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COHEN & STEERS REALTY INCOME FUND, INC.
February 3, 1998
To Our Shareholders:
We are pleased to submit to you our annual report for the Cohen & Steers
Realty Income Fund, Inc. for the year ended December 31, 1997. The net asset
value per share on that date was $11.08. In addition, a distribution of $1.45
per share (including a regular $0.17 per share distribution plus a capital gains
distribution of $1.28 per share) was declared for shareholders of record on
December 31, 1997 and paid on January 14, 1998.
1997 REVIEW
The year 1997 proved to be a very rewarding year for nearly every
participant in the real estate securities industry. REIT share prices once again
exhibited stability amid turbulent financial market conditions, demonstrating
their low correlation to other asset classes. Yet, they still provided
investment returns which were well above their historic norm. For the quarter
and the year ended December 31, 1997, the Fund's total return based on income,
realized capital gains and change in net asset value was 3.0% and 22.4%,
respectively.
During the year, Wall Street underwrote nearly $30 billion of REIT equity
securities, more than double the previous record amount raised in 1993. As a
result, the market capitalization of REITs grew by over 60% to $145 billion. The
mutual fund industry enjoyed record inflows into real estate funds, which are
now one of the most popular new asset classes.
REITs acquired an unprecedented $50 billion in property in 1997, becoming
the single most important source of capital for the real estate industry. They
grew in number for the first time since 1994, the result of IPO activity which
included some of the financial market's largest initial offerings of the year.
REITs also participated in a record amount of merger and acquisition activity,
including some of the largest, most visible and controversial of 1997. Whereas
several years ago no REIT had a stock market capitalization of more than $1
billion, by year end there were 50.
REITs enjoyed solid earnings growth, on average, of approximately 11% per
share, with dividends increasing at a slower, but still respectable, 6% pace.
The best performing sectors in the REIT industry in 1997 were, for the second
year in a row, owners of hotel and office properties which benefited from supply
shortages resulting from the continued strength of the U.S. economy. It is in
these two sectors that some of the year's biggest and highest profile property
transactions occurred.
We believe that there were essentially two developments in 1997 that are
responsible for this record-setting activity and which have permanently reshaped
the industry; extraordinary financial market conditions, particularly related to
interest rates, and the emergence of new management strategies by the leading
companies.
We have never been proponents of the notion, and are not now, that REITs
are interest rate sensitive securities. Statistics and our own observations have
proven that there is, in fact, a very low correlation between REIT returns and
interest rates. However, in 1997 we believe that the low interest rate
environment influenced the REIT industry in a number of important ways. Because
the industry is so highly capital intensive, lower market interest rates reduced
the cost of capital to a level which made property acquisitions extremely
advantageous for those companies that could efficiently access the debt markets.
These acquisitions produced higher rates of earnings growth which, in turn,
improved their returns on equity and positively impacted their share prices. The
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COHEN & STEERS REALTY INCOME FUND, INC.
ability of these REITs to sell additional equity allowed them to expand their
borrowing capacity and grow even further. While at some point this virtuous
cycle must come to an end, we believe that as long as the interest rate
environment remains benign and the availability of acquisitions remains
plentiful, REITs should continue to enjoy unprecedented growth through this
means.
Debt financing alternatives are now available, often with maturities
greater than 10 years and at fixed rates, to closely match the investment
horizon of the acquired assets. In the case of some instruments such as
preferred stocks, this debt-like security which has no maturity and thereby
represents the closest thing to permanent financing the real estate industry has
ever seen. This is a situation that has not existed in nearly 30 years, and has
served to strengthen equity values across the entire industry. Further, the
requirement that companies maintain strong financial ratios to maintain
favorable credit ratings imposes fiscal discipline unlike anything the industry
has ever known. The superior current returns available throughout the spectrum
of REIT securities, from common stocks to debt instruments, has attracted a
greatly expanded investor constituency. This has also been enhanced by the
greater market capitalization and size of individual issues, making these an
important target for capital providers from the very smallest to the very
largest of investors.
The result of these developments in the financial market environment is
that the REIT industry has achieved critical mass much sooner than most
expected. Having achieved this milestone, the industry's access to capital has
continued to widen, thereby ensuring the stature of REITs as the dominant
participants in the real estate industry for a long time to come.
