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COHEN & STEERS REALTY INCOME FUND, INC.
February 3, 1997
To Our Shareholders:
We are pleased to submit to you our annual report for Cohen & Steers Realty
Income Fund, Inc. for the year ended December 31, 1996. The net asset value per
share at that date was $10.70. In addition, a distribution of $0.32 per share
(including a regular $0.17 per share distribution plus a $0.15 extra
distribution representing capital gains during the year) was declared for
shareholders of record December 27, 1996 and paid on January 17, 1997.
1996 REVIEW
By nearly every measure, 1996 was an exceptional year for REITs on both an
absolute and relative basis. The Fund's total return for 1996 based on income,
realized capital gains and change in net asset value was 33.3%. The 35.3% total
return of equity REITs (as measured by the NAREIT Equity REIT Index) was the
best since 1991, the year that the real estate depression hit bottom, causing
REITs to rebound from severely depressed levels. Relative to the stock market,
REITs had their best year since 1984, beating the S&P 500 Index total return of
23.0%. Relative to bonds, REITs had their best year since 1979, surpassing the
Lehman Brothers Government/Corporate Bond Index total return of 2.9%. These
results continue to substantiate the low correlation of returns between REITs
and other asset classes, particularly bonds.
All major property sectors showed outstanding positive returns for the
year, with the Office, Hotel and Regional Mall sectors performing best. The
strong performance of REITs continues to be influenced by the ongoing real
estate recovery and the advantageous position of REITs as property owners,
managers and acquirers. Most important from a capital market perspective was
that these factors translated into strong earnings growth for the major
companies in 1996 and there appears to us to be widespread expectations for
continued strong growth of REIT earnings in 1997.
The rise of REIT share prices is not solely the result of earnings growth,
in our opinion. 1996 was the year in which a substantial shift in sentiment and
opinion about real estate and REITs took place, and we believe this change will
affect the industry for many years. For the first time since the 1980s, real
estate returned to favor among both institutional and individual investors, and
long-term debt and equity capital began to flow freely. This caused property
values to rise across the board, adding another lever to REIT returns by
significantly increasing underlying asset values. This favorable capital market
environment also enabled the top tier companies to raise and efficiently invest
capital. Due to a combination of new issuance and price appreciation, the stock
market capitalization of equity REITs rose by 55% in 1996 to $90 billion. The
number of equity REITs declined during the year by 7% to 166, indicating an
acceleration in the consolidation of the industry and greater concentration of
assets among fewer, but in our opinion, stronger companies. Consequently, REIT
valuations ended the year at a higher level than when the year began. For
example, the average REIT dividend yield, which is the simplest measure of
valuation, was 7.4% at the beginning of 1996 and 5.9% at year end.
Last year was also pivotal with regard to the acceptance of the
publicly-traded REIT structure by direct real estate advisors and institutional
real estate consultants. They appeared to have finally come to terms with the
decline in their traditional businesses and nearly all have adopted a real
estate securities effort. We believe that this is primarily the result of their
clients' preference for the liquidity, fair pricing and professional practices
of the leading public real estate companies. With REITs being the most prominent
real estate equity capital raisers and
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COHEN & STEERS REALTY INCOME FUND, INC.
property acquirers in 1996 (as well as having produced consistently superior
investment returns), they can no longer be dismissed as incidental to the real
estate industry. Rather, they have become the model for creating investor value.
For the same reasons, during the year a large number of private real estate
companies merged into public companies and a great many property owners
transferred their ownership interests in exchange for REIT shares. These are
trends which we believe will remain in place for a long time to come.
1997 OUTLOOK
With real estate fundamentals and the role of REITs firmly in place, we
believe that there are essentially two major issues of concern to investors as
the year progresses. The first is the ability of REITs as a group to sustain the
current higher level of valuation that they now enjoy. The second issue is
determining which companies and property sectors are best positioned to
outperform in 1997. We believe that the current level of REIT valuations is
being affected by the following factors:
REAL ESTATE FUNDAMENTALS REMAIN POSITIVE. In nearly every property sector
and region of the country, the real estate recovery appears to be gathering
momentum. Occupancies and rental rates are rising, and the amount of new
construction is less than the incremental demand for space. Greater confidence
in the stability and growth of real estate, particularly after the depression of
the early 1990s, can account for the higher valuation of real estate companies.
