<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
February 3, 2000
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Realty Income
Fund for the quarter and the year ended December 31, 1999. The net asset value
per share at that date was $6.41. In addition, a regular quarterly dividend of
$0.13 per share was declared for shareholders of record December 21, 1999 and
was paid on January 14, 2000.
1999 INVESTMENT REVIEW
For the year ended December 31, 1999, Cohen & Steers Realty Income Fund,
Inc. had a total return, based on income and change in net asset value, of
- -7.39%. This performance compares to the NAREIT Equity REIT Index* total
return of -4.62%. This underperformance compared to its benchmark primarily
resulted from the Fund's overweighting in Health Care and preferred stocks.
The REIT bear market continued in earnest in 1999, and for only the second
time in history, and the first time in 25 years, REITs recorded back-to-back
years of negative returns. As is well known, this performance came in the face
of continued strong real estate fundamentals, rising inflation expectations and
historically attractive REIT valuations.
The relative underperformance of the Fund for the year was primarily due to
the allocation to both the Health Care sector and to fixed income investments.
The Health Care sector was the poorest performing property sector in 1999 as
these companies were buffeted by Medicare reforms that reduced the profitability
of nursing homes, and overbuilding in the assisted living industry that has
caused severe financial distress for their operators. Real estate fixed income
investments, consisting primarily of preferred stocks of REITs, performed poorly
as a result of a combination of real estate securities being out of favor, tax
loss selling and higher interest rates. In addition, sporadic leveraged buyout
or merger transactions raised the specter of credit deterioration. We believe
our Health Care and fixed income investments will contribute significantly to
the account's performance in the coming year during what we believe will be a
general recovery in the overall REIT market.
The best performing sectors in 1999 were Apartment and Office. Both were
positively affected by the strong economy, exposure to the growth of the
Internet and knowledge-based industries, and financial market discipline that
constrained capital flows and new construction that might have led to
overbuilding. In addition to the Health Care sector, the Hotel sector performed
poorly due to the increasing level of new hotel construction. The Retail sector,
of course, was adversely affected by investor fears about the growing threat of
the Internet on real estate based shopping.
What is perhaps most interesting about performance in 1999 is what
investment themes did not work, despite widely held beliefs that certain
valuation parameters and corporate policies would stem the tide of persistent
investor selling. While so-called 'value' investors in general suffered during
the year, in the REIT universe neither value nor growth styles of management
provided better returns. Net asset values (NAV) per share failed to provide a
floor to REIT share prices, and now most trade well below NAV. Current dividend
yield also provided little or no support as share price declines produced an
unprecedented number of double-digit dividend yields in the REIT universe. Share
buy-backs, which totaled several $billion, and were widely heralded as both
managements' strongest defense and their greatest investment opportunity, failed
to do more than barely cushion the fall of REIT
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1
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COHEN & STEERS REALTY INCOME FUND, INC.
prices. And finally, increased merger and acquisition activity, nearly
everyone's expected outcome of the bear market, not only failed to materialize,
but in the few transactions that did take place, the premium paid for the
acquired company was disappointingly modest.
INVESTMENT OUTLOOK
As 2000 begins, little if anything has changed in the REIT investment
environment. The economy continues to grow at a substantial pace and real estate
fundamentals remain strong; we expect REIT earnings to grow by 8%, on average,
this year, which is about in line with the projections for the S&P 500. REITs
are generally very well capitalized and these companies are expected to again
record strong dividend growth. The REIT modernization legislation passed in 1999
has broadened these companies' power to control their destinies due to their new
ability, starting in 2001, to establish taxable subsidiary companies that can
engage in previously prohibited services and related businesses. Nonetheless,
REIT shares remain at record low valuations and investor sentiment continues to
strongly favor high technology and Internet-related companies.
