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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
April 21, 2004
To Our Shareholders:
We are pleased to submit to you our report for the quarter ended March 31,
2004. The net asset value at that date was $29.09 per share. During the quarter,
three $0.17 per share monthly dividends were paid. In addition, on March 2,
2004, the fund announced a 2.9% increase in the dividend rate and declared its
next three monthly dividends of $0.175 per share, payable on April 30, 2004,
May 28, 2004 and June 30, 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 11.1%. This compares
with the NAREIT Equity REIT Index's total return of 12.0% and the Merrill Lynch
Preferred Fixed Rate Index's total return of 2.8%.
The overall equity market was generally choppy during the first quarter as
the broad market averages showed little change. Meanwhile, interest rates
continued to remain extremely low, and disappointing payroll reports in both
January and February led to strong fixed income performance. This environment
remained very favorable for both REITs and preferreds, as investors continued to
appreciate the potential for both asset classes to provide high current income
and portfolio diversification.
Following the quarter-end, however, bond and stock markets had a decidedly
negative response to the strong March jobs report. REITs were especially
hard-hit in response to the jobs report (as more fully discussed in the
'Investment Outlook' section below), while corporate preferreds fared much
better (although their returns were also negative). One of the key
distinguishing characteristics of the fund is that while both asset classes
offer the potential for attractive current income, REITs and preferreds are not
highly correlated with each other, and, in our view, preferreds may therefore
have a steadying effect on the portfolio in times of falling REIT share prices.
As a result of their recent price pullback, we believe that REIT valuations,
considering improving economic growth prospects, are more attractive now than at
any time over the past several months. We have therefore positioned the
portfolio to have a greater allocation to REIT common stocks than corporate
preferreds (57% vs. 43%, respectively, as of March 31, 2004).
Approximately two and a half years into an economic recovery, we believe the
impact is being felt broadly across the income-producing property markets in
many parts of the United States as demand for space is increasing and rents are
stabilizing. In our view, the resultant acceleration in REIT cash flow growth
rates is what has been driving stock prices since last year. After a modest
earnings decline in 2003, our forecast is for earnings growth to accelerate to
mid-single digit growth this year and high single digit growth next year.
The impact of an improving economy has been felt in credit markets as well.
Several quarters of strong profitability and a broad-based de-leveraging of
balance sheets in 2003 have stabilized credit markets and contributed to a
significant reduction in credit spreads (the risk of owning a preferred or
corporate bond),
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
including in preferreds. Credit spread compression continued in the first
quarter, supporting solid performance of preferreds and corporate bonds.
Although it may take awhile, we expect the next phase of the credit cycle to be
driven by rising 'top line' pricing power as economic strength begins to be felt
more broadly. We believe this will continue to bolster fundamentals and lead to
modestly tighter spreads in more economically sensitive sectors -- in particular
in industrials and basic goods producers. However, it may also lead to a new
leveraging process -- incremental borrowings for organic growth and higher M&A
activity -- as the year progresses and into 2005. Hence, we look for
fundamentals to continue to improve, but also expect more moderate credit spread
gains as prospects for a greater level of corporate borrowing begin to be priced
into the credit markets.
Within the REIT portion of the portfolio, the fund's best performing
investments during the quarter were in the regional mall (23.1% total return)
and industrial (19.1%) sectors, while the worst performing sector for the fund
was the apartment sector (6.6% total return). Ventas Inc., continuing where it
left off from last year, was the fund's best performing stock, contributing a
total return of 26.5% during the quarter. Other standouts included regional mall
owners and operators Glimcher Realty Trust, Macerich Company and Mills Corp.,
all of which provided total returns in excess of 20%. Laggards during the
quarter were Equity Office Properties, Camden Property Trust and
Ramco-Gershenson Property Trust, each of which had a total return of less
than 3%.
The fund's preferred and corporate bond holdings performed very well in the
first quarter, with particularly good relative performance in many of the
institutional preferred holdings. Our higher quality foreign bank preferreds
were standout price performers, and we believe that these issues continue to
offer good relative value. In addition to strong fundamentals, we believe that
the income paid by many of these securities may qualify for the new 15% tax rate
on dividends for individuals. While resolution of this issue remains subject to
an IRS ruling, we believe that taxable investors have begun to embrace this
potential. Many insurance company issues also performed well amid a continuation
of the favorable product pricing in this segment, which has led to much-
improved earnings and financial strength. Preferreds issued by small banks did
well as net interest margins began to expand again following a long period of
contraction and as credit losses continued to drop. Lower credit costs also led
to good finance company preferred performance. The biggest laggards over the
quarter were our automotive holdings, but these have outperformed since the end
of the quarter as the major auto manufacturers released very strong earnings
reports.
