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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
October 25, 2004
To Our Shareholders:
We are pleased to submit to you our report for the quarter and nine months
ended September 30, 2004. The net asset value per share at that date was $27.63
per share. During the quarter, three monthly dividends of $0.175 per share were
paid to common shareholders. In addition, three monthly dividends of $0.175 per
share were declared and will be paid on October 29, 2004, November 30, 2004 and
December 31, 2004.
INVESTMENT REVIEW
For the quarter, Cohen & Steers REIT and Preferred Income Fund had a total
return, based on income and change in net asset value, of 7.7%. Based on the
market price of the fund's shares, which ended the quarter at $25.14, the fund's
total return was 11.0%. (The fund's common stock is traded on the New York Stock
Exchange and its share price can differ from its net asset value per share.)
This compares with the third quarter NAREIT Equity REIT Index(a) total return of
8.2% and the Merrill Lynch Fixed Rate Preferred Index total return of 5.8%. For
the nine months ended September 30, 2004, the fund's total return was 10.2%
(3.3% based on the fund's market price), compared to NAREIT Equity REIT Index
and Merrill Lynch Fixed Rate Preferred Index total returns of 14.2% and 28%,
respectively.
The fund may invest up to 60% and no less than 40% of its assets in both
REIT common stocks and corporate preferred securities. This combination pairs
the highest yielding common equity sector with the highest yielding fixed income
investments outside of the speculative grade, or 'junk,' bond market. It
reflects the fund's primary investment objective: high current income. However,
a secondary objective of the fund is total return, and we balance the fund's
asset mix with that goal in mind. We are pleased to report that, in addition to
the monthly dividends the fund has paid, the fund's net asset value per share
has appreciated 16% since its inception in June of 2003.
In the third quarter, REITs enjoyed a very strong rebound from the
correction that occurred in the second quarter. In fact, the NAREIT Equity REIT
Index went on to reach new highs for the year. Recall that REIT prices fell 19%
in April and May amid investor concerns about valuations. Since mid-May REITs
have returned 24%.
What was the impetus for the dramatic REIT recovery? We believe the reason
is clear. There is a real economic recovery underway, and it has fostered higher
occupancy levels for most property types, higher-than-
-------------------
(a) 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 equity REITs as a whole. The Merrill Lynch Fixed Rate
Preferred Index is an unmanaged, market capitalization weighted index
composed of 287 members with an average credit rating of A3.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
expected reported earnings for REITs, higher earnings expectations, and higher
real estate asset values. In short, the recovery has ushered in a steady
improvement in most every aspect of REIT fundamentals, and this improvement has
been reflected in equity prices.
Preferreds had a somewhat similar, but less dramatic swoon in the second
quarter, as well as a shallower but nonetheless noteworthy rebound in the third.
The nearly 7% price drop in the second quarter was the largest in the history of
the Merrill Lynch Fixed Rate Preferred index, which goes back to 1989. By
contrast, the 4.2% price gain in the most recent quarter was among the best
quarterly performance figures for that index.
The volatility in preferred prices over the past few quarters has largely
reflected similar movements in the broader bond market. For perspective, the
ten-year benchmark Treasury yield, which began the year around 4.25%, touched
3.75% late in the first quarter, then rose to a year-to-date high of 4.80% in
mid-June before falling again to end the most recent quarter near 4.10%.
The economic expansion to date has boosted REIT occupancy levels and pricing
power. More cyclical property types -- office, industrial, apartment, hotel and
self storage -- demonstrated some of the largest improvements in fundamentals.
For example, office REIT occupancy levels were flat in the first quarter but
then improved by 0.5% in the second quarter, and industrial occupancies swung
from a decline of 0.4% in the first quarter to an increase of 0.7% in the second
quarter. Similar strengthening occurred in the apartment and mixed
office/industrial segments.
Commensurate with the fundamental climate, REITs experienced earnings growth
in the first quarter that was essentially flat and in-line with consensus
expectations. In the second quarter, however, REIT earnings growth accelerated
and pulled away from continued subdued expectations. Whereas the consensus
expectation for the second quarter called for 1.6% earnings growth across the
REIT sector, actual reported earnings instead increased by 3.8%. The more
economically sensitive property types experienced the greatest acceleration in
earnings growth, and many swung from a year-over-year decline to a
year-over-year increase in earnings for the first time in many quarters.
The jolt in fundamentals has forced many analysts to revise their earnings
expectations upward. Just since the end of June, consensus REIT earnings growth
expectations for 2005 have increased by 2.9 percentage points, from 6.4% to
9.3%. And again, the more cyclical the sector, the further behind the curve the
analysts have been in their estimates for 2005. For example, hotel earnings
expectations have increased by 7.8 percentage points, office earnings
expectations by 5 percentage points, and mall earnings expectations by 3.3
percentage points since June.