REIT EARNINGS ARE GROWING AT A SUBSTANTIAL RATE. Wall Street analysts
estimate that average REIT earnings per share growth was approximately 9% in
1996 and expect further growth of 10% in 1997. The growth estimates are
predicated on conservative assumptions regarding occupancies and rental rates
plus the contribution of income both from properties acquired last year and
those that are expected to be acquired this year. Further, based on trends
firmly in place, we expect REIT earnings to grow at a meaningful rate in 1998.
This type of growth, in our opinion, warrants a higher level of valuation than
REITs have historically enjoyed. As investors become more confident in these
prospects, REITs increasingly may be recognized as growth rather than current
dividend yield vehicles. This renders the often-made comparison of REITs to
bonds and utility stocks less meaningful than ever.
REIT DIVIDEND GROWTH SHOULD BEGIN TO ACCELERATE. One important result of
REIT earnings growth is the growth of REIT dividends. While most REITs have been
raising their dividends at least annually, they have done so at a lower rate
than the rate of growth of cash earnings per share, resulting in continually
decreasing payout ratios. This is almost universally viewed by the investment
community as a healthy policy because it permits the company to maintain a
record of dividend growth, while at the same time retain more capital for
reinvestment. Because REITs, by law, must distribute no less than 95% of their
taxable income as dividends, several companies are now unable to reduce their
payout ratios any further. These companies must now increase their dividend at
the identical rate as their income growth. At the current time only a handful of
companies are in this situation but we expect a great many more to reach this
point in 1997 and 1998. When investors apply traditional stock valuation
measures such as dividend discount models, which emphasize dividend yield and
dividend growth, to REITs this group will appear extremely attractive. As this
phenomenon becomes more widely recognized it is likely to enable REITs to
maintain healthy valuations, in our opinion.
THE LEADING REITS HAVE DEMONSTRATED STRONG TRACK RECORDS. The last time
REIT valuations approached these levels was at year-end 1993, a period when most
of today's largest REITs were just coming public. Since that
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COHEN & STEERS REALTY INCOME FUND, INC.
time there have been very few initial public offerings and investors have had a
chance to assess and differentiate the abilities, dedication and, most
importantly, the performance of all the companies in the industry. Greater
investor confidence has naturally led to higher valuations for those companies
that have proven themselves to be market leaders and has enabled them to
routinely issue low-cost equity. This has also allowed the companies to
judiciously access varied forms of debt financing on economic terms that have
enhanced earnings and return on equity.
REITS HAVE PROVEN THEMSELVES UNDER VARIED FINANCIAL MARKET CONDITIONS.
REITs have outperformed stocks in five of the past six years and have done so
with lower volatility than, and little sensitivity to the broader stock market
movements. This was dramatically illustrated last year when, during periods of
stock and bond market turbulence, REIT prices remained stable or rose. As a
result, REITs have returned to favor among institutions and individuals seeking
portfolio diversification. The ongoing demand for REIT shares is likely to help
maintain the current, or even higher, level of valuation.
As we begin the new year our investment strategy generally is one that
emphasizes those companies we expect to achieve above-average growth in earnings
per share, preferably through increases in occupancies and rental rates. Our
largest weighting continues to be the Shopping Center sector. To the surprise of
many, this group was among the best performers in 1996 and we expect that to be
the case again in 1997, particularly for regional malls. The retail environment
today is much improved over the recent past and regional mall tenants are
enjoying solid sales increases. As a result there are very few tenant
bankruptcies and we believe that both occupancy and rental rates in premier
properties will show healthy increases. A new factor this year for the
publicly-traded companies is that the private market values of regional malls
have declined to a point at which, in combination with REITs' lower cost of
capital, a considerable acquisition opportunity has developed. Therefore we
expect that regional mall REITs could experience growth well in excess of
consensus expectations, which should lead to superior investment performance.