INVESTMENT OUTLOOK
As discussed, a very strong March increase in U.S. nonfarm payrolls was
announced on April 2, 2004, well in excess of consensus expectations (308,000
new jobs created versus an expectation of 120,000). The bond and stock markets
reacted negatively to the news due to concerns that the Federal Reserve would
raise interest rates. REIT stock prices declined following the release of the
jobs report as investors took profits from a group of stocks that had
appreciated without interruption for the past 14 months. While REITs have
demonstrated little correlation with interest rates over longer periods of time,
it appears that in the short-term, the extreme bond market activity has
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
negatively impacted REIT prices. Most of the fund's preferred and bond holdings
also fell in price, but to a much more limited degree than the REIT decline.
We continue to maintain a positive outlook for the U.S. economy. At this
time, in our opinion, all the pre-conditions for strong job growth are in place.
Corporate profits have staged a dramatic recovery and are at an all-time high as
a percentage of GDP. Therefore, it is increasingly profitable for firms to hire
the next incremental worker. The recently reported declines in weekly initial
jobless claims to three-year lows and the spike in the monthly change in nonfarm
payrolls to the highest levels in four years have finally begun to demonstrate
that this is occurring. Bond yields have increased significantly since the end
of the quarter, and it is possible that higher rates could lie ahead. We have
taken a number of steps to address the prospect of higher interest rates within
the portfolio in terms of asset weight and security selection.
We have discretion to allocate the fund's portfolio to as much as 60% in
preferred stocks and as little as 40%. We expect to maintain a fixed income
weight at the low end of that range, as REITs now appear to be more attractively
valued than preferreds, in our view. Our fixed income holdings mostly bear
relatively higher coupons, as such higher coupon securities historically have
fared better in periods of rising interest rates. Specifically, the
weighted-average coupon rate on the fund's fixed income holdings is 7.85%, which
is well above the 7.08% weighted-average on the Merrill Lynch Fixed-Rate
Preferred Index. Higher coupon instruments generally have been more defensive in
past rising rate environments for a number of reasons, including the fact that
more of the total return of the instrument is derived from 'clipping coupons'
and reinvesting. In addition, we have added some floating-rate securities at the
margin, which we believe would benefit from rising rates.
With respect to our outlook for REITs, we believe that a normal cyclical
economic recovery is in the process of unfolding and the supply/demand dynamic
in most real estate markets is turning more positive. Though not widely
understood, we believe that job growth has actually been occurring for some
time. Many of the companies that we invest in are on the front lines of the
consumer and corporate economy. A number of the office and apartment companies
that we speak with have observed improved leasing activity for their portfolios
that would contradict the virtually nonexistent rate of job growth implied by
the official government statistics until recently. As a result of the
historically low interest rate environment of the last few years, many REITs
were able to improve their balance sheets in a way that gives these companies
better potential for an attractive spread between property yields and their
blended cost of capital. As a result, our forecast is that cash flow growth
rates for REITs should begin to accelerate in 2004 after declining in 2003.
With earnings visibility improving, our forecast is for a resumption of
meaningful dividend increases in the next year or two. This is an important
factor to consider when assessing how REITs react to rising interest rates.
Unlike fixed income securities, REITs have the potential to increase their
dividends as the economy expands and companies see their earnings increase,
which can help to offset rising rates. During the last economic expansion, for
example (the period from 1992 through 2001), REITs increased their dividends on
average by about 7% per year. This again represents an important characteristic
of the fund. While the fund's main objective is to deliver
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
high current income, the REIT common stock holdings offer the potential for
dividend growth over time, unlike funds that invest only in fixed income
securities.