The fund's best performing REIT investments during the quarter were in the
regional mall and health care sectors, which produced total returns of 12.2% and
10.5% respectively, while the worst performing sector for the fund was the
office/industrial sector, which had a 0.9% total return. Shopping center
companies Cedar Shopping Centers and Ramco-Gershenson Properties Trust were the
fund's best performing holdings during the quarter, contributing total returns
of 23.6% and 13.5%, respectively. Laggards during the quarter included Mission
West
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
Properties, a company focused on Silicon Valley research properties, with a
total return of -12.6% and CRT Properties, an office REIT with operations in
the southern states, that had a total return of -5.7%.
While nearly every fixed income holding of the fund experienced a rise in
value during the quarter, real estate sector preferreds, including those of
Forest City Enterprises and Glimcher Realty, were some of the best price
performers. In addition, the fund's holdings of non-callable preferreds, which
tend to respond more aggressively to rate changes than callable ones -- such as
HSBC 10.176% and Dominion Resources 8.4% -- generally performed very well. A
credit upgrade of Allmerica Financial also helped those holdings perform well.
Laggards over the quarter included the fund's floating-rate New York Community
Bancorp issues. In addition to the floating rate structure, New York Community
announced a large charge related to the swift upward move in interest rates in
the second quarter. The fund's Liberty Media bonds also lagged as a large stock
buyback and the Cox Communications leveraged buyout caused some concern about
the company maintaining its investment grade ratings.
INVESTMENT OUTLOOK
For now, it seems that the consensus view of future REIT earnings growth is
finally catching up with our own. One implication of the REIT market having now
more or less correctly anticipated the improving fundamental picture is that the
period of multiple expansion for REITs is likely drawing to a close. This
implies to us that returns going forward are likely to be more in accordance
with historical norms. For example, with REITs yielding 5.1% at quarter-end, and
growth anticipated to be approximately 10% in 2005, the potential total return
for REITs would be in line with historical norms over the next 12 months if
earnings multiples remain unchanged. In short, we believe the REIT bull market
is maturing. Accordingly, it is reasonable to expect that returns going forward
are going to be lower than they have been over the last 18 months.
However, REITs generally are not at peak valuation levels, in our view. On
average, our estimates indicate that REITs are trading at about a 6% premium to
NAV. This is above the historical average of 2%, but certainly far from the 25%
premiums generally associated with past valuation peaks. This NAV premium, if
sustained, may actually contribute to REIT earnings growth as companies seeking
to issue stock will generally have the ability to do so at a premium to NAV and
acquire or develop new assets at par.
The growing economy and strengthening of balance sheets has continued in our
view to improve the credit quality of most preferred issuers. Narrowing credit
spreads could continue to help preferreds perform well. A relative paucity of
new supply -- somewhat the result of lower borrowing needs amid stronger cash
flow funding and delevering -- has also lifted preferred valuations. However,
the near-term direction of bond yields, which is vital to preferred pricing,
remains somewhat uncertain. That said, the trend over the past few quarters,
while erratic, has been toward higher yields over time, and we expect to see
that pattern continue. Our view that the economic expansion will continue apace
supports this thesis.
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3
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
Since we believe the potential for rising interest rates remains, we intend
to remain defensively postured in our fixed income holdings. Given this stance
and our ongoing positive view of REIT fundamentals, we intend to continue to
manage the fund with a relatively lower allocation to preferreds than to REITs.
We believe the fund remains well-positioned to meet its goal of delivering
high current income as well as portfolio diversification, considering that REITs
and preferreds have low correlations, generally, to other asset classes and to
each other. We also believe that the balance of REIT equities and preferreds
will continue to provide the potential for attractive income and long-term
returns for our shareholders.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JOSEPH M. HARVEY WILLIAM F. SCAPELL
JOSEPH M. HARVEY WILLIAM F. SCAPELL
Portfolio Manager Portfolio Manager
-------------------------------------------------------------------------------
VISIT COHEN & STEERS ONLINE AT COHENANDSTEERS.COM
For more information about any of our funds, visit
cohenandsteers.com, where you'll find daily net asset
values, fund fact sheets and portfolio highlights. You can
also access newsletters, education tools and market updates
covering the REIT, utility and preferred securities sectors.
In addition, our Web site contains comprehensive information
about our firm, including our most recent press releases,
profiles of our senior investment professionals, and an
overview of our investment approach.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
--------------------------------------------------------------------------------
OUR LEVERAGE STRATEGY (UNAUDITED)
While we do not attempt to predict what future interest
rates will be, it has been our philosophy to utilize
interest rate swap transactions to seek to reduce the
interest rate risk inherent in our utilization of leverage.
Our leverage strategy involves issuing auction market
preferred shares (AMPS) to raise additional capital for the
fund, with an objective of increasing the net income
available for shareholders. As of September 30, 2004, AMPS
represented 33% of the fund's managed net assets.
Considering that AMPS have variable dividend rates, we seek
to lock in the rate on a majority of this additional capital
through interest rate swap agreements (where we effectively
convert our variable rate obligation to a fixed rate
obligation for the term of the swap agreements).
