share (the "Shares"),
in connection with the offering described in the Registration Statement.

     We have examined the Registration Statement and a specimen share
certificate which has been filed with the Commission as an exhibit to the
Registration Statement. We also have examined the originals, or duplicates or
certified or conformed copies, of such records, agreements, instruments and
other documents and have made such other and further investigations as we have
deemed relevant and necessary in connection with the opinions expressed herein.
As to questions of fact material to this opinion, we have relied upon
certificates of public officials and of officers and representatives of the
Company.





<PAGE>

Cohen & Steers REIT and Preferred Income
Fund, Inc.                            - 2 -                        June 20, 2003

     In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as duplicates or certified or conformed copies, and the
authenticity of the originals of such latter documents.

     Based on the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that when the Board of Directors of the
Company has taken all necessary corporate action to authorize and approve the
issuance of the Shares and upon payment and delivery in accordance with the
applicable definitive underwriting agreement approved by the Board of Directors
of the Company, the Shares will be validly issued, fully paid and nonassessable.

     Insofar as the opinion expressed herein relates to or is dependent upon
matters governed by the laws of the State of Maryland, we have relied upon the
opinion of Venable, Baetjer and Howard, LLP dated the date hereof.

     We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York and, to the extent set forth herein, the Maryland General Corporation Law
(including the statutory provisions, all applicable provisions of the Maryland
Constitution and reported judicial decisions interpreting the foregoing).





<PAGE>

Cohen & Steers REIT and Preferred Income
Fund, Inc.                            - 3 -                        June 20, 2003

     We hereby consent to the filing of this opinion letter as Exhibit 2(l)(i)
to the Registration Statement and to the use of our name under the caption
"Validity of the Shares" in the Prospectus included in the Registration
Statement.

                                          Very truly yours,



                                          /s/ SIMPSON THACHER & BARTLETT LLP
                                          SIMPSON THACHER & BARTLETT LLP



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2L
<SEQUENCE>6
<FILENAME>ex99-2lii.txt
<DESCRIPTION>EXHIBIT 2(L)(II)
<TEXT>

<PAGE>


                                  June 20, 2003

Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York  10017-3909

         Re: Cohen & Steers REIT and Preferred Income Fund, Inc.

Ladies and Gentlemen:

         We have acted as special Maryland counsel for Cohen & Steers REIT and
Preferred Income Fund, Inc., a Maryland corporation (the "Company"), in
connection with the organization of the Company and the issuance of shares of
its Common Stock, par value $.001 per share (the "Shares").

         As special Maryland counsel for the Company, we are familiar with its
Charter and Bylaws. We have examined the prospectus included in its Registration
Statement on Form N-2, File No. 333-104047 (the "Registration Statement"),
substantially in the form in which it is to become effective (the "Prospectus").
We have further examined and relied on a certificate of the Maryland State
Department of Assessments and Taxation to the effect that the Company is duly
incorporated and existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of Maryland.

         We have also examined and relied on such corporate records of the
Company and other documents and certificates with respect to factual matters as
we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures on
documents submitted to us for examination, the authenticity of all documents
submitted to us as originals, and the conformity with originals of all documents
submitted to us as copies.







<PAGE>


Simpson Thacher & Bartlett LLP
June 20, 2003
Page 2


         Based on such examination, we are of the opinion that:

         1. The Company is duly organized and validly existing as a corporation
            in good standing under the laws of the State of Maryland.

         2. When the Board of Directors of the Company has taken all necessary
            corporate action to authorize and approve the issuance of the Shares
            and upon payment and delivery in accordance with the applicable
            definitive underwriting agreement approved by the Board of Directors
            of the Company, the Shares will be validly issued, fully paid and
            nonassessable.

         This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock (including the statutory provisions, all applicable
provisions of the Maryland Constitution and reported judicial decisions
interpreting the foregoing). It does not extend to the securities or "Blue Sky"
laws of Maryland, to federal securities laws or to other laws.

         You may rely on this opinion in rendering your opinion to the Company
that is to be filed as an exhibit to the Registration Statement. We consent to
the filing of this opinion as an exhibit to the Registration Statement and to
the reference to us in the Prospectus under the caption "Validity Of The
Shares." We do not thereby admit that we are "experts" within the meaning of the
Securities Act of 1933 and the regulations thereunder. This opinion may not be
relied on by any other person or for any other purpose without our prior written
consent.

