<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
January 29, 1999
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, 1998. The net asset value per
share at that date was $7.56. In addition, a distribution of $1.50 per share
(including $0.19 per share ordinary plus a capital gains distribution of $1.31
per share) was declared for shareholders of record on December 31, 1998 and paid
on January 15, 1999.
1998 REVIEW
The equity income strategy delivered very strong results on a relative
basis in 1998. For the year, Cohen & Steers Realty Income Fund's - 13.8% total
return (based on income, realized capital gains and change in net assets)
compared favorably to the NAREIT Equity REIT Index total return of - 17.5%.
Without a doubt, 1998 was the most challenging year ever for REIT
investors. The bear market that gripped the industry, in the face of seemingly
strong fundamentals, surprised most with the speed and severity of losses that
were sustained. In a year filled with ironies, the overall investment
environment in 1998 was nothing less than ideal: strong economic growth with low
inflation and declining interest rates precipitated a record-shattering
continuation of strong stock market performance. It was also a year in which
real estate fundamentals remained strong, and the public market discipline was
effective in reigning in any potential speculative excesses in the property
markets. We suspect that if one could have accurately predicted this set of
circumstances at the beginning of the year, one would have assumed that REITs
would produce outstanding investment returns. On the contrary, REITs recorded
their worst year of investment performance in over 20 years, with every property
sector showing a price decline.
At the company level, REIT financial performance in 1998 was exceptionally
good on both an absolute and relative basis. Earnings growth averaged 13%, more
than double the 5.2% rate of earnings growth of the S&P 500 Index, and
throughout the year most companies consistently reported better-than-expected
results. Further, we estimate that dividend growth in the REIT industry was a
healthy 8%, implying a decline in payout ratios, thereby ensuring the stability
and safety of those dividends. Ignoring these positive developments, investors
instead chose to focus on some actual and potentially negative real estate
industry trends. These included the state of equilibrium of most major property
markets, potential future slowing growth of REIT earnings, competition from
private real estate investors, and the increasing industry-wide use of leverage,
among others.
Perhaps most importantly, investors in 1998 became concerned about
persistent deflationary pressures and their long-term impact on rents and
property values. It is no coincidence, in our opinion, that in addition to
REITs, 1998's worst performing investments included other potential victims of
deflation such as most commodities, precious and non-precious metals, and just
about anything that is energy-related. In a low inflation (or deflationary) and
low interest rate environment, investors often pay the highest price for
longer-term investments, such as high grade long-term bonds or high growth
stocks; technology, communications or internet companies, for example. If
deflation is expected to persist for a long period, investors typically demand a
higher current return in order to offset the risk of a potential long-term
decline in asset values. The net result was that equity REIT dividend yields
rose from 5.5% at the beginning of the year to a 5-year high of 7.5% by year
end.
The downward spiral of REIT share prices further disadvantaged many
companies. Sentiment became so negative that for the first time in many years
REITs became unable to access the equity capital markets. In response, many
companies began to increase their use of debt financing or off-balance sheet
leverage through
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1
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COHEN & STEERS REALTY INCOME FUND, INC.
joint ventures. This too is a strategy whose success is threatened by future
deflation. By late summer, however, the collapse of the commercial mortgage
backed securities market put a major crimp in the flow of debt financing. As
capital raising ground to a halt, most companies scaled back their acquisition
programs, causing most analysts to reduce estimates of earnings growth in 1999
and beyond. More importantly, the withdrawal of capital from the real estate
market began to exert extreme pressure on property values, with many estimating
approximately a 10-15% drop in prices from earlier peaks. In some sectors, such
as hotels, the price decline was far worse. Once again, the public market's
influence dominated the functioning of real estate markets.
The reduction in interest rates by the Federal Reserve in the fall
cushioned the decline of REIT share prices, but had a much more beneficial
effect on the broader financial markets. The fourth quarter decline in REIT
share prices compared to a 21.3% total return of the S&P 500 Index. Nonetheless,
as liquidity returned to real estate markets and fears of a global economic
slowdown abated, property values began to stabilize as did REIT share prices,
albeit at depressed levels.