Specifically, we have fixed the rate on 68% of our leverage
at an average interest rate of 3.7%, for an average
remaining period of 4.2 years (when we first entered into
the swaps, the average term was 5.3 years). By locking in a
large portion of our leveraging costs, we have endeavored to
adequately protect the dividend-paying ability of the fund,
which is one of the reasons the fund was recently able to
increase its monthly dividend. The use of leverage increases
the volatility of the fund's net asset value in both up and
down markets. However, we believe that locking in a portion
of the fund's leveraging costs for the term of the swap
agreements partially protects the fund from any impact that
an increase in short-term interest rates may have as a
result of the use of leverage. The swap contracts also
provide a modest NAV cushion, as they are assets of the fund
that are marked-to-market daily and will rise in value in a
rising rate environment.
Leverage Facts(a)
Leverage (as % of managed net assets)................... 33%
% Fixed Rate............................................ 68%
% Variable Rate......................................... 32%
Average Rate on Swaps................................... 3.7%
Average Term on Swaps................................... 4.2 years
Current Rate on AMPS.................................... 1.9%
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-------------------
(a) Data as of September 30, 2004. Information is subject to change.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD(a)
---------- -------------- ------------
COMMON STOCK 84.77%(b)
DIVERSIFIED 7.06%
Capital Trust Class A................ 97,400 $ 2,834,340 6.19%
Colonial Properties Trust............ 300,000 12,066,000 6.66
Crescent Real Estate Equities Co..... 1,490,500 23,460,470 9.53
iStar Financial...................... 990,000 40,817,700 6.77
Vornado Realty Trust................. 239,100 14,986,788 4.53
--------------
94,165,298
--------------
HEALTH CARE 13.04%
Health Care Property Investors....... 2,900,600 75,415,600 6.42
Health Care REIT..................... 1,745,600 61,445,120 6.82
Nationwide Health Properties......... 1,362,200 28,265,650 7.13
Ventas............................... 335,000 8,683,200 5.02
--------------
173,809,570
--------------
HOTEL 2.07%
Hospitality Properties Trust......... 545,200 23,165,548 6.78
Strategic Hotel Capital.............. 323,800 4,377,776 6.51
--------------
27,543,324
--------------
INDUSTRIAL 4.08%
First Industrial Realty Trust........ 1,472,200 54,324,180 7.43
--------------
MORTGAGE 2.36%
Newcastle Investment Corp............ 1,024,274 31,445,212 7.82
--------------
OFFICE 24.35%
Arden Realty......................... 1,488,700 48,501,846 6.20
Brandywine Realty Trust.............. 787,800 22,436,544 6.18
CarrAmerica Realty Corp.............. 942,300 30,813,210 6.12
CRT Properties....................... 290,000 6,220,500 6.53
Equity Office Properties Trust....... 2,943,300 80,204,925 7.34
Highwoods Properties................. 910,200 22,400,022 6.91
HRPT Properties Trust................ 1,228,400 13,500,116 7.64
Mack-Cali Realty Corp................ 1,259,500 55,795,850 5.69
Maguire Properties................... 1,286,100 31,265,091 6.58
Prentiss Properties Trust............ 374,900 13,496,400 6.22
--------------
324,634,504
--------------
-------------------
(a) Dividend yield is computed by dividing the security's current annual
dividend rate by the last sale price on the principal exchange, or market,
on which such security trades.
(b) Percentages indicated are based on the net assets of the fund.
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6
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
OFFICE/INDUSTRIAL 4.31%
Liberty Property Trust............... 1,143,300 $ 45,549,072 6.12%
Mission West Properties.............. 908,900 9,407,115 9.28
Reckson Associates Realty Corp....... 87,500 2,515,625 5.91
--------------
57,471,812
--------------
RESIDENTIAL -- APARTMENT 13.28%
AMLI Residential Properties Trust.... 590,400 18,036,720 6.28
Archstone-Smith Trust................ 2,324,000 73,531,360 5.44
Camden Property Trust................ 581,800 26,879,160 5.50
Gables Residential Trust............. 1,186,100 40,505,315 7.06
Mid-America Apartment Communities.... 349,000 13,593,550 6.01
Town & Country Trust................. 173,400 4,413,030 6.76
--------------
176,959,135
--------------
SELF STORAGE 0.65%
Sovran Self Storage.................. 222,200 8,705,796 6.18
--------------
SHOPPING CENTER 13.57%
COMMUNITY CENTER 8.10%
Cedar Shopping Centers............... 400,000 5,580,000 6.45
