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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
October 9, 2003
To Our Shareholders:
We are pleased to submit to you our report for the quarter ended
September 30, 2003, the fund's first full quarter of operations. The net asset
value per common share at that date was $24.68. The fund declared its first
three monthly dividends of $0.17 per share for the months of August, September
and October to common shareholders of record on August 15, 2003, September 15,
2003 and October 15, 2003, respectively. During the quarter, we completed the
investment of our initial equity capital as well as the deployment of the
majority of the additional proceeds raised through the issuance of $620 million
in Auction Market Preferred Shares in late August. Additionally, we entered into
several interest rate swap transactions that substantially lock in our cost of
leverage, thereby reducing the impact that an increase in interest rates could
have on the fund's investment income. The average maturity of the fund's
interest rate swaps is approximately five years, and the average fixed rate is
3.7%. We note, however, that the use of leverage generally may increase the
volatility of the fund's net asset value per share.
For the quarter, Cohen & Steers REIT and Preferred Income Fund had a total
return, based on income and change in net asset value, of 5.0%. As of
September 30, 2003, the fund had invested approximately $1.57 billion, or 87% of
its total assets. Of this amount, 54% was invested in REIT common stocks and 33%
was invested in preferred and debt securities.
REIT MARKET OVERVIEW
The REIT bull market rolled on in the third quarter, in a fashion totally
consistent with what we expected at this point in the economic and real estate
cycle. In our view, prices rose because investors recognized the bottoming of
fundamentals, turned their attention to the recovery currently in force and
anticipated that the recovery would continue over the next several quarters. We
believe that recent developments and events validated this price advance. This
has frustrated the growing chorus of REIT skeptics, many of whom believe that
the sector had outperformed for too long and valuations were stretched to
unsustainable levels. Analyst predictions -- such as 'REITs will lag a rising
stock market' and 'REITs are interest rate sensitive' -- never came to pass as
REITs performed well as stock prices rose and interest rates experienced a
record increase.
Widespread expectations by economists that U.S. GDP grew 5% in the third
quarter had a positive impact on most asset classes, with the exception of
long-term bonds. This economic strength was evidenced by improving consumer and
business confidence, strong retail sales, increasing factory orders and growing
manufacturing strength. Despite concerns about the 'jobless recovery,' signs
finally appeared that job losses were abating and, by September, there was an
actual increase in jobs.
Indicators of improving health in the property market abound. Commentators
have noted that vacancy rates in the office sector appear to be nearing their
bottom. The prospect for future job growth should facilitate further
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
improvement in this sector. In addition, developers and lenders have shown much
greater restraint in this downturn than in the office market in the early 1990s,
which should help the market recover more quickly than it did in the last
recession. The apartment sector, which has been battered over the past several
years, showed moderate signs of improvement during the third quarter. Indicators
such as revenue per available room in the hotel industry turned positive for the
first time in over two years, and hotel stocks were the star performers of the
quarter, rising 21%. Retail sales trends and as a result regional mall
fundamentals continued to be very positive and the stocks rose over 13% in the
quarter.
The industry-wide improvement in REIT balance sheets and growth prospects
has continued unabated this year. The refinancing or retirement of high cost
debt and preferred stock has improved financial strength and flexibility. This,
in turn, has enhanced equity values. Still, it is notable that unsecured
borrowing by REITs this year, at $6.4 billion, trails the $8.1 billion raised in
the same period last year, suggesting that REITs are taking advantage of low
interest rates without increasing financial leverage. Many companies have taken
advantage of strong stock prices to issue what we consider to be judicious
amounts of common equity. This equity has in many cases been used to replace
debt or make property acquisitions, often contributing to increased earnings.
Whereas some commentators and analysts have argued that equity issuance is a
warning sign, the $3.8 billion in common equity raised in the first nine months
of 2003 significantly trails the $4.7 billion raised in the same period of 2002.
(As a point of reference, the record for REIT equity issuance was $20 billion in
1997.) Further, considering that the equity market capitalization of the REIT
industry is now over $200 billion, this equity issuance is rather insignificant.
Many commentators and analysts have attributed the REIT rally simply to
money flows, implying that rising prices are exclusively the result of
irrational technical factors rather than fundamental factors. Indeed, while $3.0
billion has been invested in real estate mutual funds so far this year, this is
well below absolute levels experienced historically. (As with equity issuance,
fund inflows reached their peak in 1997, with $4.1 billion of new assets being
invested in real estate mutual funds.) Further, as a percentage of the existing
$23.5 billion in fund assets, it is an even less significant statistic. This
flow of funds, in our opinion, is the result of the aforementioned fundamental
factors. To believe that funds flows are the drivers of bull markets in our view
places cause and effect in reverse order. Demand for an asset class is based on
its investment merits, and that is what causes money to flow into that asset
class.