In our opinion, REITs continue to suffer from the lack of cyclical tailwinds
from which they benefited in the mid-1990's, and from investor fears that
cyclical headwinds may be just around the corner, the result of either a slowing
economy (thereby reducing demand) or a boom in new construction (increasing
supply). Thus, to commit to this sector one must be satisfied that neither of
these are an issue or, if they are, that the stocks are cheap enough and have
discounted these factors. While we are no better at predicting the economy than
anyone else, it appears that there are very few impediments to continued
economic growth, although perhaps not at the torrid pace of the past year. We
also see ample evidence that the combination of enhanced real estate information
flow and capital market discipline can be sufficient to control the amount of
new construction in most property types and major regions of the country. As a
result, we are not concerned that a supply/demand imbalance in the real estate
market is about to develop. Consequently, due to the current level of REIT
valuations, we also do not see a lot of risk in their share prices.
The continued strength of the economy has justifiably caused fears of
further interest rate increases this year, and many have suggested that this
will be negative for real estate and REITs. This conclusion, however, may not be
entirely correct and, again, recent experience is substantiating this. Again,
using the supply and demand analogy, as long as interest rate increases do not
choke off economic growth altogether, the demand side of the equation should
stay intact. Importantly, real estate development is very sensitive to interest
rates. Rising interest rates over the past year have already had the effect of
slowing construction. We would expect that any additional rise in rates will
further reduce development activity and nearly ensure limitations on new supply.
This may also precipitate a rise in required current returns (capitalization
rates) on both new development and property purchases and a concomitant decline
in property values. This situation may be exactly what the decline in REIT share
prices has been anticipating. Again, as long as the economy continues to grow,
rental income and, therefore, REIT earnings should not be negatively affected.
Thus, REIT share prices may hold up relatively well. Further, this may create a
new buying opportunity for the REITs that have retained or can access capital.
It is for this reason that we have advocated that companies marshal as much
liquidity as possible, and have focused our investments on those that have done
so.
Within the context of the entire REIT universe, we expect a continuation of
divergent trends between different property sectors and companies. Perhaps more
so than recently, we believe that sector selection will play an increasingly
important role in investment performance. We continue to like the Office sector,
but favor urban
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2
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COHEN & STEERS REALTY INCOME FUND, INC.
locations. We still favor the Health Care sector based on early signs that the
worst may be over for both the owners and operators of health care facilities.
Similarly, we have begun to increase our weighting in the Hotel sector, as we
see abatement in the growth of new hotel construction and continued strong
demand for rooms, particularly in the urban, upscale segment. With an average
current yield of over 13%, we believe, the account's preferred holdings offer an
exceptional investment opportunity as they all possess strong fixed charge
coverage. We are continuing to underweight the Retail sector due to a peaking of
earnings momentum and the continued threat of the Internet with respect to
retailers' sales and profit margins. Further, we are reducing or eliminating any
holdings where managements have not adapted well to a capital constrained
environment or have not adopted a business strategy that addresses the changed
fundamental trends. The wholesale decline in REIT prices over the last two years
has allowed the account to substantially upgrade its investment in companies
with these characteristics, consistent with the account's goal of producing a
high level of current income.
In our opinion, waiting for REITs to return to investor favor is not like
waiting for bell-bottom pants and wide ties to come back into vogue. Real estate
remains a large and essential, albeit changing, industry and REITs continue to
be the prominent vehicle for investment. Our investment strategy remains focused
on owning a broadly diversified portfolio of above average yielding real estate
securities. In constructing the Fund's portfolio, we look for companies with
high current income coupled with healthy dividend increases and predictable
earnings growth. It is our view that 1999's performance, while disappointing,
reflects the tail end of the REIT securities bear market. We are optimistic
about the Fund's prospects and will continue to do our best to deliver rewarding
returns.