Heritage Property Investment Trust... 2,002,300 58,407,091 7.20
New Plan Excel Realty Trust.......... 1,340,500 33,512,500 6.60
Ramco-Gershenson Properties Trust.... 390,000 10,561,200 6.20
--------------
108,060,791
--------------
REGIONAL MALL 5.47%
Glimcher Realty Trust................ 2,121,600 51,554,880 7.90
Macerich Co.......................... 215,200 11,468,008 4.58
Mills Corp........................... 190,200 9,865,674 4.59
--------------
72,888,562
--------------
TOTAL SHOPPING CENTER................ 180,949,353
--------------
TOTAL COMMON STOCK
(Identified cost --
$943,674,848)................ 1,130,008,184
--------------
PREFERRED SECURITIES -- $25
PAR VALUE 26.14%
AGRICULTURAL CHEMICALS 0.20%
Agrium, 8.00% (COPrS)................ 107,600 2,715,824 7.92
--------------
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
AUTOMOTIVE 1.16%
DaimlerChrysler, 7.25% (CBTCS)....... 23,708 $ 600,049 7.15%
DaimlerChrysler, 7.50% (CBTCS)....... 37,300 967,935 7.24
Delphi Trust I, 8.25%, due 10/15/33,
Series A.......................... 456,100 11,785,624 7.97
Ford Motor Co., 8.00% (CORTS)........ 80,000 2,085,600 7.67
--------------
15,439,208
--------------
BANK 2.49%
ASBC Capital I, 7.625%, Series A
(TOPrS)........................... 75,500 2,023,400 7.13
Cobank ACB, 7.00%, 144A(a)........... 200,000 10,315,960 6.79
Colonial Capital Trust IV, 7.875%.... 310,000 8,292,500 7.36
Countrywide Capital IV, 6.75%........ 71,100 1,793,853 6.70
First Republic Bank, 6.70%........... 200,000 5,010,000 6.71
Fleet Capital Trust VII, 7.20%
Series............................ 94,800 2,488,500 6.86
Fleet Capital Trust VIII, 7.20%
Series............................ 87,900 2,314,407 6.84
Old Second Bancorp Capital Trust I,
7.80%............................. 90,000 979,110 7.16
--------------
33,217,730
--------------
BANK -- FOREIGN 1.39%
Abbey National PLC, 7.375%, Series B. 105,700 2,858,128 6.80
Abbey National PLC, 7.375%, Series C. 493,264 13,140,553 6.91
Northern Rock PLC, 8.00%, Series..... 30,000 753,339 7.96
Royal Bank of Scotland Group, 7.25%,
Series H.......................... 69,300 1,750,518 7.17
--------------
18,502,538
--------------
ELECTRIC -- INTEGRATED 1.49%
EIX Trust I, 7.875%, due 7/26/29,
Series............................ 165,900 4,182,339 7.81
Energy East Capital Trust I, 8.25%... 61,000 1,628,090 7.72
Enterprise Capital Trust, 7.44%...... 74,200 1,864,646 7.40
Northern States Power Co., 8.00%,
Notes (PINES)..................... 41,700 1,132,155 7.37
PSEG Funding Trust II, 8.75%
Series............................ 199,900 5,509,244 7.95
Puget Sound Energy Capital Trust II,
8.40% (TOPrS)..................... 95,800 2,542,532 7.91
Southern California Edison, 7.23%,
due 4/30/07, Series M............. 12,300 1,245,375 7.14
Virginia Power Capital Trust II,
7.375%, (TruPS)................... 62,061 1,669,441 6.84
--------------
19,773,822
--------------
-------------------
(a) The fund prices this security at fair value using procedures approved by
the fund's board of directors.
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8
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
FINANCE 0.91%
CREDIT CARD 0.81%
MBNA Capital, 8.125%, Series D
(TruPS)........................... 234,100 $ 6,250,470 7.60%
MBNA Capital, 8.10%, Series E
(TOPrs)........................... 166,300 4,491,763 7.52
--------------
10,742,233
--------------
DIVERSIFIED FINANCIAL SERVICES 0.10%
National Rural Utilities, 7.40%
(QUICS)........................... 48,300 1,283,814 6.96
--------------
TOTAL FINANCE........................ 12,026,047
--------------
GAS -- DISTRIBUTION 3.59%
Dominion CNG Capital, 8.40%.......... 78,700 2,105,225 7.29
Laclede Capital Trust I, 7.70%
(TOPrS)........................... 56,300 1,517,285 7.16
Southern Union Co., 7.55%, Series C.. 1,040,000 28,017,600 7.02
Southwest Gas Capital Trust II,
7.70%............................. 600,000 16,200,000 7.15
--------------
47,840,110
--------------
INSURANCE 2.20%
LIFE/HEALTH INSURANCE 0.21%
Lincoln National Capital V, 7.65%,
Series E (TruPS).................. 63,700 1,688,050 7.21
Torchmark Capital Trust I, 7.75%..... 41,000 1,103,720 7.21
--------------
2,791,770
--------------
MULTI-LINE 0.81%
ING Groep NV, 7.05% Series........... 241,600 6,313,008 6.74
ING Groep NV, 7.20% Series........... 165,700 4,407,620 6.77
--------------
10,720,628
--------------
PROPERTY/CASUALTY 0.99%
ACE Ltd., 7.80%, Series C............ 380,400 10,232,760 7.25
St. Paul Capital Trust I, 7.60%
(TruPS)........................... 115,130 3,003,742 7.27
--------------
13,236,502
--------------