At the close of a year of extraordinary investment results such as those
achieved in 1996 it is important to maintain the perspective that real estate
and REITs are not likely to sustain such a high rate of return. However, as we
have discussed, our analysis of the investment environment leads us to the
conclusion that REITs continue to offer potential risk-adjusted returns that are
attractive. Moreover, within the universe of publicly-traded real estate
companies there are many that we believe represent outstanding value and have
superior growth prospects. These companies dominate our portfolio. While this
year may be somewhat more challenging than the last, we are nonetheless
confident in our ability to achieve satisfactory investment results.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
EQUITIES 97.05%
APARTMENT/RESIDENTIAL 20.44%
Ambassador Apartments........................................ 30,500 $ 720,562
Associated Estates Realty Corp............................... 42,900 1,018,875
Colonial Properties Trust.................................... 32,500 987,187
Columbus Realty Trust........................................ 26,400 600,600
Oasis Residential - Preferred................................ 5,900 152,663
Pacific Gulf Properties...................................... 32,000 624,000
Summit Properties............................................ 40,700 900,488
Wellsford Residential Property Trust......................... 53,400 1,294,950
-----------
6,299,325
-----------
HEALTH CARE 11.52%
American Health Properties................................... 59,500 1,420,562
Health Care REIT............................................. 36,900 904,050
Omega Healthcare Investors................................... 36,900 1,226,925
-----------
3,551,537
-----------
HOTEL 3.42%
Innkeepers USA Trust......................................... 76,000 1,054,500
-----------
INDUSTRIAL 4.01%
Eastgroup Properties......................................... 45,100 1,234,612
-----------
OFFICE 2.12%
Cali Realty Corp............................................. 21,200 654,550
-----------
OFFICE/INDUSTRIAL 4.29%
Prentiss Properties Trust.................................... 19,800 495,000
Reckson Associates Realty Corp............................... 19,600 828,100
-----------
1,323,100
-----------
SELF STORAGE 1.05%
Sorvan Self Storage.......................................... 10,400 325,000
-----------
SHOPPING CENTER 50.20%
COMMUNITY CENTER 28.82%
Alexander Haagen Properties.................................. 38,900 573,775
Bradley Real Estate.......................................... 55,500 999,000
Glimcher Realty Trust........................................ 77,000 1,694,000
Mid-America Realty Investments............................... 111,200 1,056,400
Mid-Atlantic Realty Trust.................................... 34,100 383,625
Pennsylvania REIT............................................ 60,000 1,462,500
Price REIT................................................... 31,500 1,212,750
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
Regency Realty Corp.......................................... 36,400 $ 955,500
Sizeler Property Investors................................... 26,900 258,912
Western Investment Real Estate Trust......................... 22,000 286,000
-----------
8,882,462
-----------
FACTORY OUTLET CENTER 1.87 %
Horizon Group................................................ 13,000 258,375
Tanger Factory Outlet Centers................................ 11,700 317,363
-----------
575,738
-----------
REGIONAL MALL 19.51 %
CBL & Associates Properties.................................. 33,700 871,987
JP Realty.................................................... 43,400 1,122,975
Macerich Co.................................................. 32,300 843,838
Simon Debartolo Group........................................ 47,400 1,469,400
The Mills Corp............................................... 28,800 687,600
Urban Shopping Centers....................................... 35,100 1,017,900
-----------
6,013,700
-----------
TOTAL SHOPPING CENTER........................................ 15,471,900
-----------
TOTAL EQUITIES (Identified cost $23,389,393)........ 29,914,524
-----------
</TABLE>
<TABLE>
<CAPTION>
S&P PRINCIPAL
BOND RATING* AMOUNT
- ------------------- ----------------
<S> <C> <C> <C> <C>
FIXED INCOME 4.78 %
B Oriole Homes Corp. 12.50%, sr. sub. notes 1/15/03........... $1,000,000 975,000
BB - Trizec Finance Ltd., 10.875%, sr. notes 10/15/05............ 450,000 498,938
-----------
TOTAL FIXED INCOME (Identified cost $1,419,049)........ 1,473,938
-----------
TOTAL INVESTMENTS (Identified cost $24,808,442)...................... 101.83 %
31,388,462
LIABILITIES IN EXCESS OF OTHER ASSETS.....................................(1.83)%
(565,689)
NET ASSETS (Equivalent to $10.70 per share based on
2,879,918 shares of capital stock outstanding)........................100.00 %
$30,822,773
</TABLE>
* Bond ratings are provided by third party sources and are not audited.
See notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost $24,808,442) (Note 1).................... $31,388,462
Cash.......................................................................................... 184,463
Dividends and interest receivable............................................................. 254,656
Other assets.................................................................................. 2,109
-----------
Total Assets............................................................................ 31,829,690
-----------
LIABILITIES:
Payable for dividends declared................................................................ 921,574
Payable to investment adviser................................................................. 16,380
Payable to administrator...................................................................... 5,274
Payable to directors.......................................................................... 742
Other liabilities............................................................................. 62,947
-----------
Total Liabilities....................................................................... 1,006,917
-----------
NET ASSETS applicable to 2,879,918 shares of $.01 par value common stock
outstanding (Note 4)............................................................................. $30,822,773
-----------
-----------
NET ASSET VALUE PER SHARE:
($30,822,773 [div] 2,879,918 shares outstanding)................................................. $ 10.70
-----------
-----------
MARKET PRICE PER SHARE:............................................................................. $ 12.00
-----------
-----------
MARKET PRICE PREMIUM (DISCOUNT) TO NET ASSET VALUE PER SHARE:....................................... 12.15%
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................... $23,070,097
Accumulated net realized gain on investments sold............................................. 1,172,656
Net unrealized appreciation on investments.................................................... 6,580,020
-----------
$30,822,773
-----------
-----------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Investment Income:
Dividend income................................................................................ $2,156,410
Interest income................................................................................ 173,938
----------
Total Income............................................................................. 2,330,348
----------
Expenses:
Investment advisory fees (Note 2).............................................................. 173,730
Administrative fees (Note 2)................................................................... 56,546
Professional fees.............................................................................. 53,618
Directors' fees and expenses (Note 2).......................................................... 30,200
Transfer agent fees............................................................................ 22,712
Reports to shareholders........................................................................ 22,223
Custodian fees................................................................................. 11,593
Miscellaneous.................................................................................. 12,811
----------
Total Expenses........................................................................... 383,433
----------
Net Investment Income................................................................................ 1,946,915
----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments............................................................... 1,061,695
Increase in unrealized appreciation on investments............................................. 5,451,013
----------
Net realized and unrealized gain on investments.......................................... 6,512,708
----------
Net Increase in Net Assets Resulting From Operations................................................. $8,459,623
----------
----------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................. $ 1,946,915 $ 1,833,008
Net realized gain (loss) on investments................ 1,061,695 (943,735)
Increase in unrealized appreciation on investments..... 5,451,013 1,887,754
----------------- -----------------
Net increase in net assets resulting from
operations.................................... 8,459,623 2,777,027
----------------- -----------------
Dividends and Distributions From (Note 4):
Net investment income.................................. (1,953,761) (1,134,113)
Net realized gain on investments....................... (431,988) --
Tax return of capital.................................. -- (806,210)
----------------- -----------------
Total distributions to shareholders.............. (2,385,749) (1,940,323)
----------------- -----------------
Capital Stock Transactions (Note 4):
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions from net
investment income and net realized gain on
investments......................................... 171,506 192,542
----------------- -----------------
Total increase in net assets..................... 6,245,380 1,029,246
Net Assets:
Beginning of year...................................... 24,577,393 23,548,147
----------------- -----------------
End of year............................................ $30,822,773 $24,577,393
----------------- -----------------