                                Very truly yours,


                                /s/ Venable, Baetjer and Howard, LLP
                                Venable, Baetjer and Howard, LLP






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2N
<SEQUENCE>7
<FILENAME>ex99-2n.txt
<DESCRIPTION>EXHIBIT 2(N)
<TEXT>



<PAGE>

                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to use in this Registration Statement on Form N-2 of our
report dated June 9, 2003, relating to the financial statement of Cohen & Steers
REIT and Preferred Income Fund, Inc. as of June 6, 2003, which appears in such
Registration Statement. We also consent to the reference to us under the heading
"Counsel and Independent Accountants" in such Registration Statement.




PricewaterhouseCoopers LLP
New York, New York
June 20, 2003


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2R
<SEQUENCE>8
<FILENAME>ex99-2ri.txt
<DESCRIPTION>EXHIBIT 2 (R)(I)
<TEXT>


<PAGE>
                              COHEN & STEERS FUNDS

                                 Code of Ethics

                         Adopted Pursuant to Rule 17j-1
                    Under the Investment Company Act of 1940

         1.       Purposes

         This Code of Ethics applies to each Fund (as defined in Section 3) and
has been adopted by the Board of Directors/Trustees of each Fund in accordance
with Rule 17j-l(c) under the Investment Company Act of 1940 (the "Act"). Rule
17j-1 generally proscribes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by investment companies.
The purpose of this Code of Ethics is to provide regulations and procedures
consistent with the Act and Rule 17j-1 designed to give effect to the general
prohibitions set forth in Rule 17j-l(b), which read as follows:

                  "(b) Unlawful actions. It shall be unlawful for any affiliated
         person of or principal underwriter for a Fund, or any affiliated person
         of an investment adviser of or principal underwriter for a Fund, in
         connection with the purchase or sale, directly or indirectly, by such
         person of a Security Held or to be Acquired by the Fund:

                           (1) To employ any device, scheme or artifice to
                  defraud the Fund;

                           (2) To make any untrue statement of a material fact
                  to the Fund or omit to state a material fact necessary in
                  order to make the statements made to the Fund, in light of the
                  circumstances under which they are made, not misleading;

                           (3) To engage in any act, practice, or course of
                  business which operates or would operate as a fraud or deceit
                  on the Fund; or

                           (4) To engage in any manipulative practice with
                  respect to the Fund.

         All material changes to this Code also shall be subject to approval by
the Board of each Fund. In approving the Code and any material changes, the
Board of each Fund shall determine that the Code contains provisions reasonably
necessary to prevent "Access Persons" (as defined below) from engaging in any
conduct specified in Rule 17j-1(b). Prior to approving this Code or any material
changes, the Investment Adviser (as defined in Section 3), on behalf of itself
and each Fund, shall provide a certification that the Fund has adopted
procedures reasonably necessary to prevent Access Persons from violating this
Code of Ethics.






<Page>




         2. Application

         (a) This Code of Ethics applies to the "Access Persons" of each Fund
(as such term is defined in Section 3).

         (b) Each Fund will maintain a list of all its Access Persons and
will provide each Access Person with a copy of this Code of Ethics.

         3. Definitions

         (a) "Fund" means each registered investment company for which Cohen &
Steers Capital Management, Inc. serves as investment adviser or sub-adviser.

         (b) "Investment Adviser" means Cohen & Steers Capital Management, Inc.

         (c) "Access Person" means any director, officer, or Advisory Person of
the Fund, or of the Investment Adviser.

         (d) "Advisory Person" of the Fund or of the Investment Adviser means
(a) any employee of the Fund or of the Investment Adviser (or of any company in
a control relationship to the Fund or Investment Adviser, including any
subsidiary or affiliate of the Investment Adviser), and (b) any other natural
person in a control relationship to the Fund or the Investment Adviser who
obtains information concerning recommendations made to the Fund with regard to
the purchase or sale of Covered Securities by the Fund.

         (e) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated or,
with respect to the person making the recommendation, when the person gives
serious consideration to making a recommendation.

         (f) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934, and the rules and regulations
thereunder.

         (g) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.

         (h) "Independent Director" means a director or trustee of the Fund who
is not an "interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act.

         (i) "Purchase or Sale of a Covered Security" includes, among other
things, the writing of an option to purchase or sell a Covered Security.