INVESTMENT OUTLOOK
We begin the New Year in an investment environment that is almost identical
to that which prevailed through most of last year; continued strong economic
growth, low inflation and interest rates and a strong stock market. If the
environment is no different from 1998, one must question what will alter the
outlook for REIT investing in 1999.
What is different for REITs is that their prices are 22% lower and their
earnings are 13% higher than a year ago. This compares to the S&P 500 Index
whose price is 27% higher and whose earnings are up only 5%. Further, whereas
one year ago REITs, on average, were trading at more than a 20% premium to their
net asset values (NAVs) they are now trading below their NAVs. As a result, on
both a relative and absolute basis, REITs are just about as cheap as they have
ever been. It therefore appears to us that the concerns that weighed on
investors through most of 1998 should be adequately factored in REIT share
prices.
We do not believe, however, that a new bull market in REIT shares is about
to begin. Rather, we expect most real estate markets to remain in equilibrium,
whereby the supply and demand for space is about equal. Based upon the
experience of last year, the near instantaneous reaction of the financial
markets to any actual or perceived imbalances will likely serve to maintain this
equilibrium condition. The swiftness with which the real estate markets have
moved is primarily the result of the domination of public securities markets for
debt and equity financing of real estate. This is enhanced by the rapid flow of
property-level and regional market information. These are perhaps the most
important by-products of securitization.
In light of our economic outlook and current valuation levels, we believe
the Fund is advantageously positioned with its emphasis on above-average
yielding real estate securities. The growth in the number of investments meeting
its investment criteria was a positive development from last year's turmoil. The
increased number of attractive investment opportunities bodes well for
performance in 1999. The Fund's current holdings have a higher average dividend
yield and higher projected earnings per share growth than at any time in its
history. The average current dividend yield was 9.2% at year end and average
projected earnings growth per share for 1999 was 10%. Consequently, we expect
this strong earnings growth to translate into solid dividend per share growth.
Additionally, the Fund's investments are compelling on an NAV basis. The
median share price discount-to-NAV was 10% for the common stocks held by the
Fund. Valuation relative to NAV is a useful investment tool in that it serves to
identify a core valuation level as well as being useful on a relative basis. The
sizable number of
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2
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COHEN & STEERS REALTY INCOME FUND, INC.
companies trading at discounts-to-NAV may lead to consolidation similar to the
level we witnessed in the first half of 1998 and of which the Fund was a
beneficiary.
The portfolio weighting in the Office sector has been increased while the
Health Care and Retail sectors have been reduced. The increase in Office sector
investments is attributable to very attractive valuations and due to continued
attractive supply/demand fundamentals for many regions of the country. Our
expectation is that the office sector should have the best earnings growth from
internal sources in 1999 and should also deliver above average dividend per
share growth.
The reduction in our Retail REIT exposure was driven by our decision to
take profits as well as expectation for more difficult sales and earnings
comparisons for retailers in 1999. The Health Care sector reduction reflects a
winnowing out of the weaker companies as we head into a more difficult
reimbursement environment for many types of health care services.
The Fund's preferred stock holdings continue to offer sizable current
yield, healthy fixed charge coverage levels and the potential for capital
appreciation from credit spread tightening. The average current yield of the
Fund's preferred holdings was 9.7% (11.3% on a yield to call basis), average
fixed charge coverage was 2.3 times. The median credit rating is 'BB'. REIT
preferred securities appear very attractive compared to comparably rated fixed
income securities: the median current yield on 'BB' rated bonds was 8.2%. We
believe that due to these factors the Fund's preferred holdings will be an
important contributor to performance in 1999.
Our investment strategy remains focused on owning a broadly diversified
portfolio of above average yielding real estate securities. Additionally, these
investments are characterized by having strong management teams, healthy balance
sheets and reasonable plans for growth. 1998's performance, while disappointing
on an absolute basis was strong on a relative basis. We believe based on current
valuation levels and the portfolio composition, that we can deliver greatly
improved performance in 1999.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
STEVEN R. BROWN
STEVEN R. BROWN
Senior Vice President
Cohen & Steers Capital
Management, Inc.