As a result of the recent pullback, REITs are now back to trading closely in
line with their underlying net asset values. We therefore believe REIT
valuations are now more attractive than at any time over the past several
months. While market activity could continue to be choppy over the near term, we
believe that REIT fundamentals are poised to continue to improve, which should
be positive for dividends and share prices over the intermediate and longer
term. The same positive forces that are contributing to a better outlook for
REIT fundamentals (i.e., an improving economy) should also be positive for the
fundamentals of many of our preferred holdings. In our view, this environment
should lead to improving credit characteristics of the fund's preferred holdings
and earnings growth of the fund's REIT holdings, which potentially could enhance
the dividend-paying ability of these companies and lead to further dividend
increases over time. We believe the fund is well positioned to deliver
attractive current income, and that the balance of REITs and corporate
preferreds will help to temper the cycle of each individual asset class.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
GREG E. BROOKS WILLIAM F. SCAPELL
GREG E. BROOKS WILLIAM F. SCAPELL
Portfolio Manager Portfolio Manager
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
OUR LEVERAGE STRATEGY
The bond market reacted to the strong March jobs report released on April 2nd by
turning in its worst single day in 20 years, with the yield on the 10-year
Treasury bond increasing from 3.9% to 4.2%. 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. In this period of significant interest
rate volatility, and with the possibility that interest rates could trend higher
in the near term, we want to take the opportunity to review our leverage
strategy.
Our leverage strategy involves issuing auction market preferred stock (AMPS) to
raise additional capital for the fund, with an objective of increasing the net
income available for shareholders. As of March 31, 2004, AMPS represented 32% of
the fund's total capital. 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 4.7 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
Leverage (as % of total assets)..................... 32%
% Fixed Rate........................................ 68%
% Variable Rate..................................... 32%
Average Rate on Swaps............................... 3.7%
Average Term on Swaps............................... 4.7 years
Current Rate on AMPS................................ 1.1%
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD(a)
----------- -------------- --------
COMMON STOCK 84.59%(b)
DIVERSIFIED 6.79%
Colonial Properties Trust.......................... 300,000 $ 12,240,000 6.57%
Crescent Real Estate Equities Co. ................. 1,490,500 26,784,285 8.35
iStar Financial.................................... 990,000 41,877,000 6.60
Vornado Realty Trust............................... 239,100 14,460,768 4.70
--------------
95,362,053
--------------
HEALTH CARE 13.72%
Health Care Property Investors..................... 2,900,600 82,086,980 5.90
Health Care REIT................................... 1,745,600 70,871,360 5.91
Nationwide Health Properties....................... 1,362,200 30,336,194 6.65
Ventas............................................. 335,000 9,205,800 4.73
--------------
192,500,334
--------------
HOTEL 1.80%
Hospitality Properties Trust....................... 545,200 25,297,280 6.21
--------------
INDUSTRIAL 4.14%
First Industrial Realty Trust...................... 1,472,200 58,151,900 6.94
--------------
MORTGAGE 2.46%
Newcastle Investment Corp.......................... 1,024,274 34,518,034 7.12
--------------
OFFICE 23.86%
Arden Realty....................................... 1,488,700 48,129,671 6.25
Brandywine Realty Trust............................ 787,800 24,067,290 5.76
CarrAmerica Realty Corp............................ 942,300 31,943,970 5.90
Equity Office Properties Trust..................... 2,943,300 85,031,937 6.92
Highwoods Properties............................... 910,200 23,856,342 6.49
HRPT Properties Trust.............................. 1,228,400 13,880,920 7.08
Koger Equity....................................... 290,000 6,806,300 5.97
Mack-Cali Realty Corp. ............................ 1,209,500 54,318,645 5.61
Maguire Properties................................. 1,286,100 32,924,160 6.25
Prentiss Properties Trust.......................... 374,900 13,833,810 6.07
--------------
334,793,045
--------------
-------------------