----------------- -----------------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
Financial Statements. It should be read in conjunction with the Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1996 1995 1994 1993 1992
- --------------------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 8.59 $ 8.30 $ 8.70 $ 7.63 $ 7.35
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................... 0.68 0.64 0.65 0.65 0.65
Net realized and unrealized gains (losses) on
investments...................................... 2.26 0.33 (0.31) 1.10 0.31
------- ------- ------- ------- -------
Total from investment operations.............. 2.94 0.97 0.34 1.75 0.96
------- ------- ------- ------- -------
Less distributions from:
Net investment income............................... (0.68) (0.40) (0.49) (0.65) (0.65)
In excess of net investment income.................. 0.00 0.00 0.00 (0.03) 0.00
Capital gain........................................ (0.15) 0.00 (0.09) 0.00 0.00
Tax return of capital............................... 0.00 (0.28) (0.16) 0.00 (0.03)
------- ------- ------- ------- -------
Total distributions........................... (0.83) (0.68) (0.74) (0.68) (0.68)
------- ------- ------- ------- -------
Net asset value, end of year............................. $ 10.70 $ 8.59 $ 8.30 $ 8.70 $ 7.63
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Per share market value, end of year...................... $ 12.00 $ 9.13 $ 8.50 $ 9.50 $ 8.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------
Total investment return(c)............................... 42.32% 15.97% (2.78)% 27.77% 22.64%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total net asset value return(c).......................... 33.32% 12.12% 3.80% 23.04% 13.63%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year (in millions)............... $30.823 $24.577 $23.548 $24.502 $21.323
------- ------- ------- ------- -------
Ratios of expenses to average net assets............ 1.45% 1.73% 1.51%(a) 1.64% 1.63%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net investment income to average
net assets....................................... 7.34% 7.67% 7.62% 7.31% 8.65%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Portfolio turnover rate............................. 30.45% 37.75% 80.68% 107.91% 79.51%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Average Commission Rate(b).......................... $0.0663 N/A N/A N/A N/A
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ------------------------
(a) Fees paid through directed brokerage commissions have been excluded. Had
these fees been paid by the Fund, the ratio would have been 1.69%.
(b) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
(c) Total investment return is computed based upon the American Stock Exchange
market price of the Fund's shares and excludes the effects of brokerage
commissions. Dividends and distributions, if any, are assumed for purposes
of this calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan. Total net asset value return measures the
changes in value over the period indicated taking into account reinvested
dividends.
See notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Realty Income Fund, Inc. (the 'Fund') is a non-diversified,
closed-end management investment company. The Fund was incorporated under the
laws of the State of Maryland on June 21, 1988. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The preparation of the financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. ('NASDAQ') National
Market System are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ, the National Quotations Bureau or such other comparable
sources as the Board of Directors deems appropriate to reflect their fair market
value. Where securities are traded on more than one exchange and also
over-the-counter, the securities will generally be valued using the quotations
the Board of Directors believes reflect most closely the value of such
securities.
Short-term debt securities, which have a maturity of 60 days or less, are
valued at amortized cost which approximates value.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
ex-dividend date.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. Net realized capital gains, unless
offset by any available capital loss carryforward, are distributed to
shareholders annually. Distributions to shareholders are recorded on the
ex-dividend date.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles.
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended December 31, 1996, the Fund decreased Paid-in capital
by $174,805, decreased undistributed net investment income by $6,846 and
increased accumulated net realized gain on investments sold by $167,959. These
differences are primarily due to payment of distributions subject to capital
loss carryforwards.
Federal Income Taxes: The Fund has qualified and intends to remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986. The principal tax benefits of qualifying as a regulated
investment company, as compared to an ordinary taxable corporation, are that a
regulated investment company is not itself subject to federal income tax on
ordinary investment income and net capital gains that are currently distributed
(or deemed distributed) to its shareholders and that the tax character of
long-term capital gains recognized by a regulated investment company flows
through to its shareholders who received such distributions.