                                    -2-




<Page>


         (j) "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act of 1940, except that it shall not include
direct obligations of the Government of the United States; bankers' acceptances,
bank certificates of deposit, commercial paper, and high-quality short-term debt
instruments, including repurchase agreements; or shares issued by registered
open-end investment companies.

         (k) "Sub-Advisory Personnel" shall mean directors/trustees, officers
and employees of any Fund for which the Investment Adviser serves only as
sub-adviser and who are not directors, officers or employees of the Investment
Adviser.

         4. Exempted Transactions

         The prohibitions of Section 5 of this Code shall not apply to:

         (a) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control (including any account
that is managed on a discretionary basis by a person other than the Access
Person and with respect to which the Access Person does not in fact influence or
control the transactions).

         (b) Purchases or sales of securities that are not eligible for purchase
or sale by a Fund.

         (c) Purchases or sales that are non-volitional on the part of either
the Access Person or a Fund.

         (d) Purchases that are part of an automatic dividend reinvestment plan.

         (e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent those rights
were acquired from the issuer, and sales of rights so acquired.

         (f) Purchases or sales of securities that receive the prior approval of
the Chairman or the President of the Investment Adviser (such approving officer
having no personal interest in the purchases or sales) because they: (i) are
only remotely potentially harmful to a Fund, (ii) would be very unlikely to
affect a highly institutional market, or (iii) clearly are not related
economically to the securities to be purchased, or sold or held by a Fund.

         5. Prohibited Purchases and Sales

         (a) Unless prior approval is obtained in accordance with Section 4(f)
above, no Access Person, shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transactions acquires,
any direct or indirect beneficial ownership and which the person knew or
reasonably should have known at the time of such purchase or sale that, within
the most recent 15 days:


                                    -3-




<Page>



                  (1) is being or has been considered for purchase or sale by
                      a Fund; or

                  (2) is being purchased or sold by a Fund.

         (b) No Access Person shall reveal to any other person (except in the
normal course of his duties on behalf of the Fund or the Investment Adviser) any
information regarding securities transactions by the Fund or the consideration
by the Fund or the Investment Adviser of any securities transactions.

         (c) With the exception of the Independent Directors and Sub-Advisory
Personnel, no Access Person shall purchase any Covered Security issued in an
initial public offering ("IPO"). No Independent Director or Sub-Advisory
Personnel shall invest in any shares issued in an IPO if, at the time of that
transaction, such person knew or, in the ordinary course of fulfilling his
official duties, should have known that, during the 15-day period immediately
preceding or after the date of the transaction, the Covered Security is or was
purchased or sold by the Fund, or is or was being considered for purchase or
sale by the Fund.

         (d) With the exception of the Independent Directors and Sub-Advisory
Personnel, no Access Person shall purchase any Covered Security issued in a
private placement unless the Chairman or President of the Investment Adviser
approves the transaction in advance. In determining whether or not to grant such
approval, the Chairman or President will consider whether the investment
opportunity should be reserved for the Fund and whether the opportunity is being
offered by virtue of the Access Person's position with the Fund or the
Investment Adviser. The General Counsel of the Investment Adviser, or his
designee, shall maintain a written record of decisions to permit these
transactions, along with the reasons supporting the decision. Any Access Person
who has been authorized to acquire securities in a private placement must
disclose the investment to the Chairman or President of the Investment Adviser
if the Access Person is involved in any subsequent consideration of an
investment in the issuer, and these investment decisions will be subject to
independent review by the Board of Directors.

         No Independent Director or Sub-Advisory Personnel shall invest in
any shares issued in a private placement if, at the time of that transaction,
such person knew or, in the ordinary course of fulfilling his official duties,
should have known that, during the 15-day period immediately preceding or after
the date of the transaction, the Covered Security is or was being purchased or
sold by the Fund, or is or was being considered for purchase or sale by the
Fund.

         6. Reporting

         (a) Every Access Person, except the Independent Directors and
Sub-Advisory Personnel, shall report to the Secretary or Assistant Secretary of
the Fund (i) a list of all Covered Securities held, and any account held with a
broker, dealer or bank, at the time the person becomes an Access Person; (ii)
each year thereafter, a list of all Covered Securities and accounts


                                    -4-








<Page>


held; and (iii) the information described in Section 6(c) of this Code with
respect to transactions in any Covered Security in which the Access Person has,
or by reason of such transaction acquires, any direct or indirect beneficial
ownership in the Covered Security; provided, however, that an Access Person
shall not be required to make a report with respect to transactions effected in
any account over which the Access Person does not have any direct or indirect
influence or control or in any account that is managed on a discretionary basis
by a person other than the Access Person and with respect to which the Access
Person does not in fact influence or control the transactions. The General
Counsel of the Investment Adviser shall maintain the reports and other records
required by Rule 17j-1 under the Act.