Cohen & Steers is now online at WWW.COHENANDSTEERS.COM. Visit our website for
daily NAVs, portfolio information, performance information, recent news
articles, literature and insights on the REIT market.
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
EQUITIES 110.65%
COMMON STOCK 84.33%
APARTMENT/RESIDENTIAL 8.06%
Apartment Investment & Management Co. -- Class A............. 15,100 $ 561,531
Camden Property Trust........................................ 20,800 540,800
Summit Properties............................................ 40,000 690,000
-----------
1,792,331
-----------
DIVERSIFIED 5.44%
Anthracite Capital........................................... 46,700 364,844
Pacific Gulf Properties...................................... 42,100 844,631
-----------
1,209,475
-----------
HEALTH CARE 18.22%
American Health Properties................................... 23,500 484,687
ElderTrust................................................... 35,700 410,550
Health Care Property Investors............................... 26,000 799,500
Healthcare Realty Trust...................................... 33,000 736,313
Nationwide Health Properties................................. 32,600 702,937
Omega Healthcare Investors................................... 30,400 917,700
-----------
4,051,687
-----------
HOTEL 2.22%
Innkeepers USA............................................... 41,800 493,762
-----------
INDUSTRIAL 2.60%
First Industrial Realty Trust................................ 21,600 579,150
-----------
</TABLE>
See accompanying notes to financial statements.
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4
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
OFFICE 18.62%
Arden Realty Group........................................... 24,700 $ 572,731
Brandywine Realty Trust...................................... 33,400 597,025
CarrAmerica Realty Corp...................................... 11,400 273,600
Crescent Real Estate Equities Co............................. 41,500 954,500
Highwoods Properties......................................... 35,300 908,975
Mack-Cali Realty Corp........................................ 22,500 694,687
Tower Realty Trust........................................... 7,000 140,875
-----------
4,142,393
-----------
OFFICE/INDUSTRIAL 3.48%
Liberty Property Trust....................................... 11,700 288,112
Prime Group Realty Trust..................................... 32,100 485,513
-----------
773,625
-----------
SHOPPING CENTER 23.34%
COMMUNITY CENTER 5.77%
JDN Realty Corp.............................................. 3,700 79,781
Pan Pacific Retail Properties................................ 26,600 530,338
Pennsylvania REIT............................................ 26,300 511,206
Saul Centers................................................. 10,500 162,750
-----------
1,284,075
-----------
FACTORY OUTLET CENTER 6.12%
Prime Retail................................................. 107,060 1,050,526
Tanger Factory Outlet Centers................................ 14,700 311,456
-----------
1,361,982
-----------
REGIONAL MALL 11.45%
CBL & Associates Properties.................................. 14,600 376,863
JP Realty.................................................... 33,600 659,400
Macerich Co.................................................. 20,600 527,875
Simon Property Group......................................... 17,900 510,150
The Mills Corp............................................... 23,800 473,025
-----------
2,547,313
-----------
TOTAL SHOPPING CENTER........................................ 5,193,370
-----------
</TABLE>
See accompanying notes to financial statements.
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5
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
SPECIALTY 2.35%
Entertainment Properties Trust............................... 30,800 $ 523,600
-----------
TOTAL COMMON STOCK (Identified cost -- $20,297,424).... 18,759,393
-----------
PREFERRED STOCK 26.32%
Apartment Investment & Management Co., 9.00%,
Series C.................................................. 29,000 639,813
Apartment Investment & Management Co., 9.375%,
Series G.................................................. 37,600 829,550
Bradley Real Estate, 8.40%, Series A (Convertible)........... 34,734 820,591
Camden Property Trust, 2.25%, Series A (Convertible)......... 24,000 568,500
Crown American Realty Trust, 11.00%, Series A................ 11,100 542,513
General Growth Properties, 7.25%, Series A (Convertible)..... 22,200 571,650
Prime Retail, 8.50%, Series B (Convertible).................. 23,940 398,003
Reckson Associates Realty, 7.625%, Series A (Convertible).... 38,600 815,425
SL Green Realty Corp., 8.00%, Series A (Convertible)......... 28,700 667,275
-----------
TOTAL PREFERRED STOCK (Identified cost -- $6,136,785)........ 5,853,320
-----------
TOTAL EQUITIES (Identified cost -- $26,434,209).............. 24,612,713
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
COMMERCIAL PAPER 8.36%
Preferred Finance Corp., 4.80%, 1/04/99 (Identified cost --
$1,859,256)..................................................... $1,860,000 1,859,256
-----------
TOTAL INVESTMENTS (Identified cost -- $28,293,465) ............. 119.01 % 26,471,969
LIABILITIES IN EXCESS OF OTHER ASSETS ....................... (19.01)% (4,227,920)
-------- -----------
NET ASSETS (Equivalent to $7.56 per share based on
2,942,289 shares of capital stock outstanding) ........... 100.00 % $22,244,049
-------- -----------
-------- -----------
</TABLE>
See accompanying notes to financial statements.