REINSURANCE -- FOREIGN 0.19%
RenaissanceRE Holdings Ltd., 8.10%,
Series A.......................... 30,900 829,974 7.56
RenaissanceRE Holdings Ltd., 7.30%,
Series B.......................... 65,900 1,743,055 6.92
--------------
2,573,029
--------------
TOTAL INSURANCE...................... 29,321,929
--------------
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9
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
MEDIA 2.11%
CABLE TELEVISION 1.28%
Shaw Communications, 8.45%, Series A
(COPrS)........................... 199,092 $ 5,007,164 8.39%
Shaw Communications, 8.50%, Series B
(COPrS)........................... 479,700 12,064,455 8.47
--------------
17,071,619
--------------
DIVERSIFIED SERVICES 0.83%
AOL Time Warner, 7.625%, Series A-1
(CABCO)........................... 109,900 2,900,261 7.24
Liberty Media Corp., 8.75% (CBTCS)... 198,500 5,250,325 8.28
Liberty Media Corp., 8.75% (PPLUS)... 108,745 2,926,328 8.14
--------------
11,076,914
--------------
TOTAL MEDIA.......................... 28,148,533
--------------
MEDICAL -- HMO 0.06%
Aetna, 8.50%, Senior Notes........... 32,000 861,120 7.92
--------------
OIL -- EXPLORATION 1.22%
Nexen, 7.35%, due 11/1/43, Series B.. 608,660 16,306,001 6.87
--------------
REAL ESTATE 7.42%
Apartment Investment and Management
Co., 8.00%, Series T.............. 93,700 2,335,941 8.02
Cousins Properties, 7.75%, Series A.. 457,500 11,798,925 7.52
Developers Diversified Realty Corp.,
8.00%, Series G................... 38,700 1,021,293 7.58
Forest City Enterprises, 7.375%,
Senior Notes...................... 50,000 1,257,000 7.32
Glimcher Realty Trust, 8.75%,
Series F.......................... 280,000 7,417,200 8.27
Glimcher Realty Trust, 8.125%,
Series G.......................... 240,000 6,108,000 7.98
Health Care REIT, 7.875%, Series D... 100,000 2,534,000 7.77
Innkeepers USA Trust, 8.00%,
Series C.......................... 88,000 2,226,400 7.91
iStar Financial, 7.875%, Series E.... 400,000 10,076,000 7.82
iStar Financial, 7.80%, Series F..... 292,400 7,374,328 7.73
iStar Financial, 7.65%, Series G..... 80,000 2,000,000 7.64
Kilroy Realty Corp, 7.80%,
Series E.......................... 100,000 2,589,000 7.53
Maguire Properties, 7.625%,
Series A.......................... 288,900 7,193,610 7.67
Mid-America Apartment Communities,
8.30%, Series H................... 690,600 17,796,762 8.07
Mills Corp., 8.75%, Series E......... 197,600 5,335,200 8.11
Omega Healthcare Investors, 8.375%,
Series D.......................... 200,000 5,210,000 8.02
Saul Centers, 8.00%, Series A........ 94,400 2,515,760 7.50
SL Green Realty Corp., 7.625%,
Series C.......................... 100,000 2,563,000 7.45
SL Green Realty Corp., 7.875%,
Series D.......................... 60,000 1,530,000 7.73
--------------
98,882,419
--------------
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10
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
TELECOMMUNICATION SERVICES 1.90%
Centaur Funding Corp., 9.08%(a).. ... 13,908 $ 17,412,794 7.25%
Telephone & Data Systems, 7.60%,
Series A.......................... 197,800 5,208,074 7.22
United States Cellular Corp., 7.50%,
due 6/15/34, Series............... 105,000 2,756,250 7.16
--------------
25,377,118
--------------
TOTAL PREFERRED SECURITIES --
$25 PAR VALUE (Identified
cost -- $337,940,464)........ 348,412,399
--------------
PREFERRED SECURITIES --
CAPITAL TRUST 32.64%
BANK 7.04%
AgFirst Farm Credit Bank, 7.30%,
due 10/14/49, 144A................ 29,100,000 29,392,455 7.23
Astoria Capital Trust I, 9.75%,
due 11/1/29, Series B............. 13,500,000 16,051,500 8.20
BankBoston Capital Trust II, 7.75%,
due 12/15/26...................... 1,500,000 1,658,877 7.01
BT Preferred Capital Trust II,
7.875%, due 2/25/27............... 5,000,000 5,603,045 7.03
Great Western Financial Trust II,
8.206%, due 2/1/27, Series A...... 5,232,000 5,928,186 7.25
ML Capital Trust I, 9.875%, due
3/1/27, Series B.................. 1,800,000 2,124,225 8.37
Republic New York Capital I, 7.75%,
due 11/15/26 (TruPS).............. 1,000,000 1,099,698 7.05
Roslyn Preferred Trust FRN, 4.78%,
due 4/1/32, 144A.................. 10,000,000 9,975,000 4.77
Roslyn Real Estate Asset Corp. FRN,
4.813%, due 9/30/08, Series D..... 100 10,000,000 4.76
Sky Financial Capital Trust I, 9.75%,
due 5/1/30, Series B.............. 3,000,000 3,516,000 7.97
Webster Capital Trust I, 9.36%,
due 1/29/27, 144A................. 7,300,000 8,420,090 8.11
--------------
93,769,076
--------------
-------------------
(a) The fund prices this security at fair value using procedures approved by
the fund's board of directors.
