<PAGE>
COHEN & STEERS
--------------
REALTY INCOME FUND
QUARTERLY REPORT
MARCH 31, 2000
COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
April 17, 2000
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Realty Income
Fund for the quarter ended March 31, 2000. The net asset value per share at that
date was $6.34. In addition, a regular quarterly dividend of $0.13 per share was
declared for shareholders of record March 23, 2000 and paid on April 17, 2000.
INVESTMENT REVIEW
For the quarter, Cohen & Steers Realty Income Fund's had a total return,
based on income and change in net asset value, of 1.0%. This performance
compares to the NAREIT Equity REIT Index* total return of 2.5%.
Despite the near-chaotic behavior in nearly every corner of the financial
markets so far this year, REITs remained steady and produced positive, albeit
modest, returns which were competitive with the overall stock market. The Hotel
and Regional Mall sectors, among the most depressed during 1999, rebounded to be
among the best performers during the quarter as their fundamentals proved to be
much better than expected. The Office sector also performed well as strong
employment growth coupled with a restrained supply picture has continued to
favor office building owners. Meanwhile, the Health Care sector once again
produced negative returns as many of the beleaguered operators of these
facilities continue to undergo financial restructuring.
NAREIT EQUITY REIT INDEX 12 MONTH TOTAL RETURNS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
QUARTER ENDED
- -----------------------------------------------------------------------------------------------------------------
1Q92 1Q93 1Q94 1Q95 1Q96
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.3 13.3 16.3 14.6 38.5 31 34.1 19.7 1.7 6.6 -4.5 3.2 -0.4 3.6 10.7 15.3 18.1 16.5 18.5 35.3
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
- --------------------------------------------------------------------------
1Q97 1Q98 1Q99 1Q00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33.2 33.8 40.5 20.3 18.9 8 -13.5 -17.5 -21.1 -9 -6.5 -4.6 2.6
</TABLE>
Source: NAREIT
In our opinion, investment performance so far in 2000 appears to represent
an important shift in investor sentiment and an improved supply/demand picture
for REIT shares. In addition to the competitive returns in the latest quarter,
and perhaps more importantly, REITs have produced positive 12-month returns for
the first time since mid-1998. As shown in the chart it appears that on a
cyclical basis, the REIT bear market may be coming to an end.
Perhaps predictably, a number of influential Wall Street strategists have
begun to recommend that their clients reduce their overall equity exposure and
add REITs in their place. REITs are apparently again being viewed as both a
safe haven for capital as well as a good source of current income. In a world
where growth has been of foremost significance and current income has simply
been unimportant to most investors, persistent efforts by the Federal Reserve to
slow the economy by raising interest rates may have finally convinced market
participants that the Fed will eventually prevail. Such a slowdown would
probably favor income-oriented securities and, as a result, the U.S. Treasury
market has staged a strong rally. This rally, no doubt, has been enhanced by the
Treasury's program of repurchasing securities with funds generated by the budget
surplus. Considering that interest rates are low while the economy is still
showing strong growth, one can only imagine how low interest rates may
ultimately fall to once the economy shows some signs of weakness. With equity
REITs in general currently yielding well over 8%, and with these dividends
having exhibited impressive growth over the past several years, REIT investment
characteristics are becoming more highly valued.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
<TABLE>
<CAPTION>
CAPITAL RAISED BY REITS ($MILLIONS)
<S> <C> <C> <C>
FIRST QUARTER OF: DEBT EQUITY TOTAL
1998 $5,427 $9,009 $14,436
1999 4,047 1,600 5,647
2000 1,938 646 2,584
</TABLE>
Source: NAREIT
On the supply side, it is also symptomatic of a bottoming of REIT share
prices that capital raising has virtually ground to a halt. As shown in the
table, REITs raised only $646 million in equity (more than half of which was
preferred stock) in the first quarter, a 60% decline from a year ago, and a 93%
decline from two years ago. Debt capital raised declined by a lesser, but still
significant amount. Further, total equity issuance by REITs during the 12-month
period ended March 31, at $5.8 billion, was the lowest 12-month total since the
second quarter of 1993.
In addition to the lack of demand for new capital, outflows from real estate
mutual funds slowed to a trickle, and the supply of existing REIT shares
continued to shrink as many companies have persistently repurchased stock in the
open market. By quarter's end, 59 REITs had authorized buybacks totaling nearly
$6 billion. As a consequence of all the above, the REIT industry appears to us
to be at or close to a bottom.
INVESTMENT OUTLOOK
For most of the past two years REITs were unable to raise capital because it
was either not available, or too highly priced. Today, however, it is our
perception that the psychology of REIT management has begun to change. Resigned
to the reality that the capital markets may not always be open to them, and
because there are not a great deal of new investment opportunities, more and
more companies are adopting self-financing business plans. This entails constant
reevaluation of properties held in the portfolio and aggressively selling or
repositioning those that do not meet their investment criteria. Proceeds from
these sales are commonly used to fund higher return opportunities,
repay debt or repurchase stock. Many other companies are finding privately
financed joint ventures to be a preferable way to take advantage of
opportunities. In short, many companies are learning to live well without
constantly tapping the capital markets.