         (b) Independent Directors and Sub-Advisory Personnel need only report a
transaction to the Chairman, President or General Counsel of the Investment
Adviser if the Independent Director or Sub-Advisory Personnel, at the time of
that transaction, knew or, in the ordinary course of fulfilling his official
duties, should have known that, during the 15-day period immediately preceding
or after the date of the transaction, the Covered Security is or was being
purchased or sold by the Fund, or is or was being considered for purchase or
sale by the Fund. Independent Directors and Sub-Advisory Personnel need not
provide an initial or annual report of portfolio holdings and accounts.

         (c) Every report shall be in writing and shall be delivered not later
than (i) 10 days after the person becomes an Access Person, with respect to the
initial portfolio holdings and accounts report; and (ii) 10 days after the end
of the calendar quarter in which a transaction to which the report relates was
effected. Quarterly reports shall contain the following information:

                  (1)  The date of the transaction, the title, interest rate
                       and maturity date (if applicable), the number of
                       shares and the principal amount of each Covered
                       Security involved;

                  (2)  The nature of the transaction (i.e., purchase, sale or
                       any other type of acquisition or disposition);

                  (3)  The price at which the transaction was effected;

                  (4)  The name of the broker, dealer or bank with or through
                       whom the transaction was effected;

                  (5)  The name of any broker, dealer or bank with whom an
                       account was opened during the quarter; and

                  (6)  The date the report is submitted.


                                    -5-






<Page>


         (d) Any report may contain a statement that the report shall not be
construed as an admission by the person making the report that he has any direct
or indirect beneficial ownership in the security to which the report relates.

         (e) All reports furnished pursuant to this Section shall be reviewed by
the Investment Adviser's General Counsel, who shall report to the Chairman and
President all potential violations of the Code of Ethics. These will be kept
confidential, subject to the rights of inspection by the Directors/Trustees of
each Fund and by the Securities and Exchange Commission.

         (f) The Investment Adviser, on behalf each Fund, shall furnish annually
to the Board of each Fund a written report (i) describing any issues arising
under this Code of Ethics or the related supervisory procedures, including but
not limited to information about material violations of the Code of Ethics or
procedures, and sanctions imposed in response to the material violations; and
(ii) certifying that the Fund has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code of Ethics.

         7. Sanctions

         Upon receiving notice of a violation of this Code, the Directors of the
each Fund may impose such sanctions as they deem appropriate, including, among
other things, a letter of censure or suspension or termination of the employment
of the violator.

Explanatory Notes to Code of Ethics

         1. The information on portfolio holdings, and securities transactions,
received and recorded by the Investment Adviser pursuant to the requirements of
Rule 204-2(a)(12) under the Investment Advisers Act of 1940 shall be deemed to
satisfy the reporting requirements imposed on Access Persons of the Investment
Adviser by Section 6 of this Code of Ethics.

         2. For purposes of Section 3(c), 3(d) and 5 of this Code of Ethics, all
employees of the Investment Adviser, and its affiliates and subsidiaries, shall
be deemed Advisory Persons of the Fund or of the Investment Adviser.


August 2000



                                    -6-




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2R
<SEQUENCE>9
<FILENAME>ex99-2rii.txt
<DESCRIPTION>EXHIBIT 2 (R)(II)
<TEXT>


<Page>





                     COHEN & STEERS CAPITAL MANAGEMENT, INC.

                                 CODE OF ETHICS


INTRODUCTION

This Code of Ethics shall apply to all directors, officers and employees of
Cohen & Steers Capital Management, Inc., and of each of its subsidiaries and
affiliates.

FOR PURPOSES OF THIS CODE:

(a) "Access Person" means any director, officer or employee of Cohen & Steers
Capital Management, Inc., and of each of its subsidiaries or affiliates ("Cohen
& Steers").

(b) Purchase or sale of a security includes, among other things, the writing of
any option to purchase or sell a security or any transaction by reason of which
a person acquires or disposes of any direct or indirect ownership in a security.