The second major development of 1997 was the emergence of new operating
strategies that heretofore were never contemplated by participants in the REIT
industry. Historically, REITs operated primarily as passive owners of property,
often confined by the tax rules that govern the industry, but often more
confined by conservative management styles and narrow vision. This began to
change in the early 1990s when some older REITs took advantage of extraordinary
property acquisition opportunities and newer REITs came public with more
entrepreneurial management teams. With ready access to both capital and
investment opportunities, REITs have begun to aggressively pursue a vastly wider
range of assets and businesses. For example, the handful of so-called
'paired-share' REITs (two companies whose shares trade together, one a REIT
which owns property, the other a tax-paying company which can actively operate
businesses) have led the way towards revolutionizing the entire structure and
leadership of the hotel industry.
Other REITs, however, have established subsidiary companies or related
entities to allow management to operate businesses outside of the mainstream of
the sponsoring company. In some cases, the operation of these businesses is not
permissible under the REIT regulations and must be conducted in a taxable
corporation. In other cases, some REITs have begun to separate or spin off
assets which possess various different risk/return characteristics or represent
property types that are best suited to be held in a distinctly different entity
or structure.
There are several investment implications of this emerging trend. REITs can
no longer be viewed as passive holders of property or mere financial partners.
More than ever before, they now are in firm control of their assets and their
destinies. Further, the range of business opportunities available to REITs is
vastly greater and limited only by the imagination of their management. This new
opportunity set is enabling REITs to attract a very high caliber of executives
at every level of responsibility. Moreover, the pursuit of these opportunities
is boosting both the current and prospective growth rates of these companies.
Perhaps most importantly, this is being reflected in an
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COHEN & STEERS REALTY INCOME FUND, INC.
expansion of share prices and P/E multiples which are providing shareholders
with considerable returns evidenced by the investment results in 1997.
INVESTMENT OUTLOOK
We expect the investment environment in 1998 to continue to be quite
favorable for certain sectors of the real estate and REIT market. We believe
that further growth of the U.S. economy, albeit at a slower rate than in 1997,
will enable the ongoing real estate recovery to continue. We expect interest
rates and inflation will remain tame, perhaps even declining from year-end
levels. This would sustain the highly accommodative financial market conditions
that REITs benefited from last year. It is our expectation that, barring any
unusual developments, REIT earnings will grow at an even faster rate than last
year due to healthy internal growth as well as the high level of acquisitions
and refinancing activity in 1997 that will contribute to financial results in
1998. A consensus of Wall Street analysts is currently forecasting average
earnings per share growth in the 13-15% range for the industry in 1998. Dividend
growth, in our opinion, will also exceed last year's pace due to an
industry-wide bottoming of payout ratios. In short, we see no reason why REITs
should not post mid-teen returns in the coming year, in line with their
long-term track record.
We believe that the major risk in our (and the consensus) outlook is that a
severe economic slowdown may occur which causes unpredictable dislocations and
financial market turmoil. Whether this happens or not, an environment of slowing
economic growth could precipitate some changes in leadership among the REIT
sectors. The hotel sector, which is the most economically sensitive, could
suffer the most. Similarly, some segments of the retail sector might suffer. We
are concerned that despite the strong economy of the past several years this
sector has experienced only average profit growth; in a slowing economy we would
expect a diminishing profit picture.
We believe that what some have described as a 'shortage of yield' will
favor REITs in 1998. With government deficits nearly absent and the
unprecedented high level of liquidity in corporate America, investors have begun
looking for investments that can provide current returns that are higher than
the risk-free rate. As was the case in 1997, REITs remain among the highest
yielding common stocks, and other securities issued by REITs offer yields that
are superior to comparable securities issued by non-real estate companies. The
Fund's portfolio of high yielding investments and its focus on REITs have it
advantageously positioned.
Increased real estate securitization should offer further investment
opportunities. The growing acceptance of the REIT structure and the public
markets as the appropriate medium for real estate investment has attracted many
owners of non-traditional real estate. Owners of prisons, timber, Fortune 500
companies, gaming, entertainment, retail and other commercial businesses are all
considering the REIT structure. While it is possible that some of these entities
will prove to be flawed, it is likely that some worthwhile and profitable
concepts will come public. Additionally, there is growing interest on the part
of established REITs in spinning off their mature properties into an income
REIT. If structured properly, this could afford an opportunity to invest in a
`new' company with an experienced management team that will have growth as well
as income.