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6
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $28,293,465) (Note 1)................. $26,471,969
Cash.......................................................................................... 767
Dividends receivable.......................................................................... 202,741
Receivable for investment securities sold..................................................... 52,494
Other assets.................................................................................. 1,001
-----------
Total Assets............................................................................ 26,728,972
-----------
LIABILITIES:
Payable for dividends declared................................................................ 4,413,433
Payable to investment adviser................................................................. 15,428
Payable to administrator...................................................................... 4,747
Payable to directors.......................................................................... 900
Other liabilities............................................................................. 50,415
-----------
Total Liabilities....................................................................... 4,484,923
-----------
NET ASSETS applicable to 2,942,289 shares of $0.01 par value common stock
outstanding (Note 4)............................................................................. $22,244,049
-----------
-----------
NET ASSET VALUE PER SHARE:
($22,244,049[div]2,942,289 shares outstanding)................................................... $ 7.56
-----------
-----------
MARKET PRICE PER SHARE.............................................................................. $ 7.81
-----------
-----------
MARKET PRICE PREMIUM TO NET ASSET VALUE............................................................. 3.31%
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................... $23,525,257
Accumulated net realized gain on investments sold............................................. 540,288
Net unrealized depreciation on investments.................................................... (1,821,496)
-----------
$22,244,049
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
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7
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income................................................................................ $2,456,362
Interest income................................................................................ 26,504
----------
Total Income............................................................................. 2,482,866
----------
Expenses:
Investment advisory fees (Note 2).............................................................. 193,274
Administration fees (Note 2)................................................................... 59,392
Reports to shareholders........................................................................ 55,591
Professional fees.............................................................................. 42,599
Transfer agent fees............................................................................ 32,455
Directors' fees and expenses (Note 2).......................................................... 31,050
Custodian fees and expenses.................................................................... 16,500
Miscellaneous.................................................................................. 18,672
----------
Total Expenses........................................................................... 449,533
----------
Reduction of expenses (Note 4)....................................................................... (2,567)
----------
Net expenses............................................................................. 446,966
----------
Net Investment Income................................................................................ 2,035,900
----------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain on investments............................................................... 3,031,673
Net change in unrealized appreciation/(depreciation) on investments............................ (9,511,724)
----------
Net realized and unrealized gain/(loss) on investments................................... (6,480,051)
----------
Net Decrease in Net Assets Resulting from Operations................................................. ($4,444,151)
----------
----------
</TABLE>
See accompanying notes to financial statements.