(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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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
OFFICE/INDUSTRIAL 4.73%
Liberty Property Trust............................. 1,143,300 $ 51,448,500 5.38%
Mission West Properties............................ 939,500 12,448,375 7.25
Reckson Associates Realty Corp. ................... 87,500 2,462,250 6.04
--------------
66,359,125
--------------
RESIDENTIAL -- APARTMENT 12.26%
AMLI Residential Properties Trust.................. 590,400 16,678,800 6.80
Archstone-Smith Trust.............................. 2,324,000 68,581,240 5.83
Camden Property Trust.............................. 581,800 26,151,910 5.65
Gables Residential Trust........................... 1,186,100 42,996,125 6.65
Mid-America Apartment Communities.................. 349,000 12,958,370 6.30
Town & Country Trust............................... 173,400 4,716,480 6.32
--------------
172,082,925
--------------
SELF STORAGE 0.66%
Sovran Self Storage................................ 222,200 9,281,294 5.77
--------------
SHOPPING CENTER 14.17%
COMMUNITY CENTER 8.62%
Cedar Shopping Centers............................. 400,000 5,676,000 4.51
Heritage Property Investment Trust................. 2,002,300 62,271,530 6.75
New Plan Excel Realty Trust........................ 1,538,100 42,067,035 6.03
Ramco-Gershenson Properties Trust.................. 390,000 10,998,000 5.96
--------------
121,012,565
--------------
REGIONAL MALL 5.55%
Glimcher Realty Trust.............................. 2,074,000 56,205,400 7.08
Macerich Co........................................ 215,200 11,599,280 4.53
Mills Corp. ....................................... 190,200 10,135,758 4.47
--------------
77,940,438
--------------
TOTAL SHOPPING CENTER.............................. 198,953,003
--------------
TOTAL COMMON STOCK (Identified
cost -- $945,739,766)....................... 1,187,298,993
--------------
PREFERRED SECURITIES -- $25 PAR VALUE 24.72%
AGRICULTURAL CHEMICALS 0.18%
Agrium, 8.00% (COPrS).............................. 101,400 2,551,224 7.95
--------------
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
AUTOMOTIVE 1.19%
DaimlerChrysler, 7.25% (CBTCS)..................... 23,708 $ 614,037 6.99%
DaimlerChrysler, 7.50% (CBTCS)..................... 37,300 988,450 7.09
Delphi Trust I, 8.25%, due 10/15/33, Series A...... 456,100 12,200,675 7.70
Ford Motor Co., 7.50%, Note........................ 21,951 571,824 7.22
Ford Motor Co., 8.00% (CORTS)...................... 85,000 2,278,000 7.46
--------------
16,652,986
--------------
BANK 2.42%
ASBC Capital I, 7.625%, Series A (TOPrS)........... 75,500 2,052,845 7.02
Cobank ACB, 7.00%, 144A(a)......................... 200,000 10,655,460 6.57
Colonial Capital Trust IV, 7.875%.................. 310,000 8,258,400 7.39
Countrywide Capital IV, 6.75%...................... 71,100 1,876,329 6.40
First Republic Bank, 6.70%......................... 200,000 5,156,000 6.52
Fleet Capital Trust VII, 7.20% Series.............. 94,800 2,551,068 6.69
Fleet Capital Trust VIII, 7.20% Series............. 87,900 2,404,944 6.58
Old Second Bancorp Capital Trust I, 7.80%.......... 90,000 984,150 7.13
--------------
33,939,196
--------------
BANK -- FOREIGN 1.18%
Abbey National PLC, 7.375%, Series B............... 105,700 2,941,631 6.61
Abbey National PLC, 7.375%, Series C............... 493,264 13,668,345 6.64
--------------
16,609,976
--------------
ELECTRIC -- INTEGRATED 1.03%
Energy East Capital Trust I, 8.25%................. 61,000 1,682,990 7.47
Northern States Power Co., 8.00%, Notes (PINES).... 41,700 1,160,094 7.19
Penelec Capital Trust, 7.34% (TOPrS)............... 12,300 311,559 7.26
PSEG Funding Trust II, 8.75% Series................ 199,900 5,707,145 7.67
Puget Sound Energy Capital Trust II, 8.40%
(TOPrS)......................................... 95,800 2,574,146 7.82
Southern California Edison, 7.23%, due 4/30/07,
Series M........................................ 12,300 1,251,525 7.11
Virginia Power Capital Trust II, 7.375%, (TruPS)... 62,061 1,703,574 6.70
--------------
14,391,033
--------------
FINANCE 1.19%
AUTO LOAN 0.32%
Ford Motor Credit Co., 7.60%, Note................. 82,800 2,214,900 7.10
General Motors Acceptance Corp., 7.25%, Notes...... 84,900 2,237,964 6.87
--------------
4,452,864
--------------
-------------------
(a) The fund prices this security at fair value using procedures approved by the
fund's board of directors.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
CREDIT CARD 0.78%