Sincerely,
/s/ Martin Cohen /s/ Robert H. Steers
MARTIN COHEN ROBERT H. STEERS
President Chairman
/s/ Steven R. Brown
STEVEN R. BROWN
Portfolio Manager
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
* The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly-traded REITs that invest predominantly in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
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3
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
EQUITIES 97.53 %
COMMON STOCK 78.39 %
APARTMENT/RESIDENTIAL 2.50 %
Apartment Investment & Management
Co. -- Class A........................ 5,500 $ 218,969
Summit Properties........................ 14,800 264,550
-----------
483,519
-----------
HEALTH CARE 13.74 %
ElderTrust............................... 26,800 164,150
Health Care Property Investors........... 33,600 802,200
Healthcare Realty Trust.................. 21,700 339,063
Nationwide Health Properties............. 54,400 748,000
Omega Healthcare Investors............... 28,400 360,325
*Ventas................................... 56,700 237,431
-----------
2,651,169
-----------
HOTEL 5.97 %
FelCor Lodging Trust..................... 29,900 523,250
MeriStar Hospitality Corp. .............. 39,300 628,800
-----------
1,152,050
-----------
INDUSTRIAL 8.33 %
First Industrial Realty Trust............ 27,500 754,531
Pacific Gulf Properties.................. 42,100 852,525
-----------
1,607,056
-----------
OFFICE 20.59 %
Arden Realty Group....................... 24,700 495,544
Brandywine Realty Trust.................. 49,200 805,650
CarrAmerica Realty Corp. ................ 24,700 521,787
Crescent Real Estate Equities Co. ....... 27,900 512,663
Highwoods Properties..................... 35,300 820,725
Mack-Cali Realty Corp. .................. 31,400 818,362
-----------
3,974,731
-----------
OFFICE/INDUSTRIAL 7.76 %
Liberty Property Trust................... 34,500 836,625
Prime Group Realty Trust................. 29,800 452,588
Reckson Associates Realty Corp.--Class B. 9,208 209,482
-----------
1,498,695
-----------
</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, 1999
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
SHOPPING CENTER 18.23 %
COMMUNITY CENTER 7.42 %
Developers Diversified Realty Corp. ..... 36,400 $ 468,650
Pan Pacific Retail Properties............ 29,600 482,850
Philips International Realty Corp. ...... 29,200 479,975
-----------
1,431,475
-----------
REGIONAL MALL 10.81 %
JP Realty................................ 36,500 570,312
Macerich Co. ............................ 33,900 705,544
Simon Property Group..................... 22,700 520,681
Taubman Centers.......................... 27,000 290,250
-----------
2,086,787
-----------
TOTAL SHOPPING CENTER.................... 3,518,262
-----------
SPECIALTY 1.27 %
Entertainment Properties Trust........... 18,600 245,288
-----------
TOTAL COMMON STOCK (Identified
cost -- $18,050,706).............. 15,130,770
-----------
PREFERRED STOCK 19.14 %
Apartment Investment & Management Co.,
9.00%,
Series C.............................. 29,000 494,812
Apartment Investment & Management Co.,
9.375%,
Series G.............................. 37,600 632,150
Bradley Real Estate, 8.40%, Series A
(Convertible)......................... 29,734 579,813
Camden Property Trust, $2.25, Series A
(Convertible)......................... 18,600 417,338
Crown American Realty Trust, 11.00%,
Series A.............................. 11,100 392,662
Prime Retail, 8.50%, Series B
(Convertible)......................... 23,940 282,791
Reckson Associates Realty Corp., 7.625%,
Series A
(Convertible)......................... 10,700 212,663
SL Green Realty Corp., 8.00%, Series A
(Convertible)......................... 28,700 681,625
-----------
TOTAL PREFERRED STOCK (Identified
cost -- $4,643,538)............... 3,693,854
-----------
TOTAL EQUITIES (Identified
cost -- $22,694,244).............. 18,824,624
-----------
</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, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- -----------
<S> <C> <C>
CORPORATE BOND 1.02 %
#Macerich Co. 144A, Convertible, 7.25%,
due 12/15/02 (Identified
cost--$192,277)................... $235,000 $ 196,225
-----------
COMMERCIAL PAPER 2.48 %
Leggett & Platt Corp., 4.25%,
due 1/3/00 (Identified
cost -- $478,372)..................... 478,485 478,372
-----------
TOTAL INVESTMENTS (Identified
cost -- $23,364,893) .................. 101.03 % 19,499,221
LIABILITIES IN EXCESS OF OTHER ASSETS .... (1.03)% (198,231)
-------- -----------
NET ASSETS (Equivalent to $6.41 per share on
3,012,297 shares of capital stock
outstanding) .......................... 100.00 % $19,300,990
======== ===========
</TABLE>
- -------------------
* Non-income producing security.