Our research department continues to seek out REITs that are being
overlooked by investors. The continued growth of the REIT market to over 200
companies has resulted in a two-tiered environment, with the dynamic, growth
oriented REITs having market capitalizations in excess of $1 billion each and
sizable analyst coverage. The remaining REITs trade at substantial valuation
discounts and are a large potential investment pool for the Fund.
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COHEN & STEERS REALTY INCOME FUND, INC.
It is expected that the Fund's performance will continue to benefit from
consolidation activity through its investment in REITs trading at or below their
net asset values.
As we begin the new year, our investment strategy is to focus on
above-average yielding securities of real estate companies with healthy
fundamentals and prudent financial structures. The Fund has a sizable weighting
in the health care sector. The group, primarily made up of nursing home owners,
continues to benefit from strong core fundamentals as incremental demand
outpaces supply growth. The nursing home industry is uniquely protected from
overbuilding as a result of restrictive state guidelines governing the
construction and certification of nursing homes. This sector also has one of the
highest average dividend yields in the REIT universe as well as a history of
consistent dividend increases. Every health care REIT held in the Fund increased
its dividend last year.
Another important sector weighting in the Fund is the community shopping
center sector. Consisting primarily of owners of grocery-store-anchored shopping
centers, this property type defends well in a softening economic environment as
demand for its necessity oriented products is need driven. Non-grocer anchored
centers owned by the REITs in the portfolio include dominant retailers such as
Wal-Mart, Target and Home Depot as anchor tenants. This group also has an above
average dividend yield as a result of its 'low risk/low growth' orientation
falling out of favor over the last few years.
In our view, the greatest accomplishment of REITs in the last several
years, as well as the past 20 years, is that they have produced consistently
outstanding returns while providing significant portfolio diversification. When
one examines the investment track records of most other asset classes that have
been perceived to be strong diversifiers, such as precious metals, commodities,
foreign stocks (and direct real estate, for that matter), they have largely
failed to deliver any significant investment benefits other than for some very
brief periods. We therefore believe that because of their investment
characteristics, combined with the current cyclical and financial market
conditions, REITs can once again provide satisfactory investment results in
1998.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
EQUITIES 109.99%
COMMON STOCK 106.39%
APARTMENT/RESIDENTIAL 11.38%
Associated Estates Realty Corp............................... 42,900 $ 1,016,194
Charles E. Smith Residential Realty.......................... 23,400 830,700
Colonial Properties Trust.................................... 31,400 945,925
Summit Properties............................................ 40,700 859,787
-----------
3,652,606
-----------
DIVERSIFIED 7.97%
CCA Prison Realty Trust...................................... 21,800 972,825
Pacific Gulf Properties...................................... 66,800 1,586,500
-----------
2,559,325
-----------
HEALTH CARE 20.23%
American Health Properties................................... 59,500 1,639,969
Health Care REIT............................................. 35,900 1,009,688
Healthcare Realty Trust...................................... 3,600 104,175
Meditrust Corp............................................... 41,700 1,527,262
Nationwide Health Properties................................. 30,600 780,300
Omega Healthcare Investors................................... 37,100 1,432,987
-----------
6,494,381
-----------
HOTEL 3.67%
Innkeepers USA Trust......................................... 36,000 558,000
Sunstone Hotel Investors..................................... 36,000 621,000
-----------
1,179,000
-----------
INDUSTRIAL 6.98%
EastGroup Properties......................................... 67,600 1,461,850
First Industrial Realty Trust................................ 21,600 780,300
-----------
2,242,150
-----------
OFFICE 4.44%
Brandywine Realty Trust...................................... 33,400 839,175
SL Green Realty Corp......................................... 8,100 210,094
Tower Realty Trust........................................... 15,200 374,300
-----------
1,423,569
-----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
OFFICE/INDUSTRIAL 5.42%
Reckson Associates Realty Corp............................... 21,000 $ 532,875
TriNet Corporate Realty Trust................................ 31,200 1,207,050
-----------
1,739,925
-----------
SELF STORAGE 1.05%
Sovran Self Storage.......................................... 10,400 337,350
-----------
SHOPPING CENTER 45.25%
COMMUNITY CENTER 31.25%
Alexander Haagen Properties.................................. 52,600 917,212
Bradley Real Estate.......................................... 55,500 1,165,500
Burnham Pacific Properties................................... 60,200 921,812
Glimcher Realty Trust........................................ 77,000 1,737,312
Mid-America Realty Investments............................... 111,200 1,125,900
Mid-Atlantic Realty Trust.................................... 34,100 500,844
Pan Pacific Retail Properties................................ 14,000 299,250
Pennsylvania REIT............................................ 55,500 1,363,219
Price REIT................................................... 17,000 695,938
Saul Centers................................................. 39,700 722,044