(c) A security is "being considered for purchase or sale" when a recommendation
to purchase or sell a security has been made and communicated and, with respect
to the person making the recommendation, when a person seriously considers
making such a recommendation.


THIS CODE APPLIES TO ALL TRANSACTIONS (OTHER THAN BONA FIDE CLIENT TRANSACTIONS)
IN ALL ACCOUNTS IN WHICH AN ACCESS PERSON MAY EXERCISE CONTROL OR HAS A
BENEFICIAL INTEREST. UPON DISCOVERING A VIOLATION OF THIS CODE, THE CHAIRMAN OR
PRESIDENT MAY IMPOSE SUCH SANCTIONS AS DEEMED APPROPRIATE, INCLUDING A LETTER OF
CENSURE OR SUSPENSION OR EVEN TERMINATION OF THE EMPLOYMENT OF THE VIOLATOR.
FURTHER, ANY PROFITS REALIZED IN CONNECTION WITH A VIOLATION OF THIS CODE WILL
BE REQUIRED TO BE DISGORGED.


PROHIBITED TRANSACTIONS

The following transactions are prohibited, except as provided for below:

(a) No Access Person shall purchase or sell any security that the Access Person
knew or reasonably should have known is being or has been considered for
purchase or sale for a Client, or is being purchased or sold by a Client.






<Page>


(b) No Access Person shall purchase or sell any security issued or guaranteed by
a real estate investment trust or other company engaged in the real estate
business (as defined below), except that an Access Person may invest in shares
of Cohen & Steers Realty Shares, Inc., Cohen & Steers Institutional Realty
Shares, Inc., Cohen & Steers Special Equity Fund, Inc. and Cohen & Steers Equity
Income Fund, Inc. and, with the written prior approval of the Chairman or
President, shares of Cohen & Steers Advantage Income Realty Fund, Inc., Cohen &
Steers Quality Income Realty Fund, Inc., Cohen & Steers Premium Income Realty
Fund, Inc., Cohen & Steers Total Return Realty Fund, Inc. and Cohen & Steers
REIT and Preferred Income Fund, Inc. (see Attachment A).

(c) No Access Person shall purchase or sell any preferred security (as defined
below).

(d) No Access Person shall purchase or sell, without the prior written approval
of the Chairman or President, any taxable fixed income security, except those
taxable fixed income securities commonly labeled as money market instruments.
Money market instruments include (i) obligations issued by the U.S. Government,
and its agencies and instrumentalities, with remaining maturities of one year or
less; (ii) commercial paper; (iii) bank certificates of deposit; (iv) bankers'
acceptances; (v) bank time deposits, (vi) corporate notes; (vii) repurchase
agreements with maturities of one year or less; and (viii) any such other
taxable fixed income security approved by the Chairman or President.

(e) No Access Person shall purchase any security issued in an initial public
offering.

(f) No Access Person shall purchase any security issued in a private placement
unless the Chairman or President approves the transaction in advance. In
determining whether or not to grant approval, the Chairman or President will
consider whether the investment opportunity should be reserved for a Client and
whether the opportunity is being offered by virtue of the Access Person's
position with Cohen & Steers. The general counsel shall maintain a written
record of decisions to permit these transactions, along with the reasons
supporting the decision. Any Access Person who has been authorized to acquire
securities in a private placement must disclose the investment to the Chairman
or President if the Access Person is involved in any subsequent consideration of
an investment in the issuer, and these investment decisions will be subject to
independent review by investment personnel with no personal interest in the
issuer.

(e) No Access Person shall execute any securities transaction on a day during
which any Client has a pending buy or sell order in that same security until
that order is executed or withdrawn. Furthermore, no Access Person shall buy or
sell a security within seven calendar days before or after a Client trades in
that security.

(f) No Access Person shall receive any gift of more than de minimis value from
any person or entity that does business with or on behalf of Cohen & Steers, its
affiliates and subsidiaries, or a Client.


                                    2





<Page>



(g) No Access Person shall serve on the board of directors of a publicly traded
company, unless approved in advance by the Chairman or President. This
authorization will be provided only if the Chairman or President concludes that
service on the board would be consistent with the interests of Clients. Access
Persons who have received this approval shall not trade for a Client or their
own account in the securities of the company while in possession of material,
non-public information ("Inside Information"). Cohen & Steers' Inside
Information Policy and Procedures provide further details on the obligations of
Access Persons concerning Inside Information.