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11
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
BANK -- FOREIGN 8.06%
BNP Paribas Capital Trust V, 7.20%... 19,550,000 $ 20,537,685 6.85%
CA Preferred Fund Trust, 7.00%
(Eurobond)........................ 25,200,000 26,139,733 6.75
HBOS Capital Funding LP, 6.85%....... 24,000,000 24,614,544 6.68
HSBC Capital Funding LP, 10.176%..... 9,680,000 14,827,892 6.65
RBS Capital Trust B, 6.80%........... 20,700,000 21,291,316 6.61
--------------
107,411,170
--------------
ELECTRIC -- INTEGRATED 2.24%
Dominion Resources Capital Trust III,
8.40%, due 1/15/31................ 21,732,000 26,687,005 7.80
DPL Capital Trust, 8.125%, due
9/1/31............................ 3,000,000 3,127,500 7.80
--------------
29,814,505
--------------
FINANCE 4.65%
CREDIT CARD 0.52%
MBNA Capital, 8.278%, due 12/1/26,
Series A.......................... 6,200,000 6,921,767 7.42
--------------
DIVERSIFIED FINANCIAL SERVICES 2.08%
Old Mutual Capital Funding, 8.00%,
due 5/29/49 (Eurobond)............ 27,000,000 27,768,204 7.78
--------------
INVESTMENT BANKER/BROKER 1.06%
Chase Capital I, 7.67%, due
12/1/06........................... 2,519,000 2,732,387 7.07
JPM Capital Trust I, 7.54%, due
1/15/27........................... 3,925,000 4,200,649 7.05
JPM Capital Trust II, 7.95%, due
2/27/07........................... 6,400,000 7,146,112 7.12
--------------
14,079,148
--------------
MORTGAGE LOAN/BROKER 0.99%
Countrywide Capital III, 8.05%, due
6/15/27, Series B (SKIS).......... 11,285,000 13,245,126 6.86
--------------
TOTAL FINANCE........................ 62,014,245
--------------
FOOD -- DAIRY PRODUCTS 0.79%
Dairy Farmers of America, 7.875%,
144A(a)........................... 105,000 10,555,734 7.84
--------------
INSURANCE 8.09%
BROKERS 0.17%
Aon Capital Trust A, 8.205%, due
1/1/27............................ 2,000,000 2,302,776 7.13
--------------
LIFE/HEALTH 0.33%
AmerUS Capital, 8.85%, due 2/1/27,
Series A.......................... 4,000,000 4,334,580 8.17
--------------
-------------------
(a) The fund prices this security at fair value using procedures approved by
the fund's board of directors.
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12
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- -------------- ------------
MULTI-LINE 5.99%
AFC Capital Trust I, 8.207%, due
2/03/27, Series B................. 5,000,000 $ 5,000,000 8.21%
AXA, 7.10%, (Eurobond)............... 26,500,000 27,328,125 6.88
GenAmerica Capital I, 8.525%, due
6/30/27........................... 14,000,000 16,256,744 7.35
USF&G Capital, 8.312%, due 7/01/46... 2,000,000 2,428,220 6.84
Zurich Capital Trust I, 8.376%, due
6/01/37........................... 25,212,000 28,860,580 7.32
--------------
79,873,669
--------------
PROPERTY/CASUALTY 1.60%
Oil Casualty Insurance, 8.00%, due
9/15/34........................... 5,000,000 4,983,265 8.03
W.R. Berkley Capital Trust, 8.197%,
due 12/15/45...................... 15,100,000 16,399,959 7.55
--------------
21,383,224
--------------
TOTAL INSURANCE...................... 107,894,249
--------------
PIPELINES 1.77%
K N Capital Trust I, 8.56%, due
4/15/27 (TruPS)................... 9,513,000 11,103,174 7.33
K N Capital Trust III, 7.63%, due
4/15/28 (TruPS)................... 11,330,000 12,474,092 6.93
--------------
23,577,266
--------------
TOTAL PREFERRED
SECURITIES -- CAPITAL TRUST
(Identified cost --
$421,059,937)................. 435,036,245
--------------
PRINCIPAL
AMOUNT
-----------
CORPORATE BOND 5.74%
AUTOMOTIVE 3.97%
Ford Holdings, 9.30%, due 3/1/30....... $ 2,500,000 2,858,047
Ford Motor Co., 9.98%, due 2/15/47..... 14,400,000 17,780,026
General Motors Corp., 7.375%, due
5/23/48............................. 19,377,000 18,557,585
General Motors Corp., 8.25%, due
7/15/23............................. 13,000,000 13,707,993
--------------
52,903,651
--------------
DIVERSIFIED FINANCIAL SERVICES 0.38%
BF Saul Real Estate Investment Trust,
7.50%, due 3/1/14, 144A............. 5,000,000 5,125,000
--------------
INVESTMENT BANKER/BROKER 0.62%
NBP Capital Trust III, 7.375%, due
10/29/49............................ 7,900,000 8,231,255
--------------
--------------------------------------------------------------------------------
13
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
----------- --------------
MEDIA -- DIVERSIFIED SERVICES 0.77%
Liberty Media Corp., 8.25%, due
2/1/30.............................. $ 9,250,000 $ 10,295,564
--------------
TOTAL CORPORATE BOND
(Identified cost -- $72,007,883) 76,555,470
--------------
COMMERCIAL PAPER 0.24%
State Street Boston Corp., 1.40%,
due 10/01/04 (Identified