MBNA Capital, 8.125%, Series D (TruPS)............. 234,100 $ 6,365,179 7.47%
MBNA Capital, 8.10%, Series E (TOPrs).............. 166,300 4,628,129 7.29
--------------
10,993,308
--------------
DIVERSIFIED FINANCIAL SERVICES 0.09%
National Rural Utilities, 7.40% (QUICS)............ 48,300 1,306,515 6.84
--------------
TOTAL FINANCE...................................... 16,752,687
--------------
GAS -- DISTRIBUTION 3.45%
Dominion CNG Capital, 8.40%........................ 78,700 2,162,676 7.10
Laclede Capital Trust I, 7.70% (TOPrS)............. 47,900 1,334,015 6.93
Southern Union Co., 7.55%, Series C................ 1,040,000 28,704,000 6.85
Southwest Gas Capital Trust II, 7.70%.............. 600,000 16,194,000 7.15
--------------
48,394,691
--------------
INSURANCE 2.14%
LIFE/HEALTH INSURANCE 0.18%
Lincoln National Capital V, 7.65%, Series E
(TruPS)......................................... 52,300 1,418,899 7.04
Torchmark Capital Trust I, 7.75%................... 41,000 1,132,010 7.03
--------------
2,550,909
--------------
MULTI-LINE 0.79%
ING Groep NV, 7.05% Series......................... 241,600 6,532,864 6.51
ING Groep NV, 7.20% Series......................... 165,700 4,538,523 6.57
--------------
11,071,387
--------------
PROPERTY/CASUALTY 0.98%
ACE Ltd., 7.80%, Series C.......................... 380,400 10,651,200 6.96
St. Paul Capital Trust I, 7.60% (TruPS)............ 114,130 3,114,608 6.96
--------------
13,765,808
--------------
REINSURANCE -- FOREIGN 0.19%
RenaissanceRE Holdings Ltd., 8.10%, Series A....... 30,900 855,930 7.33
RenaissanceRE Holdings Ltd., 7.30%, Series B....... 65,900 1,823,453 6.61
--------------
2,679,383
--------------
TOTAL INSURANCE.................................... 30,067,487
--------------
MEDIA 1.98%
CABLE TELEVISION 1.18%
Shaw Communications, 8.45%, Series A (COPrS)....... 199,092 5,009,155 8.39
Shaw Communications, 8.50%, Series B (COPrS)....... 459,700 11,589,037 8.45
--------------
16,598,192
--------------
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
DIVERSIFIED SERVICES 0.80%
AOL Time Warner, 7.625%, Series A-1 (CABCO)........ 104,600 $ 2,843,028 7.03%
Liberty Media Corp., 8.75% (CBTCS)................. 198,500 5,383,320 8.08
Liberty Media Corp., 8.75% (PPLUS)................. 108,145 2,995,616 7.91
--------------
11,221,964
--------------
TOTAL MEDIA........................................ 27,820,156
--------------
MEDICAL -- HMO 0.06%
Aetna, 8.50%, Senior Notes......................... 32,000 888,960 7.67
--------------
OIL -- EXPLORATION 1.17%
Nexen, 7.35%, due 11/1/43, Series B................ 608,660 16,379,041 6.84
--------------
REAL ESTATE 7.14%
Apartment Investment and Management Co., 8.00%,
Series T........................................ 93,700 2,408,090 7.78
Cousins Properties, 7.75%, Series A................ 457,500 12,581,250 7.05
Developers Diversified Realty Corp., 8.00%,
Series G........................................ 38,700 1,070,442 7.23
Forest City Enterprises, 7.375%, Senior Notes...... 50,000 1,274,000 7.22
Glimcher Realty Trust, 8.75%, Series F............. 280,000 7,470,400 8.21
Glimcher Realty Trust, 8.125%, Series G............ 240,000 6,216,000 7.84
Health Care REIT, 7.875%, Series D................. 100,000 2,639,000 7.46
Innkeepers USA Trust, 8.00%, Series C.............. 88,000 2,244,000 7.84
iStar Financial, 7.875%, Series E.................. 400,000 10,460,000 7.53
iStar Financial, 7.80%, Series F................... 292,400 7,587,780 7.51
iStar Financial, 7.65%, Series G................... 80,000 2,080,000 7.35
Kilroy Realty Corp, 7.80%, Series E................ 100,000 2,700,000 7.22
Maguire Properties. 7.625%, Series A............... 288,900 7,450,731 7.41
Mid-America Apartment Communities, 8.30%,
Series H(a)..................................... 690,600 18,162,780 7.91
Mills Corp., 8.75%, Series E....................... 197,600 5,414,240 7.99
Omega Healthcare Investors, 8.375%, Series D....... 200,000 5,240,000 7.98
Saul Centers, 8.00%, Series A...................... 94,400 2,596,000 7.27
SL Green Realty Corp., 7.625%, Series C............ 100,000 2,615,000 7.30
--------------
100,209,713
--------------
TELECOMMUNICATION SERVICES 1.59%
Centaur Funding Corp., 9.08%(b).................... 13,908 17,494,581 7.22
Telephone & Data Systems, 7.60%, Series A.......... 175,600 4,811,440 6.93
--------------
22,306,021
--------------
TOTAL PREFERRED SECURITIES -- $25 PAR VALUE
(Identified cost -- $328,644,967)........... 346,963,171
--------------
-------------------
(a) 200,000 shares segregated as collateral for the interest rate swap
transactions.