EXEMPTED TRANSACTIONS

The prohibitions of this Code shall not apply to:

(a) Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence (including any account that is managed on a
discretionary basis by a person other than the Access Person and with respect to
which the Access Person does not in fact influence or control the transactions).

(b) Purchases or sales that are non-volitional on the part of either the Access
Person or a Client.

(c) Purchases that are part of an automatic dividend reinvestment plan.

(d) Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of its securities, to the extent these rights were
acquired from the issuer, and sales of rights so acquired.

(e) Purchases or sales that receive the prior approval of the Chairman or
President of Cohen & Steers (such approving officer having no personal interest
in such purchases or sales) because they: (i) are only remotely potentially
harmful to any Client account, (ii) would be very unlikely to affect a highly
institutional market, or (iii) clearly are not related economically to the
securities to be purchased, or sold or held on behalf of a Client or (iv) are a
result of the sale of securities that were acquired prior to February 1995 (and
such person was an employee of Cohen & Steers Capital Management, Inc. prior to
February 1995) or acquired prior to the time a person became an employee of
Cohen & Steers. The general counsel shall maintain a written record of decisions
to permit these transactions, along with the reasons supporting the decision.

REPORTING

(a) Every Access Person shall report all transactions in any security in which
the Access Person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership in the security; provided, however, that an Access
Person shall not


                                    3






<Page>


be required to report transactions  effected for any account over which the
Access Person does not have any direct or indirect influence or control.

(b) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:

         (i) the date of the transaction, the title, interest rate and maturity
         date (if applicable), the number of shares, and the principal amount of
         the security involved;

         (ii) the nature of the transaction (i.e., purchase, sale or any other
         type of acquisition or disposition);

         (iii) the price at which the transaction was effected;

         (iv) the name of the broker, dealer or bank with or through whom the
         transaction was effected;

         (v) with respect to any account established by the Access Person during
         the quarter, the name of the broker, dealer or bank with whom the
         Access Person established the account and the date the account was
         established; and

         (vi) the date the report is submitted.

(c) Any report may contain a statement that the report shall not be construed as
an admission that the person making the report has any direct or indirect
beneficial ownership in the security to which the report relates.

(d) Every Access Person must provide a list of all personal securities holdings
no later than 10 days after commencement of employment ("Initial Holdings
Report") and no later than 30 days after the beginning of each year ("Annual
Holdings Report") thereafter (see Attachment B). Both the Initial Holdings
Report and Annual Holdings Report also shall provide the name of any broker,
dealer or bank with whom the Access Person maintained an account in which any
securities were held for the direct or indirect benefit of the Access Person.
Each Annual Holdings Report must provide information that is current as of a
date no more than 30 days before the report is submitted. Both the Initial
Holdings Report and the Annual Holdings Report shall state the date the report
is submitted by the Access Person.

(e) The Applicant's compliance administrator and general counsel shall be
responsible for reviewing all quarterly securities transaction reports, the
Initial Holdings Report and the Annual Holdings Report, and shall report to the
Chairman and President all potential violations of this Code of Ethics. The
Chairman and President, in


                                    4






<Page>


consultation with the general counsel, shall determine the appropriate response
to any violation.

(f) All Access Persons must certify on the attached form initially and annually
thereafter that they have read and understand this Code of Ethics and that they
recognize that they are subject to the provisions of this Code. Furthermore, all
Access Persons must certify annually that they have complied with the
requirements of the Code of Ethics and that they have reported all personal
securities transactions and accounts required to be reported pursuant to the
Code.

FUND BOARD APPROVAL AND REPORTING

The Board of Directors of each Cohen & Steers Fund, including a majority of the
Directors who are not "interested persons" (as defined in the Investment Company
Act of 1940), must approve this Code and any material changes to the Code. This
approval shall be based on a determination that the Code contains provisions
reasonably necessary to prevent Access Persons from engaging in any conduct
prohibited by Rule 17j-1 under the Investment Company Act of 1940. In connection
with this approval, Cohen & Steers shall provide a certification to the Board
that Cohen & Steers has adopted procedures reasonably necessary to prevent
Access Persons from violating the Code.