PREFERRED MARKET OVERVIEW
The preferred market was remarkably resilient throughout the quarter despite
a meaningful weakening in Treasury bond prices. Demand for high-income
securities, including preferreds, continued to be very strong, and credit risk
spreads on preferreds narrowed during the quarter. However, we were able to take
advantage of the short periods of market weakness whenever they emerged,
particularly during the brief spike in interest rates during July. There were
also points in the quarter when we believed that certain segments of the
preferred market, particularly foreign U.S. dollar-denominated preferreds and
U.S. institutionally traded issues, offered better value than the U.S.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
$25 par exchange-traded market. Due to much greater liquidity and, in our view,
much better fundamental attractiveness, such instruments make up a meaningful
proportion of the fund.
As we near the end of our initial investment program, we are pleased that we
have been able to achieve our diversification and credit quality objectives. As
of September 30, 2003, 90% of the fund's preferred and other fixed income
holdings are of investment grade quality, and the fund has broad exposure to
many different industry sectors. Our largest weightings are in the financial,
auto and utility sectors, which collectively comprise approximately 26% of the
fund's total assets. Financial companies are the largest issuers of preferred
securities, comprising roughly 60% of the market. We find that financials offer
relatively strong regulatory and other protections that can be lacking in other
sectors. Earnings for U.S. and many European banks remain quite strong, and
non-performing assets are low. Certain life and property & casualty insurance
company preferreds also offer attractive yields, in our view. Insurers continue
to enjoy strong demand for their products and have pricing power in certain
segments. Utilities are another meaningful sector holding. In this sector we
have avoided certain 'turnaround'companies, preferring to stick with issuers we
consider to have remained sound throughout the troubles that the utility
industry has experienced since 2001. While we are comfortable with certain
turnaround stories, we generally have not found adequate yield compensation in
the preferreds of weaker issuers. By comparison, auto issues, which also have
challenging fundamentals, appear to us to offer more compelling value.
INVESTMENT OUTLOOK
Perhaps the most passionate debate in the REIT industry revolves around the
current level of stock valuations. Following their strong price advance this
year, REITs are trading, on average, at a modest premium to net asset value
(NAV), approximately 5% to 10% compared to their long-term average of 0%. In
addition, they are trading at a price/cash flow multiple of 11.5, above their
long-term average of 11.3. REIT skeptics assert that this limits any further
upside price potential, and makes them vulnerable to a price decline.
Overlooked, however, is the fact that improving fundamentals are already
translating into higher earnings -- thereby resulting in declining future
price/cash flow ratios. Similarly, as property level cash flows increase, so are
underlying property values. Almost every company that has reported or forecasted
improving operations has seen Wall Street earnings estimates and NAV estimates
rise, sometimes substantially.
Just as fundamental events have validated price movements to date, further
strong returns from REITs (as well as stocks in general), will require the
anticipation of ongoing improvement in economic and real estate fundamentals. As
this economic recovery proceeds, we expect continued increases in earnings and
NAV estimates. As long as this prospect remains intact, we would expect share
prices to perform in accordance.
With respect to our outlook for the major property sectors, our portfolio
weights reflect our view that the office sector is in the early stages of
recovery, while it still has some of the lowest valuations. Regional mall growth
rates have remained strong and valuations have remained favorable; however,
dividend yields have been driven down, causing us to have a low weight in this
sector. Rising interest rates and the creation of new jobs have begun to improve
apartment demand, and we have found several attractively valued companies
offering appealing
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
dividend yields in the apartment sector. Industrial valuations appear to already
anticipate an early recovery in fundamentals, and with acceptable yield
difficult to find, we have a low weight in this property type. While shopping
center fundamentals have remained sound, we believe the sector is fully valued
and likely to experience a slowing growth rate.
We are optimistic about the preferred market despite some expected
challenges ahead. The persistence of a low interest rate environment suggests
that demand for higher income securities will remain strong; by comparison, the
pipeline of new corporate bond and preferred issues appears to be moderate. The
improving corporate earnings backdrop, consistent with the global economic
recovery we see unfolding, supports our positive credit view. Also important,
inflation, which is the greatest threat to long-term fixed-income securities and
will signal the next Fed tightening cycle, appears to remain well in check. In
short, we see an economic recovery emerging, in which case yields on income
securities could rise somewhat over the next year.