cost -- $3,178,000)...... 3,178,000 3,178,000
--------------
TOTAL INVESTMENTS (Identified
cost -- $1,777,861,132)............ 149.53% 1,993,190,298(a)
OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 0.81% 10,790,608
LIQUIDATION VALUE OF AUCTION MARKET
PREFERRED SHARES: SERIES M7, SERIES
T7, SERIES W7, SERIES TH7, SERIES F7
(Equivalent to $25,000 per share
based on 3,280 shares outstanding per
class), SERIES W28A, SERIES W28B,
SERIES W28C (Equivalent to $25,000 per
share based on 2,800 shares
outstanding per class), AND
SERIES T28 (Equivalent to $25,000
per share based on 2,040 shares
outstanding per class)............. (50.34)% (671,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON
SHARES (Equivalent to $27.63 per
share based on 48,251,666 shares of
capital stock outstanding)......... 100.00% $1,332,980,906
--------------
--------------
GLOSSARY OF PORTFOLIO ABBREVIATIONS
--------------------------------------------------------------------------------
CABCO Corporate Asset Backed Corporation
CBTCS Corporate Backed Trust Certificates
COPrS Canadian Origin Preferred Securities
CORTS Corporate Backed Trust Securities
FRN Floating Rate Note
PINES Public Income Notes
PPLUS Preferred Plus Trust
QUICS Quarterly Income Capital Securities
SKIS Subordinated Capital Income Securities
TOPrS Trust Originated Preferred Securities
TruPS Trust Preferred Securities
--------------------------------------------------------------------------------
-------------------
(a) At September 30, 2004, net unrealized appreciation was $215,329,166
based on cost for federal income tax purposes of $1,777,861,132. This
consisted of aggregate gross unrealized appreciation on investments of
$217,890,933 and aggregate gross unrealized depreciation on investments
of $2,561,767.
--------------------------------------------------------------------------------
14
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NOTE 1. INVESTMENTS IN INTEREST RATE SWAPS
The fund has entered into interest rate swap agreements with Merrill Lynch
Derivative Products AG, UBS AG, and Royal Bank of Canada. Under the
agreements the fund receives a floating rate and pays a respective fixed
rate. Details of the swaps at September 30, 2004 are as follows:
UNREALIZED
NOTIONAL FIXED FLOATING RATE(a) APPRECIATION/
COUNTERPARTY AMOUNT RATE (RESET MONTHLY) TERMINATION DATE (DEPRECIATION)
-------------------------------- ----------- ---------- --------------- ------------------ --------------
Royal Bank of Canada............ $58,125,000 3.3980% 1.840% August 25, 2007 $ (347,903)
Royal Bank of Canada............ $43,250,000 3.4525% 1.77875% September 16, 2008 (6,077)
UBS AG.......................... $58,125,000 2.8325% 1.840% August 25, 2006 (15,298)
UBS AG.......................... $58,125,000 3.9900% 1.840% August 25, 2009 (828,825)
UBS AG.......................... $58,125,000 4.3975% 1.840% August 25, 2010 (1,644,051)
UBS AG.......................... $58,125,000 4.5950% 1.840% August 25, 2011 (1,983,048)
Merrill Lynch Derivative
Products AG................... $43,625,000 3.3200% 1.8275% October 22, 2007 (127,098)
Merrill Lynch Derivative
Products AG................... $58,500,000 3.2075% 1.670% October 2, 2008 555,546
Merrill Lynch Derivative
Products AG................... $20,000,000 3.4100% 1.750% January 13, 2009 102,625
-----------
$(4,294,129)
-----------
-----------
-------------------
(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
at September 30, 2004.
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15
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
FINANCIAL HIGHLIGHTS(a)
SEPTEMBER 30, 2004 (UNAUDITED)
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
----------------------------- ---------------
NET ASSET VALUE:
Beginning of period: 12/31/03............. $1,287,187,821 $26.68
Net investment income................. $ 69,605,291 $ 1.43
Net realized and unrealized gain on
investments and interest rate swap
transactions....................... 58,135,751 1.21
Distributions from net investment income
to:
Common shareholders................... (75,272,600) (1.56)
Preferred shareholders................ (6,941,791) (0.14)
Increase in net assets from preferred
offering cost adjustment........... 266,434 0.01
------------ ------
Net increase in net asset value........... 45,793,085 0.95
-------------- ------
End of period: 9/30/2004.................. $1,332,980,906 $27.63
-------------- ------
-------------- ------
-------------------
(a) Financial information included in this report has been taken from the
records of the fund without examination by independent accountants.