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8
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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, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................. $ 2,035,900 $ 1,999,083
Net realized gain on investments....................... 3,031,673 3,636,607
Net change in unrealized appreciation/(depreciation) on
investments......................................... (9,511,724) 1,110,208
----------------- -----------------
Net increase/(decrease) in net assets resulting
from operations............................... (4,444,151) 6,745,898
----------------- -----------------
Dividends and Distributions to Shareholders from (Note 1):
Net investment income.................................. (1,211,110) (1,966,574)
Net realized gain on investments....................... (4,449,380) (3,708,567)
Tax-Return of capital.................................. (248,852) --
----------------- -----------------
Total dividends and distributions to
shareholders.................................. (5,909,342) (5,675,141)
----------------- -----------------
Capital Stock Transactions (Note 5):
Increase in net asset value of shares issued to
shareholders in reinvestment of dividends and
distributions from net investment income and net
realized gain on investments........................ 492,811 211,201
----------------- -----------------
Total increase/(decrease) in net assets.......... (9,860,682) 1,281,958
Net Assets:
Beginning of year............................................ 32,104,731 30,822,773
----------------- -----------------
End of year (including distributions in excess of net
investment income of $0 and $85,388, at December 31, 1998
and December 31, 1997, respectively)...................... $22,244,049 $$32,104,731
----------------- -----------------
----------------- -----------------
</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 1998 1997 1996 1995 1994
- ----------------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................... $ 11.08 $ 10.70 $ 8.59 $ 8.30 $ 8.70
------- ------- ------- ------- -------
Income from investment operations:
Net investment income........................... 0.69 0.69 0.68 0.64 0.65
Net realized and unrealized gain/(loss) on
investments.................................. (2.20) 1.65 2.26 0.33 (0.31)
------- ------- ------- ------- -------
Total from investment operations.......... (1.51) 2.34 2.94 0.97 0.34
------- ------- ------- ------- -------
Less dividends and distributions to shareholders
from:
Net investment income........................... (0.41) (0.68) (0.68) (0.40) (0.49)
Realized gain on investments.................... (1.52) (1.28) (0.15) -- (0.09)
Tax return of capital........................... (0.08) -- -- (0.28) (0.16)
------- ------- ------- ------- -------
Total dividends and distributions to
shareholders............................ (2.01) (1.96) (0.83) (0.68) (0.74)
------- ------- ------- ------- -------
Net asset value, end of year.................... $ 7.56 $ 11.08 $ 10.70 $ 8.59 $ 8.30
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Per share market value, end of year............. $ 7.81 $ 11.56 $ 12.00 $ 9.13 $ 8.50
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------
Total market value return(1)......................... (15.90)% 13.20% 42.32% 15.97% (2.78)%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total net asset value return(1)...................... (13.77)% 22.44% 33.32% 12.12% 3.80%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of year (in millions)........... $22.244 $32.105 $30.823 $24.577 $23.548
------- ------- ------- ------- -------
Ratios of expenses to average net assets (before
expense reduction)........................... 1.52% 1.42% 1.45% 1.73% 1.51%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios of expenses to average net assets (net of
expense reduction)........................... 1.51% 1.42% 1.45% 1.73% 1.42%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net investment income to average net
assets (before expense reduction)............ 6.89% 6.07% 7.34% 7.67% 7.62%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net investment income to average net
assets (net of expense reduction)............ 6.90% 6.07% 7.34% 7.67% 7.71%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Portfolio turnover rate......................... 88.32% 53.76% 30.45% 37.75% 80.68%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ------------------------
(1) Total market value 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 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') was incorporated under
the laws of the State of Maryland on June 21, 1988 and is registered under the
Investment Company Act of 1940 (the 'Act'), as amended, as a closed-end
non-diversified management investment company. 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. A portion of the Fund's dividend may
consist of amounts in excess of net investment income derived from non-taxable
components of the dividends from the Fund's portfolio investments. As a result,
the Fund had a return of capital of $248,852 ($0.08 per share), for the year
ended December 31, 1998, which has been deducted from paid-in capital. 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.
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11
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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,
1998, the Fund decreased undistributed net investment income and decreased
accumulated net realized loss on investments sold by $739,402. These differences
are primarily due to return of capital and capital gain distributions received
by the Fund on portfolio securities.
Federal Income Taxes: It is the policy of the Fund to qualify as a
regulated investment company, if such qualification is in the best interest of
the shareholders, by complying with the requirements of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, and by
distributing substantially all of its taxable earnings to its shareholders.
Accordingly, no provision for federal income or excise tax is necessary.
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,
1998, the Fund incurred $193,274 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, 1998,
the Fund incurred $59,392 in administration fees.
Directors' Fees: Certain directors and officers of the Fund are also
directors, officers and/or employees of the Adviser. None of the directors and
officers so affiliated received compensation for their services as directors of
the Fund. Fees and related expenses accrued for non-affiliated directors totaled
$31,050 for the year ended December 31, 1998.