(b) The fund prices this security at fair value using procedures approved by the
fund's board of directors.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
PREFERRED SECURITIES -- CAPITAL TRUST 31.94%
BANK 6.91%
AgFirst Farm Credit Bank, 7.30%, due 10/14/49,
144A............................................ 30,000,000 $ 31,483,950 6.96%
Astoria Capital Trust I, 9.75%, due 11/1/29, Series
B............................................... 13,500,000 16,031,250 8.21
BankBoston Capital Trust II, 7.75%, due 12/15/26... 1,500,000 1,692,248 6.87
BT Preferred Capital Trust II, 7.875%, due
2/25/27......................................... 5,000,000 5,665,050 6.95
Great Western Financial Trust II, 8.206%, due
2/1/27, Series A................................ 5,232,000 6,196,273 6.93
ML Capital Trust I, 9.875%, due 3/1/27, Series B... 1,800,000 2,152,296 8.26
Republic New York Capital I, 7.75%, due 11/15/26
(TruPS)......................................... 1,000,000 1,134,385 6.83
Roslyn Preferred Trust FRN, 4.78%, due 4/1/32,
144A............................................ 10,000,000 10,300,000 4.64
Roslyn Real Estate Asset Corp. FRN, 4.813%, due
9/30/08, Series D............................... 100 10,150,000 4.82
Sky Financial Capital Trust I, 9.75%, due 5/1/30,
Series B........................................ 3,000,000 3,517,500 7.97
Webster Capital Trust I, 9.36%, due 1/29/27,
144A............................................ 7,300,000 8,594,217 7.95
--------------
96,917,169
--------------
BANK -- FOREIGN 8.64%
BNP Paribas Capital Trust V, 7.20%................. 19,550,000 20,774,104 6.78
CA Preferred Fund Trust, 7.00%, due 1/29/49
(Eurobond)...................................... 28,200,000 29,693,528 6.65
HBOS Capital Funding LP, 6.85%..................... 29,000,000 30,294,241 6.56
HSBC Capital Funding LP, 10.176%................... 9,680,000 14,622,850 6.74
RBS Capital Trust B, 6.80%......................... 24,700,000 25,913,560 6.48
--------------
121,298,283
--------------
ELECTRIC -- INTEGRATED 2.16%
Dominion Resources Capital Trust III, 8.40%, due
1/15/31......................................... 21,732,000 27,438,845 6.65
DPL Capital Trust, 8.125%, due 9/1/31.............. 3,000,000 2,865,000 8.51
--------------
30,303,845
--------------
FINANCE 4.19%
CREDIT CARD 0.50%
MBNA Capital, 8.278%, due 12/1/26, Series A........ 6,200,000 6,980,276 7.35
--------------
DIVERSIFIED FINANCIAL SERVICES 1.84%
Old Mutual Capital Funding, 8.00%, due 5/29/49
(Eurobond)...................................... 25,000,000 25,872,775 7.73
--------------
INVESTMENT BANKER/BROKER 0.88%
Chase Capital I, 7.67%, due 12/1/06................ 2,519,000 2,802,355 6.89
JPM Capital Trust I, 7.54%, due 1/15/27............ 1,925,000 2,154,296 6.74
JPM Capital Trust II, 7.95%, due 2/27/07........... 6,400,000 7,330,189 6.94
--------------
12,286,840
--------------
MORTGAGE LOAN/BROKER 0.97%
Countrywide Capital III, 8.05%, due 6/15/27, Series
B (SKIS)........................................ 11,285,000 13,647,582 6.66
--------------
TOTAL FINANCE...................................... 58,787,473
--------------
11
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
FOOD-- DAIRY PRODUCTS 0.75%
Dairy Farmers of America, 7.875%, 144A(a).......... 105,000 $ 10,541,475 7.85%
--------------
INSURANCE 7.37%
BROKERS 0.29%
Aon Capital Trust A, 8.205%, due 1/1/27............ 3,500,000 4,034,461 7.12
--------------
LIFE/HEALTH 0.31%
AmerUS Capital, 8.85%, due 2/1/27, Series A........ 4,000,000 4,399,512 8.05
--------------
MULTI-LINE 5.58%
AXA, 7.10%, due 5/29/49 (Eurobond)................. 28,500,000 29,849,475 6.78
GenAmerica Capital I, 8.525%, due 6/30/27.......... 14,000,000 16,766,344 7.12
USF&G Capital, 8.312%, due 7/1/46.................. 2,000,000 2,370,662 7.01
Zurich Capital Trust I, 8.376%, due 6/1/37......... 25,212,000 29,301,689 7.21
--------------
78,288,170