To the extent that this thinking prevails, the supply side of the REIT share
equation will continue to improve. The commonly held belief that at the first
uptick in prices, REITs will flood the market with new stock issuance, has often
helped to abort any meaningful recovery in their prices. A wide adoption of this
new business model would be a clear departure from recent thinking. There are
two other factors worthy of mention. First, the shares of nearly all REITs began
the year at such unprecedented low valuations that even a strong price rally
would still leave them undervalued. Second, because many companies have just
recently implemented extensive repurchase programs of their own stock, it would
be illogical for them to quickly reissue that equity unless they were confronted
with some extraordinary investment opportunities. In these cases, however, it
would be highly likely that any top tier company would be able to access capital
privately in both a more efficient and low cost manner.
Meanwhile, without the benefit of a great deal of new investments and little
or no additional capital, the REIT industry has continued to enjoy healthy
growth in earnings. Funds from operations (FFO) per share grew at an average of
10% in 1999 and are widely expected to grow by a further 9% in 2000. This growth
potential is not confined to any single property type or geographic region -- it
is an industry-wide phenomenon that is the result of the strong economy and
discipline with respect to new construction. We do, however, expect the Office,
Industrial and Apartment sectors to enjoy the highest growth rates and have
accordingly maintained a strong weighting in these property types. We are
particularly optimistic about owners of office buildings in major cities due to
the demand for space fueled by employment growth, the impediments to new
construction and the long lead times required to bring on new supply. We
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
are somewhat concerned about the retail environment and have consequently
maintained an under-weighted position in the sector. Following the strongest
sales growth in a decade, the prospect of slower economic growth and the
continued pressure of the Internet on both retail sales and margins, we expect
investor psychology to be less positive on this sector than on many others.
Two trends that we expect to continue are the emergence of more technology
initiatives by property owners, and a clarification of plans by many REITs to
establish taxable subsidiaries that will be allowed to operate beginning in
2001. Property owners are increasingly able to deliver goods and services to
tenants and, in addition, manage their properties more efficiently due to
advances in technology and the Internet. These initiatives enable the property
owners to potentially increase revenue and reduce costs. For example, it appears
that some REITs are targeting taxable subsidiaries as a means of either 1)
providing services to tenants, 2) holding properties on a shorter-term basis
than what is allowed in the REIT itself, or 3) purchasing properties that are
expected to produce a high return but may be outside of the mainstream of the
company's existing portfolio. Importantly, these initiatives are not only
potentially additive to earnings but are also enabling many companies to employ
'new economy' strategies using their 'old economy' asset bases.
It is always difficult to reconcile the efficiency of the financial market
with the emotional extremes to which it tends to move. Just as many have
questioned the high valuations afforded technology stocks, we have questioned
the low valuations of realty stocks in light of their strong fundamentals. We
believe that recent market activity is bringing valuations of both groups more
in line with true underlying fundamentals. If these trends continue, it is our
hope that the Fund will be able to deliver rewarding returns on both an absolute
and relative basis.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
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 predominately in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----------
<S> <C> <C> <C>
EQUITIES 99.30%
COMMON STOCK 82.63%
APARTMENT/RESIDENTIAL 11.77%
Apartment Investment & Management Co. -- Class A...... 10,100 $ 385,694
Camden Property Trust................................. 14,300 386,994
Gables Residential Trust.............................. 12,600 283,500
Home Properties of New York........................... 7,100 189,925
Summit Properties..................................... 21,900 418,837
United Dominion Realty Trust.......................... 58,400 587,650
-----------
2,252,600
-----------
HEALTH CARE 10.31%
Health Care Property Investors........................ 33,600 854,700
Healthcare Realty Trust............................... 21,700 363,475
Nationwide Health Properties.......................... 54,400 567,800
*Ventas............................................... 56,700 187,819
-----------
1,973,794
-----------
HOTEL 8.34%
FelCor Lodging Trust.................................. 29,900 528,856
Host Marriott Corp. .................................. 36,100 320,387
MeriStar Hospitality Corp. ........................... 42,900 748,069
-----------
1,597,312
-----------
INDUSTRIAL 6.72%
First Industrial Realty Trust......................... 19,800 539,550
Pacific Gulf Properties............................... 38,100 747,713
-----------
1,287,263
-----------
OFFICE 22.49%
Arden Realty Group.................................... 29,200 609,550
Brandywine Realty Trust............................... 49,200 842,550
CarrAmerica Realty Corp. ............................. 24,700 521,787