# Security is restricted subject to rule 144A and trades infrequently. The Fund
prices this security by obtaining a bid and ask price from two market makers
on a weekly basis. The average of the bid and ask prices is used as the
security's price.
See accompanying notes to financial statements.
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6
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Investments in securities, at value (Identified
cost -- $23,364,893) (Note 1)........................ $19,499,221
Dividends and interest receivable....................... 262,689
Receivable for investment securities sold............... 6,360
Other assets............................................ 1,031
-----------
Total Assets....................................... 19,769,301
-----------
LIABILITIES:
Payable for dividends declared.......................... 391,599
Payable to investment adviser........................... 12,542
Payable to administrator................................ 4,603
Other liabilities....................................... 59,567
-----------
Total Liabilities.................................. 468,311
-----------
NET ASSETS applicable to 3,012,297 shares of $0.01 par value
common stock outstanding (Note 5)....................... $19,300,990
===========
NET ASSET VALUE PER SHARE:
($19,300,990[div]3,012,297 shares outstanding).......... $ 6.41
===========
MARKET PRICE PER SHARE...................................... $ 6.50
===========
MARKET PRICE PREMIUM TO NET ASSET VALUE..................... 1.40%
===========
NET ASSETS consist of:
Paid-in capital (Notes 1 and 5)......................... $23,650,051
Accumulated net realized loss on investments sold....... (483,389)
Net unrealized depreciation on investments.............. (3,865,672)
-----------
$19,300,990
===========
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, 1999
Investment Income (Note 1):
Dividend income......................................... $ 2,110,244
Interest income......................................... 29,140
-----------
Total Income....................................... 2,139,384
-----------
Expenses:
Investment advisory fees (Note 2)....................... 139,478
Reports to shareholders................................. 51,127
Administration and transfer agent fees (Note 2)......... 47,537
Professional fees....................................... 45,535
Directors' fees and expenses (Note 2)................... 32,635
Custodian fees and expenses............................. 17,238
Miscellaneous........................................... 23,292
-----------
Total Expenses..................................... 356,842
-----------
Reduction of expenses (Note 4).............................. (17,238)
-----------
Net Expenses....................................... 339,604
-----------
Net Investment Income....................................... 1,799,780
-----------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments........................ (1,344,606)
Net change in unrealized depreciation on investments.... (2,044,176)
-----------
Net realized and unrealized loss on investments.... (3,388,782)
-----------
Net Decrease in Net Assets Resulting from Operations........ $(1,589,002)
-----------
See accompanying notes to financial statements.
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8
<PAGE>
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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, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income................. $ 1,799,780 $ 2,035,900
Net realized gain/(loss) on
investments........................ (1,344,606) 3,031,673
Net change in unrealized
appreciation/(depreciation) on
investments........................ (2,044,176) (9,511,724)
----------- -----------
Net decrease in net assets
resulting from operations...... (1,589,002) (4,444,151)
----------- -----------
Dividends and Distributions to Shareholders
from (Note 1):
Net investment income................. (1,478,851) (1,211,110)
Net realized gain on investments...... -- (4,449,380)
Tax return of capital................. (441,964) (248,852)
----------- -----------
Total dividends and distributions
to shareholders................ (1,920,815) (5,909,342)
----------- -----------
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........................ 566,758 492,811
----------- -----------
Total decrease in net assets..... (2,943,059) (9,860,682)
Net Assets:
Beginning of year..................... 22,244,049 32,104,731
----------- -----------
End of year........................... $19,300,990 $22,244,049
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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9
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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: 1999 1998 1997 1996 1995
- -------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 7.56 $ 11.08 $ 10.70 $ 8.59 $ 8.30
------- ------- ------- ------- -------
Income from investment operations:
Net investment income........................ 0.60 0.69 0.69 0.68 0.64
Net realized and unrealized gain/(loss) on
investments................................ (1.11) (2.20) 1.65 2.26 0.33