Cohen & Steers shall furnish annually to the Directors a written report (i)
describing any issues arising under the Code of Ethics and related supervisory
procedures, including but not limited to information about material violations
of the Code or procedures and sanctions imposed in response to the material
violations, and (ii) certifying that Cohen & Steers has adopted procedures that
are reasonably necessary to prevent Access Persons from violating the Code.

ADDITIONAL DEFINITIONS

(a) "Beneficial ownership" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934, and the rules and regulations thereunder,
except that the determination of direct or indirect beneficial ownership shall
apply to all securities which an Access Person has or acquires.

(b) "Security" shall have the meaning set forth in Section 2(a) (36) of the
Investment Company Act, except that it shall not include direct obligations of
the Government of the United States; bankers' acceptances, bank certificates of
deposit, commercial paper and high-quality short-term debt instruments,
including repurchase agreements; and shares of registered open-end investment
companies.

(c) A company is engaged in the "real estate business" if it 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


                                    5






<Page>


real estate. Any questions as to whether a company is engaged in the real
estate business should be referred to the Chairman or President.

(d) "Preferred securities" include not only securities that are labeled as
"preferred stock" or "preferred securities," but other securities known as
"Hybrid-preferred securities." Hybrid-preferred securities are typically issued
by corporations, generally in the form of interest-bearing notes with preferred
securities characteristics, or by an affiliated business trust of a corporation,
generally in the form of beneficial interests in subordinated debentures or
similarly structured securities. Hybrid-preferred securities are typically
issued with a final maturity date, although some are perpetual in nature. Many
hybrid-preferred securities are issued by trusts or other special purpose
entities established by operating companies and are not a direct obligation of
an operating company. Within the category of hybrid-preferred securities are
senior debt instruments that trade in the broader preferred securities market.
These debt instruments, which are sources of long-term capital for the issuers,
have structural features similar to preferred stock, such as maturities ranging
from 30 years to perpetuity, call features, exchange listings and the inclusion
of accrued interest in the trading price. Any questions as to whether a security
is a "preferred security" within the meaning of this Code of Ethics should be
referred to the Chairman or President.


                                    6







<Page>



                                  Attachment A

                       Authorization to Purchase and Sell
                  COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
                                       and
                COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
                                       and
                 COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
                                       and
                 COHEN & STEERS PREMIUM INCOME REALTY FUND, INC.
                                       and
               COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
                                       and
                         TAXABLE FIXED-INCOME SECURITIES


Name:

<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------
Approximate                                                          Fund/Corporate Issuer
  Date of              Purchase/       Shares/Principal               and Description of
Transaction            Sale            Value                               Security
- ------------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>                               <C>



- ------------------------------------------------------------------------------------------------------------
</TABLE>

         [ ] I hereby authorize the above listed transaction.



                     ------------------------------------
                     CHAIRMAN OR PRESIDENT




                     ------------------------------------
                     DATE


This authorization is valid for 3 days after the date of authorized signature.







<Page>





                                  Attachment B

                     COHEN & STEERS CAPITAL MANAGEMENT, INC.
                Certification of Personal Securities Transactions
                     and Compliance With The Code of Ethics

                  I hereby certify that I have received, read and understand the
           Cohen & Steers Code of Ethics. Furthermore, I understand that I am
           subject to the Code of Ethics and that any failure to follow the Code
           could subject me to discipline, including the possible termination of
           my employment with Cohen & Steers.

                  I further certify that, for the preceding calendar year, I
           have complied with the requirements of the Code of Ethics in effect
           for the year and that I have reported all personal securities
           transactions, holdings and accounts required to be reported pursuant
           to this Code.



- -----------------------------------------------------------------------------
Name


- -----------------------------------------------------------------------------
Signature


- -----------------------------------------------------------------------------
Date




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>10
<FILENAME>ex99-2s.txt
<DESCRIPTION>EXHIBIT 2(S)
<TEXT>

<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY
                                -----------------

                  Gregory Clark, whose signature appears below, hereby
constitutes and appoints Martin Cohen, Robert H. Steers and Lawrence B. Stoller,
and each of them, his true and lawful attorneys and agents, with full power and
authority of substitution and resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, or any
of them, may deem necessary or advisable or which may be required to enable
Cohen & Steers REIT and Preferred Income Fund, Inc (the "Company") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement on
Form N-14 and any other registration statements pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Company any and all such amendments and registration statements filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof.