Sizeler Property Investors................................... 26,900 282,450
Western Investment Real Estate Trust......................... 22,000 302,500
-----------
10,033,981
-----------
FACTORY OUTLET CENTER 5.48%
Horizon Group................................................ 119,700 1,309,219
Tanger Factory Outlet Centers................................ 14,700 449,269
-----------
1,758,488
-----------
REGIONAL MALL 8.52%
CBL & Associates Properties.................................. 19,100 471,531
JP Realty.................................................... 19,400 503,188
Simon DeBartolo Group........................................ 21,100 689,706
The Mills Corp............................................... 13,000 318,500
Urban Shopping Centers....................................... 21,600 753,300
-----------
2,736,225
-----------
TOTAL SHOPPING CENTER........................................ 14,528,694
-----------
TOTAL COMMON STOCK (Identified cost -- $26,516,497).... 34,157,000
-----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
PREFERRED STOCK 3.60 %
Crown American Realty Trust, 11.00%, Series A
(Identified cost -- $1,105,000)................................. 22,100 $ 1,154,725
-----------
TOTAL INVESTMENTS (Identified cost -- $27,621,497) .......... 109.99 % 35,311,725
LIABILITIES IN EXCESS OF OTHER ASSETS ........................ (9.99)% (3,206,994)
-------- -----------
NET ASSETS (Equivalent to $11.08 per share based on
2,897,318 shares of capital stock outstanding) ........... 100.00 % $32,104,731
-------- -----------
-------- -----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $27,621,497) (Note 1)................. $35,311,725
Cash.......................................................................................... 909,473
Dividends and interest receivable............................................................. 194,240
Other assets.................................................................................. 549
-----------
Total Assets............................................................................ 36,415,987
-----------
LIABILITIES:
Payable for dividends declared................................................................ 4,201,111
Payable to investment adviser................................................................. 19,302
Payable for investment securities purchased................................................... 7,575
Payable to administrator...................................................................... 6,016
Payable to directors.......................................................................... 1,054
Other liabilities............................................................................. 76,198
-----------
Total Liabilities....................................................................... 4,311,256
-----------
NET ASSETS applicable to 2,897,318 shares of $0.01 par value common stock
outstanding (Note 4)............................................................................. $32,104,731
-----------
-----------
NET ASSET VALUE PER SHARE:
($32,104,731 [div] 2,897,318 shares outstanding)................................................. $ 11.08
-----------
-----------
MARKET PRICE PER SHARE.............................................................................. $ 11.56
-----------
-----------
MARKET PRICE PREMIUM TO NET ASSET VALUE PER SHARE................................................... 4.33%
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................... $23,281,298
Distributions in excess of net investment income.............................................. (85,388)
Undistributed net realized gain on investments sold........................................... 1,218,593
Net unrealized appreciation on investments.................................................... 7,690,228
-----------
$32,104,731
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Investment Income:
Dividend income................................................................................ $2,404,039
Interest income................................................................................ 61,166
----------
Total Income............................................................................. 2,465,205
----------
Expenses:
Investment advisory fees (Note 2).............................................................. 214,097
Administration fees (Note 2)................................................................... 66,414
Directors' fees and expenses (Note 2).......................................................... 33,601
Professional fees.............................................................................. 47,973
Transfer agent fees............................................................................ 39,418
Reports to shareholders........................................................................ 31,001
Custodian fees and expenses.................................................................... 15,444
Miscellaneous.................................................................................. 18,174
----------
Total Expenses........................................................................... 466,122
----------
Net Investment Income................................................................................ 1,999,083
----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments............................................................... 3,636,607
Net change in unrealized appreciation on investments........................................... 1,110,208
----------
Net realized and unrealized gain on investments.......................................... 4,746,815
----------
Net Increase in Net Assets Resulting From Operations................................................. $6,745,898
----------
----------
</TABLE>
See accompanying notes to financial statements.