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16
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS(a)
(PERIOD ENDED SEPTEMBER 30, 2004) (UNAUDITED)
SINCE INCEPTION
ONE YEAR (6/27/03)
-------- ---------
21.54% 21.16%
The performance data quoted represent past performance. Past performance is no
guarantee of future results. The rate of return will vary and the principal
value of an investment will fluctuate and shares, if sold, may be worth more or
less than their original cost. Current performance may be lower or higher than
the performance data quoted.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of
the Investment Company Act of 1940 that the fund may
purchase, from time to time, shares of its common stock in
the open market.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A description of the policies and procedures that the fund
uses to determine how to vote proxies relating to portfolio
securities is available (i) without charge, upon request, by
calling 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com, or (iii) on the Securities and Exchange
Commission's (SEC) Web site at http://www.sec.gov. In
addition, the fund's proxy voting record for the most recent
12-month period ended June 30 is available (i) without
charge upon request, by calling 1-800-330-7348, or (ii) on
the SEC's Web site at http://www.sec.gov.
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-------------------
(a) Based on net asset value.
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17
--------------------------------------------------------------------------------
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
--------------------------------------------------------------------------------
PRIVACY POLICY
The fund is committed to maintaining the privacy of its
shareholders and to safeguarding their personal information.
The following is provided to help you understand what
personal information the fund collects, how we protect that
information, and why in certain cases we may share this
information with others.
The fund does not receive any personal information relating
to shareholders who purchase shares through an intermediary
that acts as the record owner of the shares. In the case of
shareholders who are record owners of the fund, to conduct
and process your business in an accurate and efficient
manner, we must collect and maintain certain personal
information about you. This is the information we collect on
applications or other forms, and from the transactions you
make with us.
The fund does not disclose any personal information about
its shareholders or former shareholders to anyone, except as
required or permitted by law or as is necessary to service
shareholder accounts. We will share information with
organizations, such as the fund's transfer agent, that
assist the fund in carrying out its daily business
operations. These organizations will use this information
only for purposes of providing the services required or as
otherwise as may be required by law. These organizations are
not permitted to share or use this information for any other
purpose. In addition, the fund restricts access to personal
information about its shareholders to employees of the
adviser who have a legitimate business need for the
information.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
18
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
REALTY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
DIVIDEND YIELD AND CAPITAL APPRECIATION, RETURN THROUGH BOTH CURRENT INCOME AND
INVESTING PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY
A, B, C AND I SHARES AVAILABLE IN REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX SYMBOL: CSRSX
ALSO AVAILABLE: COHEN & STEERS
INSTITUTIONAL REALTY SHARES (CSRIX)
REQUIRES A HIGHER MINIMUM PURCHASE, BUT
OFFERS A LOWER TOTAL EXPENSE RATIO
FOR TOTAL RETURN: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
UTILITY FUND REALTY FOCUS FUND
IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL IDEAL FOR INVESTORS SEEKING MAXIMUM
RETURN THROUGH BOTH CURRENT INCOME AND CAPITAL APPRECIATION, INVESTING IN A
CAPITAL APPRECIATION, INVESTING PRIMARILY LIMITED NUMBER OF REITS AND OTHER REAL
IN UTILITIES ESTATE COMPANIES
A, B, C AND I SHARES AVAILABLE CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, A, B, C AND I SHARES AVAILABLE
CSUIX SYMBOLS: CSFAX, CSFBX, CSFCX, CSSPX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-7348, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE
FUND CAREFULLY BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER
INFORMATION ABOUT THE FUND MAY BE OBTAINED BY FOLLOWING THE INSTRUCTIONS ABOVE.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
COHEN & STEERS SECURITIES, LLC, DISTRIBUTOR
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19
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT MANAGER
Director and chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and president (212) 832-3232
Bonnie Cohen FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
George Grossman Boston, MA 02110
Director
TRANSFER AGENT -- COMMON SHARES
Richard J. Norman Equiserve Trust Company
Director 250 Royall Street
Canton, MA 02021
Frank K. Ross (800) 426-5523
Director
TRANSFER AGENT -- PREFERRED SHARES
Willard H. Smith Jr. The Bank of New York
Director 100 Church Street
New York, NY 10007
Adam Derechin
Vice president and assistant treasurer LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
Joseph M. Harvey 425 Lexington Avenue
Vice president New York, NY 10017
William F. Scapell New York Stock Exchange Symbol: RNP
Vice president
Web site: cohenandsteers.com
Lawrence B. Stoller
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.
--------------------------------------------------------------------------------
20
[COHEN & STEERS
REIT AND PREFERRED INCOME LOGO]
---------------------------------------------
QUARTERLY REPORT
SEPTEMBER 30, 2004
COHEN & STEERS
REIT AND PREFERRED INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017