NOTE 2 -- INVESTMENT ADVISORY AND ADMINISTRATIVE FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
'Adviser') serves as the Fund's Investment Adviser pursuant to an investment
advisory agreement (the 'Advisory Agreement'). Under the terms of the Advisory
Agreement, the Adviser provides the Fund with the day-to-day investment
decisions and generally manages the Fund's investments in accordance with the
stated policies of the Fund, subject to the supervision of the Fund's Board of
Directors. For the services provided to the Fund, the Adviser receives a monthly
fee in an amount equal to 1/12th of .65% of the average daily net assets of the
Fund (approximately .65% on an annual basis). For the year ended December 31,
1996, the Fund incurred $173,730 in advisory fees.
Administrative Fees: The Chase Manhattan Bank, N.A., through its affiliate
Chase Global Funds Services Company ('CGFSC') (the Administrator), serves as the
Fund's Administrator pursuant to an Administration Agreement (the 'Agreement').
Under the terms of the Agreement, the Administrator maintains the Fund's books
and records, prepares financial information for the Fund's tax returns, proxy
statements, quarterly and annual reports to shareholders and generally assists
in all aspects of Fund operations, other than providing investment advice,
subject to the supervision of the Fund's Board of Directors. For the services
provided the Fund, the Administrator receives a monthly fee in an amount equal
to 1/12th of .20% of the average daily net assets of the Fund (approximately
.20% on an annual basis). For the year ended December 31, 1996, the Fund
incurred $56,546 in administration fees.
Directors' Fees: Certain directors of the Fund are also directors, officers
and/or employees of the Adviser. None of the directors so affiliated received
compensation for their services as directors of the Fund with the exception of
out-of-pocket expenses relating to attendance at Board and committee meetings.
Similarly, none of the Fund's officers received compensation from the Fund. Fees
and related expenses accrued for non-affiliated directors totaled $30,200 for
the year ended December 31, 1996.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the year ended December 31, 1996 aggregated $8,494,660 and $8,063,169,
respectively.
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a federal income
tax basis, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost.......................................................................... $23,635,785
-----------
Gross unrealized appreciation........................................................... $ 7,796,844
Gross unrealized depreciation........................................................... $ (44,167)
-----------
Net unrealized appreciation............................................................. $ 7,752,677
-----------
-----------
</TABLE>
NOTE 4 -- CAPITAL STOCK AND DISTRIBUTION REINVESTMENT
At December 31, 1996, the Fund has one class of common stock, par value
$.01 per share, of which 50,000,000 shares are authorized and 2,879,918 shares
are outstanding.
Distributions in 1996 resulted in 19,002 shares being issued at an average
price of $9.03 through the dividend reinvestment plan.
Registered shareholders may elect to receive all distributions in cash paid
by check mailed directly to the shareholder by The Chase Manhattan Bank
('Chase') as dividend paying agent. Pursuant to the Automatic Reinvestment Plan
(the 'Plan') shareholders not making such election will have all amounts
automatically reinvested by Chase, as the Plan agent in whole or fractional
shares of the Fund.