------- ------- ------- ------- -------
Total from investment operations......... (0.51) (1.51) 2.34 2.94 0.97
------- ------- ------- ------- -------
Less dividends and distributions to shareholders
from:
Net investment income........................ (0.49) (0.41) (0.68) (0.68) (0.40)
Net realized gains on investments............ -- (1.52) (1.28) (0.15) --
Tax return of capital........................ (0.15) (0.08) -- -- (0.28)
------- ------- ------- ------- -------
Total dividends and distributions to
shareholders........................... (0.64) (2.01) (1.96) (0.83) (0.68)
------- ------- ------- ------- -------
Net asset value, end of year................. $ 6.41 $ 7.56 $ 11.08 $ 10.70 $ 8.59
======= ======= ======= ======= =======
Market value, end of year.................... $ 6.50 $ 7.81 $ 11.56 $ 12.00 $ 9.13
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------
Total market value return(1)..................... - 3.57% - 15.90% 13.20% 42.32% 15.97%
======= ======= ======= ======= =======
Total net asset value return(1).................. - 7.39% - 13.77% 22.44% 33.32% 12.12%
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------------------------------
Net assets, end of year (in millions)........ $ 19.3 $ 22.2 $ 32.1 $ 30.8 $ 24.6
------- ------- ------- ------- -------
Ratios of expenses to average net assets
(before expense reduction)................. 1.66% 1.52% 1.42% 1.45% 1.73%
======= ======= ======= ======= =======
Ratios of expenses to average net assets (net
of expense reduction)...................... 1.58% 1.51% 1.42% 1.45% 1.73%
======= ======= ======= ======= =======
Ratios of net investment income to average
net assets (before expense reduction)...... 8.31% 6.89% 6.07% 7.34% 7.67%
======= ======= ======= ======= =======
Ratios of net investment income to average
net assets (net of expense reduction)...... 8.39% 6.90% 6.07% 7.34% 7.67%
======= ======= ======= ======= =======
Portfolio turnover rate...................... 56.88% 88.32% 53.76% 30.45% 37.75%
======= ======= ======= ======= =======
</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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10
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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, 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 Cohen & Steers
Capital Management, Inc. 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 $441,964 ($0.15 per share) for the year
ended December 31, 1999, 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.
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
- --------------------------------------------------------------------------------
11
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999, the Fund decreased distributions in excess of net investment
income and decreased accumulated net realized loss on investments sold by
$320,929. 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. At December 31, 1999
the Fund had a capital loss carryforward of $824,401 expiring in 2007.
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,
1999, the Fund incurred $139,478 in advisory fees.
Administration Fees: The Chase Manhattan Bank N.A., through its affiliate
Chase Global Funds Services Company (the 'Administrator'), serves as the Fund's
administrator pursuant to an Administration agreement (the 'Agreement') with
Cohen & Steers Realty Income Fund, Inc., Cohen & Steers Realty Shares, Inc.
Cohen & Steers Special Equity Fund, Inc. and Cohen & Steers Equity Income Fund,
Inc. (the 'Funds'). Under the terms of the Agreement, the Administrator
maintains the Fund's books and records, prepares financial information for the
Funds' 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 Funds' Board of
Directors. For the services provided the Funds, the Administrator receives a
monthly fee at the annual rate of 0.08% on the first $500 millions of the Funds'
average daily net assets and at lower rates on the Funds' average daily net
assets in excess of that amount. For the year ended December 31, 1999, the Fund
incurred $47,537 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. For the year ended December 31, 1999, fees and related expenses
accrued for non-affiliated directors totaled $32,635.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
year ended December 31, 1999 totaled $12,238,202 and $14,357,926, respectively.
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12
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, 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:
Aggregate cost............................................. $23,023,877
-----------
Gross unrealized appreciation.............................. $ 475,629
Gross unrealized depreciation.............................. $(4,000,285)
-----------
Net unrealized depreciation................................ $(3,524,656)
===========
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, 1999, the Fund's
expenses were reduced by $17,238 under this arrangement.
NOTE 5. CAPITAL STOCK AND DISTRIBUTION REINVESTMENT
At December 31, 1999, the Fund has one class of common stock, par value
$0.01 per share, of which 50 million shares are authorized and 3,012,297 shares
are outstanding.