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................. $ 1,999,083 $ 1,946,915
Net realized gain on investments....................... 3,636,607 1,061,695
Net change in unrealized appreciation on investments... 1,110,208 5,451,013
----------------- -----------------
Net increase in net assets resulting from
operations.................................... 6,745,898 8,459,623
----------------- -----------------
Dividends and Distributions to Shareholders From (Note 1):
Net investment income.................................. (1,966,574) (1,953,761)
Net realized gain on investments....................... (3,708,567) (431,988)
----------------- -----------------
Total dividends and distributions to
shareholders.................................. (5,675,141) (2,385,749)
----------------- -----------------
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......................................... 211,201 171,506
----------------- -----------------
Total increase in net assets..................... 1,281,958 6,245,380
Net Assets:
Beginning of year...................................... 30,822,773 24,577,393
----------------- -----------------
End of year............................................ $32,104,731 $30,822,773
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying 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>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1997 1996 1995 1994 1993
------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 10.70 $ 8.59 $ 8.30 $ 8.70 $ 7.63
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................. 0.69 0.68 0.64 0.65 0.65
Net realized and unrealized gain/(loss) on
investments.................................... 1.65 2.26 0.33 (0.31) 1.10
------- ------- ------- ------- -------
Total from investment operations............ 2.34 2.94 0.97 0.34 1.75
------- ------- ------- ------- -------
Less dividends and distributions to shareholders from:
Net investment income............................. (0.68) (0.68) (0.40) (0.49) (0.65)
In excess of net investment income................ -- -- -- -- (0.03)
Capital gain...................................... (1.28) (0.15) -- (0.09) --
Tax return of capital............................. -- -- (0.28) (0.16) --
------- ------- ------- ------- -------
Total dividends and distributions to
shareholders.............................. (1.96) (0.83) (0.68) (0.74) (0.68)
------- ------- ------- ------- -------
Net asset value, end of year...................... $ 11.08 $ 10.70 $ 8.59 $ 8.30 $ 8.70
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Per share market value, end of period............. $ 11.56 $ 12.00 $ 9.13 $ 8.50 $ 9.50
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------
Total investment return(a)............................. 13.20% 42.32% 15.97% (2.78)% 27.77%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total net asset value return(a)........................ 22.44% 33.32% 12.12% 3.80% 23.04%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of year (in millions)............. $32.105 $30.823 $24.577 $23.548 $24.502
------- ------- ------- ------- -------
Ratios of expenses to average net assets.......... 1.42% 1.45% 1.73% 1.51%(b) 1.64%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net investment income to average net
assets......................................... 6.07% 7.34% 7.67% 7.62% 7.31%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Portfolio turnover rate........................... 53.76% 30.45% 37.75% 80.68% 107.91%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Average Commission Rate(c)........................ $0.0618 $0.0663 N/A N/A N/A
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ------------------------
(a) 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.
(b) Fees paid through directed brokerage commissions have been excluded. Had
these fees been paid by the Fund, the ratio would have been 1.42%.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate per share it paid for trades on
which commissions were charged.
See accompanying 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. During the year ended December 31,
1997, the Fund decreased undistributed net investment income by $117,897 and
increased
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
undistributed net realized gain on investments sold by $117,897. These
differences are primarily due to return of capital and capital gain
distributions received by the Fund on portfolio securities.
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 ADMINISTRATION FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
'Adviser') serves as the Fund's Investment Adviser pursuant to an investment
advisory agreement (the 'Advisory Agreement'). Under the terms of the Advisory
Agreement, the Adviser provides the Fund with the day-to-day investment
decisions and generally manages the Fund's investments in accordance with the
stated policies of the Fund, subject to the supervision of the Fund's Board of
Directors. For the services provided to the Fund, the Adviser receives a monthly
fee in an amount equal to 1/12th of 0.65% of the average daily net assets of the
Fund (approximately 0.65% on an annual basis). For the year ended December 31,
1997, the Fund incurred $214,097 in advisory fees.