Crescent Real Estate Equities Co. .................... 41,700 729,750
Highwoods Properties.................................. 35,300 750,125
Mack-Cali Realty Corp. ............................... 33,400 851,700
-----------
4,305,462
-----------
OFFICE/INDUSTRIAL 7.56%
Liberty Property Trust................................ 34,800 833,025
Prime Group Realty Trust.............................. 29,800 426,512
Reckson Associates Realty Corp. -- Class B............ 9,208 188,764
-----------
1,448,301
-----------
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----------
<S> <C> <C> <C>
SHOPPING CENTER 14.16%
COMMUNITY CENTER 4.12%
Pan Pacific Retail Properties......................... 16,400 $ 302,375
Philips International Realty Corp..................... 29,200 485,450
-----------
787,825
-----------
REGIONAL MALL 10.04%
JP Realty............................................. 26,400 470,250
Macerich Co........................................... 32,100 662,062
Simon Property Group.................................. 20,400 489,600
Taubman Centers....................................... 27,000 300,375
-----------
1,922,287
-----------
TOTAL SHOPPING CENTER................................. 2,710,112
-----------
SPECIALTY 1.28%
Entertainment Properties Trust........................ 18,600 245,288
-----------
TOTAL COMMON STOCK (Identified
cost -- $17,930,956)............................ 15,820,132
-----------
PREFERRED STOCK 16.67%
Apartment Investment & Management Co., 9.00%,
Series C............................................ 29,000 520,187
Apartment Investment & Management Co., 9.375%,
Series G............................................ 37,600 707,350
Bradley Real Estate, 8.40%, Series A (Convertible).... 18,200 357,175
Camden Property Trust, $2.25, Series A
(Convertible)....................................... 18,600 412,688
Crown American Realty Trust, 11.00%, Series A......... 11,100 412,088
Reckson Associates Realty Corp., 7.625%, Series A
(Convertible)....................................... 10,700 202,631
SL Green Realty Corp., 8.00%, Series A
(Convertible)....................................... 22,700 578,850
-----------
TOTAL PREFERRED STOCK (Identified
cost -- $3,911,281)............................. 3,190,969
-----------
TOTAL EQUITIES (Identified cost -- $21,842,237)... 19,011,101
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C> <C>
CORPORATE BOND 1.02%
#Macerich Co.144A, Convertible, 7.25%, due 12/15/02
(Identified cost -- $195,880)....................... $235,000 196,225
-----------
COMMERCIAL PAPER 1.09%
Trainer Wortham First Republic Co., 6.15%, due 4/3/00
(Identified cost -- $208,929)........................... 209,000 208,929
-----------
TOTAL INVESTMENTS (Identified cost -- $22,247,046).... 101.41% 19,416,255
LIABILITIES IN EXCESS OF OTHER ASSETS................. (1.41)% (270,745)
------ -----------
NET ASSETS (Equivalent to $6.34 per share based on
3,018,394 shares of capital stock outstanding)...... 100.00% $19,145,510
------ -----------
------ -----------
</TABLE>
- -------------------
* Non-income producing security.
# Security is restricted and 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.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS'D'
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
--------------------------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/99..................... $19,300,990 $ 6.41
Net investment income......................... $ 319,187 $ 0.11
Net realized and unrealized loss on
investments................................. (123,916) (0.05)
Distributions from net investment income...... (392,391) (0.13)
------
Distributions reinvested...................... 41,640
---------
Net decrease in net asset value................... (155,480) (0.07)
----------- ------
End of period: 3/31/00............................ $19,145,510 $ 6.34
----------- ------
----------- ------
</TABLE>
- -------------------
'D'Financial information included in this report has been taken from the records
of the Fund without examination by independent accountants.
AVERAGE ANNUAL TOTAL RETURNS*
(PERIODS ENDED MARCH 31, 2000)
<TABLE>
<CAPTION>
ONE
YEAR FIVE YEARS TEN YEARS
- -------- ------------ ------------
<S> <C> <C>
- -1.51% 8.50% 10.79%
</TABLE>
- -------------------
* Based on net asset value.
KEY INFORMATION
For general information and weekly
net asset value call 800-437-9912
American Stock Exchange Symbol: RIF
REINVESTMENT PLAN
- --------------------------------------------------------------------------------
We urge shareholders who want to take advantage of this plan and whose shares
are held in 'Street Name' to consult your broker as soon as possible to
determine if you must change registration into your own name to participate.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY INCOME FUND, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark FUND ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
73 Tremont Street
George Grossman Boston, Massachusetts 02108
Director (800) 437-9912
Jeffrey H. Lynford
Director CUSTODIAN
The Chase Manhattan Bank, N.A.
Willard H. Smith, Jr. One Chase Manhattan Plaza
Director New York, New York 10081
Elizabeth O. Reagan LEGAL COUNSEL
Vice President Simpson Thacher & Bartlett
425 Lexington Avenue
Adam Derechin New York, NY 10117
Vice President and Assistant Treasurer
American Stock Exchange Symbol: RIF
Lawrence B. Stoller Website: www.cohenandsteers.com
Assistant Secretary
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.
</TABLE>
- --------------------------------------------------------------------------------
7
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as....................................'D'