NOTE 5 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED (DECREASE)
NET AND UNREALIZED IN NET ASSETS
TOTAL INVESTMENT GAIN (LOSS) RESULTING NET ASSETS AT
INVESTMENT INCOME ON INVESTMENTS FROM OPERATIONS END OF PERIOD
INCOME ----------------- ------------------- ------------------ -------------------
QUARTERLY ----------------- PER PER PER PER
PERIOD AMOUNT AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- --------------------------------- ---------- ---------- ----- ----------- ------ ---------- ------ ----------- ------
PER
SHARE
-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1996
- ---------------------------------
March 31......................... $ 536,236 $0.19 $ 444,453 $0.16 $ 493,917 $ 0.17 $ 938,370 $ 0.33 $25,073,634 $ 8.75
June 30.......................... 595,777 0.20 504,820 0.17 786,905 0.28 1,291,725 0.45 25,919,671 9.03
September 30..................... 509,289 0.18 413,898 0.15 1,478,090 0.51 1,891,988 0.66 27,854,272 9.69
December 31...................... 689,046 0.24 583,744 0.20 3,753,796 1.30 4,337,540 1.50 30,822,773 10.70
---------- ----- ---------- ----- ----------- ------ ---------- ------
$2,330,348 $0.81 $1,946,915 $0.68 $ 6,512,708 $ 2.26 $8,459,623 $ 2.94
---------- ----- ---------- ----- ----------- ------ ---------- ------
---------- ----- ---------- ----- ----------- ------ ---------- ------
FISCAL 1995
- ---------------------------------
March 31......................... $ 539,726 $0.19 $ 436,860 $0.15 $ (515,916) $(0.18) $ (79,056) $(0.03) $23,044,970 $ 8.10
June 30.......................... 513,451 0.18 405,020 0.14 948,709 0.33 1,353,729 0.47 23,958,714 8.40
September 30..................... 548,067 0.19 431,265 0.15 474,071 0.17 905,336 0.32 24,908,041 8.72
December 31...................... 645,437 0.23 559,863 0.20 37,155 0.01 597,018 0.21 24,577,393 8.59
---------- ----- ---------- ----- ----------- ------ ---------- ------
$2,246,681 $0.79 $1,833,008 $0.64 $ 944,019 $ 0.33 $2,777,027 $ 0.97
---------- ----- ---------- ----- ----------- ------ ---------- ------
---------- ----- ---------- ----- ----------- ------ ---------- ------
</TABLE>
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12
<PAGE>
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors of
Cohen & Steers Realty Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Cohen & Steers Realty Income Fund,
Inc., as of December 31, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Cohen & Steers Realty Income Fund, Inc. as of December 31, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
COOPER & LYBRAND L.L.P.
New York, New York
February 3, 1997
- --------------------------------------------------------------------------------
13
<PAGE>
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Dividend Reinvestment Plan (the 'Plan'), shareholders may
elect, by instructing The Chase Manhattan Bank (the 'Plan Agent') in writing, to
receive all distributions and capital gains in cash. Shareholders who do not
make such election will have all such amounts automatically reinvested by the
Plan Agent in whole and fractional shares of the Fund's common stock.
Dividend and capital gain distributions will be reinvested for participants
in the Plan on the reinvestment date and participants shall receive the
equivalent in shares valued at the lower of market price or net asset value. If
the market price per share equals or exceeds net asset value per share on the
reinvestment date, the Fund will issue shares to participants at a per share
price equal to the higher of the net asset value or 95% of the closing market
price per share on the payment date. If net asset value of shares at such time
exceeds the market price of shares at such time, or if the Fund should declare a
dividend or other distribution payable only in cash, the Plan Agent will buy
shares in the open market. If, before the Plan Agent has completed its purchase,
the market price exceeds the net asset value of the shares, the average price
paid by the Plan Agent may exceed the net asset value of the shares, resulting
in the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant will pay a pro-rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends or distributions. The
automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions. Requests for additional information or any correspondence
concerning the Plan should be directed to the Plan Agent at:
The Chase Manhattan Bank
Dividend Reinvestment Plan
3 Chase MetroTech Center
Brooklyn, New York 11245
ADDITIONAL INFORMATION
During the period, there have been no material changes in the Fund's
investment objectives or fundamental policies that have not been approved by
the shareholders. There have been no changes in the Fund's charter or By-laws
that would delay or prevent a change in control of the Fund which have not
been approved by shareholders. There have been no changes in the principal
risk factors associated with investment in the Fund. There have been no
changes in the persons who are primarily responsible for the day-to-day
management of the Fund's portfolio.
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14
<PAGE>
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Willard H. Smith
Director
Elizabeth O. Reagan
Vice President
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
(212) 832-3232
FUND ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, Massachusetts 02108
(800) 437-9912
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
American Stock Exchange Symbol: RIF
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
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15
<PAGE>
<PAGE>
COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, N.Y. 10017
[Logo]
ANNUAL REPORT
DECEMBER 31, 1996