                                            /s/ Gregory C. Clark
                                         -----------------------------------
                                         Gregory Clark
                                         Date:  May 10, 2003





<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY
                                -----------------

                  Bonnie Cohen, whose signature appears below, hereby
constitutes and appoints Martin Cohen, Robert H. Steers and Lawrence B. Stoller,
and each of them, his true and lawful attorneys and agents, with full power and
authority of substitution and resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, or any
of them, may deem necessary or advisable or which may be required to enable
Cohen & Steers REIT and Preferred Income Fund, Inc (the "Company") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement on
Form N-14 and any other registration statements pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Company any and all such amendments and registration statements filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof.

                                                 /s/ Bonnie Cohen
                                                ------------------------------
                                                Bonnie Cohen
                                                Date:  May 10, 2003




<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY

                  Martin Cohen, whose signature appears below, hereby
constitutes and appoints Robert H. Steers and Lawrence B. Stoller, and each of
them, his true and lawful attorneys and agents, with full power and authority of
substitution and resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or any of them,
may deem necessary or advisable or which may be required to enable Cohen &
Steers REIT and Preferred Income Fund, Inc. (the "Company") to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (collectively, the "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the filing and effectiveness of any and all amendments (including post-effective
amendments) to the Company's Registration Statement on Form N-14 and any other
registration statements pursuant to said Acts, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Company
any and all such amendments and registration statements filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue hereof.

                                                   /s/ Martin Cohen
                                                --------------------------------
                                                Martin Cohen

                                                Date: May 10, 2003




<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY
                                -----------------

                  Richard J. Norman, whose signature appears below, hereby
constitutes and appoints Martin Cohen, Robert H. Steers and Lawrence B. Stoller,
and each of them, his true and lawful attorneys and agents, with full power and
authority of substitution and resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, or any
of them, may deem necessary or advisable or which may be required to enable
Cohen & Steers REIT and Preferred Income Fund, Inc (the "Company") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement on
Form N-14 and any other registration statements pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Company any and all such amendments and registration statements filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof.


                                               /s/ Richard J. Norman
                                             ----------------------------
                                             Richard J. Norman

                                             Date:  May 10, 2003






<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY
                                -----------------

                  Robert H. Steers, whose signature appears below, hereby
constitutes and appoints Martin Cohen and Lawrence B. Stoller, and each of them,
his true and lawful attorneys and agents, with full power and authority of
substitution and resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or any of them,
may deem necessary or advisable or which may be required to enable Cohen &
Steers REIT and Preferred Income Fund, Inc. (the "Company") to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (collectively, the "Acts"), and any rules, regulations or requirements
of the Securities and Exchange Commission in respect thereof, in connection with
the filing and effectiveness of any and all amendments (including post-effective
amendments) to the Company's Registration Statement on Form N-14 and any other
registration statements pursuant to said Acts, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Company
any and all such amendments and registration statements filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue hereof.

                                                    /s/ Robert H. Steers
                                                  ------------------------------
                                                  Robert H. Steers

                                                  Date: May 10, 2003







<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY
                                -----------------

                  George Grossman, whose signature appears below, hereby
constitutes and appoints Martin Cohen, Robert H. Steers and Lawrence B. Stoller,
and each of them, his true and lawful attorneys and agents, with full power and
authority of substitution and resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, or any
of them, may deem necessary or advisable or which may be required to enable
Cohen & Steers REIT and Preferred Income Fund, Inc. (the "Company") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement on
Form N-14 and any other registration statements pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Company any and all such amendments and registration statements filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof.
                                             /s/ George Grossman
                                             -------------------------
                                             George Grossman

                                             Date: May 10, 2003





<Page>



               Cohen & Steers REIT and Preferred Income Fund, Inc.

                                POWER OF ATTORNEY
                                -----------------

                  Willard H. Smith, Jr., whose signature appears below, hereby
constitutes and appoints Martin Cohen, Robert H. Steers and Lawrence B. Stoller,
and each of them, his true and lawful attorneys and agents, with full power and
authority of substitution and resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, or any
of them, may deem necessary or advisable or which may be required to enable
Cohen & Steers REIT and Preferred Income Fund, Inc. (the "Company") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement on
Form N-14 and any other registration statements pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Company any and all such amendments and registration statements filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof.

                                                     /s/ Willard H. Smith Jr.
                                                 -------------------------------
                                                 Willard H. Smith Jr.

                                                 Date: May 10, 2003


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