--------------
PROPERTY/CASUALITY 1.19%
W.R. Berkley Capital Trust, 8.197%, due 12/15/45... 15,100,000 16,779,543 7.38
--------------
TOTAL INSURANCE.................................... 103,501,686
--------------
PIPELINES 1.92%
K N Capital Trust I, 8.56%, due 4/15/27 (TruPS).... 9,513,000 11,578,434 7.03
K N Capital Trust III, 7.63%, due 4/15/28
(TruPS)......................................... 13,330,000 15,423,716 6.59
--------------
27,002,150
--------------
TOTAL PREFERRED SECURITIES -- CAPITAL TRUST
(Identified cost -- $427,131,541)........... 448,352,081
--------------
PRINCIPAL
AMOUNT
-----------
CORPORATE BOND 6.29%
AUTOMOTIVE 4.62%
Ford Holdings, 9.30%, due 3/1/30............... $ 2,500,000 2,878,550
Ford Motor Co., 9.98%, due 2/15/47............. 14,400,000 17,976,226
General Motors Corp., 7.375%, due 5/23/48...... 27,377,000 27,184,759
General Motors Corp., 8.25%, due 7/15/23....... 15,000,000 16,785,420
--------------
64,824,955
--------------
INVESTMENT BANKER/BROKER 0.23%
NBP Capital Trust III, 7.375%, due 10/29/49.... 3,000,000 3,192,822
--------------
-------------------
(a) The fund prices this security at fair value using procedures approved by the
fund's board of directors.
--------------------------------------------------------------------------------
12
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2004 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
----------- --------------
MEDIA -- DIVERSIFIED SERVICES 1.08%
Liberty Media Corp., 8.25%, due 2/1/30......... $12,250,000 $ 15,134,814
--------------
REAL ESTATE 0.36%
BF Saul Real Estate Investment Trust, 7.50%,
due 3/1/14, 144A............................. 5,000,000 5,087,500
--------------
TOTAL CORPORATE BOND (Identified
cost -- $79,874,408).................... 88,240,091
--------------
COMMERCIAL PAPER 0.20%
UBS Financial, 0.87%, due 4/1/04
(Identified cost -- $2,808,000).............. 2,808,000 2,808,000
--------------
TOTAL INVESTMENTS (Identified
cost -- $1,784,198,682) ...................... 147.74% 2,073,662,336
OTHER ASSETS IN EXCESS OF LIABILITIES ........... 0.07% 952,083
LIQUIDATION VALUE OF TAXABLE 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) ................................... (47.81)% (671,000,000)
NET ASSETS APPLICABLE TO COMMON SHARES
(Equivalent to $29.09 per share based on
48,251,666 shares of capital stock
outstanding) .................................. 100.00% $1,403,614,419
--------------
--------------
GLOSSARY OF PORTFOLIO ABBREVIATIONS
CABCO -- Corporate Asset Backed Corporation
CBTCS -- Corporate Backed Trust Certificates
COPrS -- Canadian Origin Preferred Securities
CORTS -- Corporate Backed Trust Securities
PINES -- Public Income Notes
PPLUS -- Preferred Plus Trust
QUICS -- Quarterly Income Capital Securities
SATURNS -- Structured Asset Trust Unit Repackagings
SKIS -- Subordinated Capital Income Securities
TOPrS -- Trust Originated Preferred Securities
TruPS -- Trust Preferred Securities
--------------------------------------------------------------------------------
13
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 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 March 31, 2004 are as follows:
UNREALIZED
NOTIONAL FIXED FLOATING RATE(a) APPRECIATION/
COUNTERPARTY AMOUNT RATE (RESET MONTHLY) TERMINATION DATE (DEPRECIATION)
------------------------ ----------- ------- ---------------- ------------------ --------------
Royal Bank of Canada $43,250,000 3.4520% 1.090% August 25, 2007 $ (946,025)
Royal Bank of Canada $58,125,000 3.3980% 1.090% September 16, 2008 (1,693,910)
UBS AG $58,125,000 2.8325% 1.090% August 25, 2006 (1,055,536)
UBS AG $58,125,000 3.9900% 1.090% August 25, 2009 (2,194,347)
UBS AG $58,125,000 4.3975% 1.090% August 25, 2010 (3,048,872)
UBS AG $58,125,000 4.5950% 1.090% August 25, 2011 (3,361,028)
Merrill Lynch Derivative
Products AG $43,625,000 3.3200% 1.090% October 22, 2007 (1,073,910)