Distributions during the year ended December 31, 1999 resulted in 70,008
shares being issued at an average price of $8.10 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>
TOTAL NET NET REALIZED AND
INVESTMENT INVESTMENT UNREALIZED GAIN/(LOSS)
QUARTERLY PERIOD INCOME INCOME ON INVESTMENTS
- ---------------- ------------------ ------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
PER PER PER
FISCAL 1999 AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- --------------------- ---------- ----- ---------- ----- ----------- ------
March 31............. $ 540,840 $0.18 $ 449,816 $0.15 $(1,593,152) $(0.52)
June 30.............. 500,803 0.17 426,575 0.14 1,934,118 0.65
September 30......... 513,565 0.17 429,634 0.15 (2,313,954) (0.78)
December 31.......... 584,176 0.19 493,755 0.16 (1,415,794) (0.46)
---------- ----- ---------- ----- ----------- ------
$2,139,384 $0.71 $1,799,780 $0.60 $(3,388,782) $(1.11)
========== ===== ========== ===== =========== ======
PER PER PER
FISCAL 1998 AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- --------------------- ---------- ----- ---------- ----- ----------- ------
March 31............. $ 582,989 $0.20 $ 471,313 $0.16 $ (545,469) $(0.18)
June 30.............. 727,114 0.25 619,751 0.21 (2,006,554) (0.69)
September 30......... 575,338 0.20 464,942 0.16 (2,534,416) (0.86)
December 31.......... 597,425 0.20 479,894 0.16 (1,393,612) (0.47)
---------- ----- ---------- ----- ----------- ------
$2,482,866 $0.85 $2,035,900 $0.69 $(6,480,051) $(2.20)
========== ===== ========== ===== =========== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY PERIOD NET INCREASE/
(DECREASE) IN
NET ASSETS RESULTING NET ASSETS AT
FROM OPERATIONS END OF PERIOD
-------------------- --------------------
PER PER
FISCAL 1999 AMOUNT SHARE AMOUNT SHARE
- --------------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
March 31............. $(1,143,336) $(0.37) $21,000,169 $ 7.02
June 30.............. 2,360,693 0.79 22,903,661 7.64
September 30......... (1,884,320) (0.63) 20,562,066 6.84
December 31.......... (922,039) (0.30) 19,300,990 6.41
----------- ------ ----------- ------
$(1,589,002) $(0.51)
=========== ======
PER PER
FISCAL 1998 AMOUNT SHARE AMOUNT SHARE
- --------------------- ------ ----- ------ -----
March 31............. (74,156) $(0.02) $31,888,847 $10.89
June 30.............. (1,386,803) (0.48) 30,049,063 10.24
September 30......... (2,069,474) (0.70) 27,526,085 9.37
December 31.......... (913,718) (0.31) 22,244,049 7.56
----------- ------ ----------- ------
($4,444,151) $(1.51)
=========== ======
</TABLE>
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13
<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.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cohen & Steers Realty Income Fund,
Inc. (the 'Fund') at December 31, 1999, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States, 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/PricewaterhouseCoopers LLP
New York, New York
February 3, 2000
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14
<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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15
<PAGE>
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COHEN & STEERS REALTY INCOME FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management,
Martin Cohen Inc.
Director and President 757 Third Avenue
Gregory C. Clark New York, NY 10017
Director (212) 832-3232
George Grossman FUND ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
Jeffrey H. Lynford 73 Tremont Street
Director Boston, Massachusetts 02108
Willard H. Smith, Jr. (800) 437-9912
Director CUSTODIAN
Elizabeth O. Reagan The Chase Manhattan Bank, N.A.
Vice President One Chase Manhattan Plaza
Adam Derechin New York, New York 10081
Vice President and Assistant LEGAL COUNSEL
Treasurer Simpson Thacher & Bartlett
Lawrence B. Stoller 425 Lexington Avenue
Assistant Secretary New York, NY 10117
American Stock Exchange Symbol: RIF
Website: www.cohenandsteers.com
This report is for shareholder
information. This is not a prospectus
intended for use in the purchase or sale
of Fund shares. Past performance is of
course no guarantee of future results and
your investment may be worth more or less
at the time you sell.
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16
<PAGE>
COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
[COHEN & STEERS LOGO]
---------------------
ANNUAL REPORT
DECEMBER 31, 1999