Administration Fees: The Chase Manhattan Bank, N.A., through its affiliate
Chase Global Funds Services Company ('CGFSC' or 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 0.20% of the average daily net assets of the Fund
(approximately 0.20% on an annual basis). For the year ended December 31, 1997,
the Fund incurred $66,414 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. Fees and related
expenses accrued for non-affiliated directors totaled $33,601 for the year ended
December 31, 1997.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the year ended December 31, 1997 totaled $17,641,988 and $18,465,540,
respectively.
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13
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a federal income
tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost.......................................................................... $26,402,904
-----------
Gross unrealized appreciation........................................................... $ 8,930,425
Gross unrealized depreciation........................................................... $ (21,604)
-----------
Net unrealized appreciation............................................................. $ 8,908,821
-----------
-----------
</TABLE>
NOTE 4 -- CAPITAL STOCK AND DISTRIBUTION REINVESTMENT
At December 31, 1997, the Fund has one class of common stock, par value
$0.01 per share, of which 50 million shares are authorized and 2,897,318 shares
are outstanding.
Distributions in 1997 resulted in 17,400 shares being issued at an average
price of $12.14 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 REALIZED NET INCREASE
TOTAL NET AND UNREALIZED IN NET ASSETS
INVESTMENT INVESTMENT GAIN/(LOSS) RESULTING NET ASSETS AT
INCOME INCOME ON INVESTMENTS FROM OPERATIONS END OF PERIOD
----------------- ----------------- ------------------ ----------------- -------------------
QUARTERLY PER PER PER PER PER
PERIOD AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ---------------------------------- ---------- ----- ---------- ----- ---------- ------ ---------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISSCAL 1997
- ------------
March 31.......................... $ 587,724 $0.20 $ 477,384 $0.17 $ (52,886) $(0.02) $ 424,498 $0.15 $30,839,414 $10.68
June 30........................... 633,590 0.22 522,672 0.18 1,494,651 0.52 2,017,323 0.70 32,408,877 11.21
September 30...................... 608,021 0.21 487,940 0.16 2,784,820 0.97 3,272,760 1.13 35,234,472 12.17
December 31....................... 635,870 0.22 511,087 0.18 520,230 0.18 1,031,317 0.36 32,104,731 11.08
---------- ----- ---------- ----- ---------- ------ ---------- -----
$2,465,205 $0.85 $1,999,083 $0.69 $4,746,815 $ 1.65 $6,745,898 $2.34
---------- ----- ---------- ----- ---------- ------ ---------- -----
---------- ----- ---------- ----- ---------- ------ ---------- -----
<CAPTION>
PER PER PER PER PER
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT 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
---------- ----- ---------- ----- ---------- ------ ---------- -----
---------- ----- ---------- ----- ---------- ------ ---------- -----
</TABLE>
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14
<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, 1997, 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, 1997, by correspondence with the custodian and brokers. 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, 1997, 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.
COOPERS & LYBRAND L.L.P.
New York, New York
February 3, 1998
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15
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<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
VOTING RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
The proposals described below were submitted to a vote of shareholders of
Cohen & Steers Realty Shares, Inc. at a special meeting held on April 24, 1997
(the 'Meeting'):
Proposal No. 1 -- To elect two Directors of the Fund, each to hold office
for an indefinite period and until his successor is duly elected and qualified:
At the Meeting, the shareholders approved Proposal No. 1 as folows:
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C> <C>
Election of Mr. George Grossman........................ 2,513,734 -- 16,422
Election of Mr. Robert H. Steers....................... 2,514,834 -- 15,322
</TABLE>
Proposal No. 2 -- To ratify Coopers & Lybrand L.L.P. as Independent
certified public accountants:
At the Meeting, the shareholders approved Proposal No. 2 as follows:
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C> <C>
2,503,365 17,762 9,029
</TABLE>
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16
<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:
Chase Global Fund Services, Inc.
Attn: Cohen & Steers
P.O. Box 2798
Boston, MA 02208-2798
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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17
<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
Adam Derechin
Vice President and
Assistant Treasurer
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, N.A.
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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<PAGE>
<PAGE>
[Graphic of an open door in a field with
buildings visible through door.]
COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
COHEN & STEERS
REALTY INCOME FUND
ANNUAL REPORT
DECEMBER 31, 1997
STATEMENT OF DIFFERENCES
------------------------
The division symbol shall be expressed as.......[div]