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the year ended December 31, 1998 totaled $25,866,826 and $30,136,813,
respectively.
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12
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, 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.......................................................................... $27,753,173
-----------
Gross unrealized appreciation........................................................... $ 477,753
Gross unrealized depreciation........................................................... $(1,758,957)
-----------
Net unrealized depreciation............................................................. $(1,281,204)
-----------
-----------
</TABLE>
NOTE 4 -- DIRECTED BROKERAGE ARRANGEMENTS
The Adviser has directed certain portfolio trades to brokers who paid a
portion of the Fund's expenses. For the year ended December 31, 1998, the Fund's
expenses were reduced by $2,567 under this arrangement.
NOTE 5 -- CAPITAL STOCK AND DISTRIBUTION REINVESTMENT
At December 31, 1998, the Fund has one class of common stock, par value
$0.01 per share, of which 50 million shares are authorized and 2,942,289 shares
are outstanding.
Distributions during the year ended December 31, 1998 resulted in 44,971
shares being issued at an average price of $10.96 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 6 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE/
NET REALIZED (DECREASE) NET ASSETS
TOTAL NET AND UNREALIZED IN NET ASSETS AT
QUARTERLY INVESTMENT INVESTMENT GAIN/(LOSS) RESULTING END OF
PERIOD INCOME INCOME ON INVESTMENTS FROM OPERATIONS PERIOD
- -------------------- ------------------ -------------------- -------------------- ---------------- -----------------
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 1998
- ------------
March 31.............. $ 582,989 $0.20 $ 471,313 $0.16 $ (545,469) $(0.18) $ (74,156) $(0.02) $31,888,847 $10.89
June 30............... 727,114 0.25 619,751 0.21 (2,006,554) (0.69) (1,386,803) (0.48) 30,049,063 10.24
September 30.......... 575,338 0.20 464,942 0.16 (2,534,416) (0.86) (2,069,474) (0.70) 27,526,085 9.37
December 31........... 597,425 0.20 479,894 0.16 (1,393,612) (0.47) (913,718) (0.31) 22,244,049 7.56
---------- ----- ---------- ----- ----------- ------ ----------- ------
$2,482,866 $0.85 $2,035,900 $0.69 $(6,480,051) $(2.20) $(4,444,151) $(1.51)
---------- ----- ---------- ----- ----------- ------ ----------- ------
---------- ----- ---------- ----- ----------- ------ ----------- ------
<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>
FISCAL 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
---------- ----- ---------- ----- ----------- ------ ----------- ------
---------- ----- ---------- ----- ----------- ------ ----------- ------
</TABLE>
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13
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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.:
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statement of operations,
statements of changes in net assets and financial highlights present fairly, in
all material respects, the financial position of Cohen & Steers Realty Income
Fund, Inc. (the 'Fund') at December 31, 1998, and 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. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
January 29, 1999
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14
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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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15
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COHEN & STEERS REALTY INCOME FUND, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
Robert H. Steers 757 Third Avenue
Director and Chairman New York, New York 10017
(212) 832-3232
Martin Cohen
Director and President FUND ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
Gregory C. Clark 73 Tremont Street
Director Boston, Massachusetts 02108
(800) 437-9912
George Grossman
Director CUSTODIAN
The Chase Manhattan Bank, N.A.
Jeffrey H. Lynford One Chase Manhattan Plaza
Director New York, New York 10081
Willard H. Smith, Jr. LEGAL COUNSEL
Director Dechert Price & Rhoads
1775 Eye Street, NW
Elizabeth O. Reagan Washington, DC 20006
Vice President
American Stock Exchange Symbol: RIF
Adam Derechin Website: www.cohenandsteers.com
Vice President and
Assistant Treasurer This report is for shareholder information.
This is not a prospectus intended
for use in the purchase or sale of Fund shares.
</TABLE>
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COHEN & STEERS
REALTY INCOME FUND
------------------
ANNUAL REPORT
DECEMBER 31, 1998
COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
STATEMENT OF DIFFERENCES
------------------------
The division symbol shall be expressed as.................................[div]