Merrill Lynch Derivative
Products AG $58,500,000 3.2075% 1.098% October 2, 2008 (528,021)
Merrill Lynch Derivative
Products AG $20,000,000 3.4100% 1.090% January 13, 2009 (305,516)
------------
$(14,207,165)
------------
------------
-------------------
(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
at March 31, 2004.
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14
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
FINANCIAL HIGHLIGHTS (a)
MARCH 31, 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................. $ 19,043,169 $ 0.39
Net realized and unrealized gain on
investments and interest rate swap
transactions....................... 123,840,998 2.57
Distributions from net investment income
to:
Common shareholders................... (24,608,350) (0.51)
Preferred shareholders................ (1,849,219) (0.04)
------------ ------
Net increase in net asset value........... 116,426,598 2.41
-------------- ------
End of period: 3/31/2004.................. $1,403,614,419 $29.09
-------------- ------
-------------- ------
TOTAL RETURN (b)
(PERIOD ENDED MARCH 31, 2004) (UNAUDITED)
SINCE INCEPTION
(6/27/03)
---------
28.46%
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 Web site at http://www.sec.gov.
-------------------
(a) Financial information included in this report has been taken from the
records of the fund without examination by independent accountants.
(b) Based on net asset value.
--------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
16
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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
EQUITY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH DIVIDEND IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
YIELD AND CAPITAL APPRECIATION, INVESTING RETURN THROUGH BOTH CURRENT INCOME AND
PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY IN
REITS
A, B, C AND I SHARES AVAILABLE
SYMBOL: CSRSX
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX
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 SPECIAL EQUITY FUND
IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL IDEAL FOR INVESTORS SEEKING MAXIMUM CAPITAL
RETURN THROUGH BOTH CURRENT INCOME AND APPRECIATION, INVESTING IN A LIMITED NUMBER
CAPITAL APPRECIATION, INVESTING PRIMARILY IN OF REITS AND OTHER REAL ESTATE COMPANIES
UTILITIES
CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX SYMBOL: 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
--------------------------------------------------------------------------------
17
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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
Gregory C. Clark FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
Bonnie Cohen Boston, MA 02110
Director
TRANSFER AGENT -- COMMON SHARES
George Grossman Equiserve Trust Company
Director 150 Royall Street
Canton, MA 02021
Richard J. Norman (800) 426-5523
Director
TRANSFER AGENT -- PREFERRED SHARES
Frank K. Ross The Bank of New York
Director 100 Church Street
New York, NY 10007
Willard H. Smith Jr.
Director LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
Greg E. Brooks 425 Lexington Avenue
Vice president New York, NY 10017
William F. Scapell New York Stock Exchange Symbol: RNP
Vice president Web site: cohenandsteers.com
Adam Derechin This report is for shareholder
Vice president and assistant treasurer information. This is not
a prospectus intended for use in the
Lawrence B. Stoller purchase or sale of fund shares.
Assistant secretary Past performance is of course no
guarantee of future results and your
investment may be worth more or less
at the time you sell.
--------------------------------------------------------------------------------
18
COHEN & STEERS
REIT AND PREFERRED INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
REIT AND PREFERRED INCOME FUND
------------------------------
QUARTERLY REPORT
MARCH 31, 2004