Based on our positive view of the economy and the relative valuation between
REITs and preferreds, we have positioned the fund with a slightly higher weight
in REIT common stocks. This asset mix reflects our belief that we are at the
beginning of both a new economic and real estate cycle, and that REITs are very
well-positioned to prosper in such an environment. This framework would likely
result in an improving credit profile for our preferred holdings. Whereas
pricing upside could be limited, on a relative basis, by any increase in
interest rates that may accompany an improving economy, preferred stocks
continue to provide the potential for above-average current income while
lowering portfolio volatility.
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.
Cohen & Steers is online at COHENANDSTEERS.COM
We have enhanced both the look and features of our Web site
to give you more information about our company, our funds
and the REIT market in general. Check out our interactive
Asset Allocation Tool, which allows you to hypothetically
add REITs to any portfolio to see how they impact expected
total returns and risk. Or try the Fund Performance
Calculator and see how our funds have performed versus the
S&P 500 Index or Nasdaq Composite. As always, you can also
get daily net asset values, fund fact sheets, portfolio
highlights, recent news articles and our overall insights on
the REIT market.
So visit us today at COHENANDSTEERS.COM
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD (a)
----------- -------------- --------
COMMON STOCK 82.23%
DIVERSIFIED 6.95%
Colonial Properties Trust.......................... 225,000 $ 8,106,750 7.38%
Crescent Real Estate Equities Co. ................. 1,490,500 21,612,250 10.34
iStar Financial.................................... 936,900 36,492,255 6.80
Newcastle Investment Corp. ........................ 149,000 3,425,510 8.70
Vornado Realty Trust............................... 274,100 13,167,764 5.66
--------------
82,804,529
--------------
HEALTH CARE 11.90%
Health Care Property Investors..................... 1,450,300 67,729,010 7.11
Health Care REIT................................... 1,441,500 44,470,275 7.59
Nationwide Health Properties....................... 1,362,200 23,824,878 8.46
Ventas............................................. 335,000 5,735,200 6.25
--------------
141,759,363
--------------
HOTEL 0.92%
Hospitality Properties Trust....................... 312,000 10,944,960 8.21
--------------
INDUSTRIAL 3.97%
First Industrial Realty Trust...................... 1,472,200 47,213,454 8.54
--------------
OFFICE 23.16%
Arden Realty....................................... 1,444,200 40,322,064 7.23
Brandywine Realty Trust............................ 656,500 16,865,485 6.85
CarrAmerica Realty Corp. .......................... 982,300 29,321,655 6.70
Equity Office Properties Trust..................... 2,943,300 81,029,049 7.26
Highwoods Properties............................... 910,200 21,717,372 7.12
Mack-Cali Realty Corp. ............................ 1,240,000 48,608,000 6.43
Maguire Properties................................. 1,286,100 26,365,050 7.80
Prentiss Properties Trust.......................... 374,900 11,621,900 7.23
--------------
275,850,575
--------------
OFFICE/INDUSTRIAL 4.84%
Liberty Property Trust............................. 1,243,300 45,977,234 6.54
Mission West Properties............................ 939,500 11,612,220 7.77
--------------
57,589,454
--------------
-------------------
(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.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
RESIDENTIAL -- APARTMENT 17.53%
AMLI Residential Properties Trust.................. 541,700 $ 14,192,540 7.33%
Apartment Investment & Management Co. ............. 984,700 38,757,792 8.33
Archstone-Smith Trust.............................. 2,374,000 62,626,120 6.48
AvalonBay Communities.............................. 170,800 7,993,440 5.98
Camden Property Trust.............................. 647,800 24,894,954 6.61
Equity Residential................................. 200,000 5,856,000 5.91
Gables Residential Trust........................... 1,186,100 38,334,752 7.46
Mid-America Apartment Communities.................. 308,300 9,304,494 7.75
Post Properties.................................... 100,000 2,723,000 6.61
Town & Country Trust............................... 173,400 4,073,166 7.32
--------------
208,756,258
--------------
SELF STORAGE 0.61%
Sovran Self Storage................................ 220,100 7,296,315 7.27
--------------
SHOPPING CENTER 12.35%
COMMUNITY CENTER 7.37%
Heritage Property Investment Trust................. 1,456,100 42,052,168 7.27
New Plan Excel Realty Trust........................ 1,538,100 35,837,730 7.08
Ramco-Gershenson Properties Trust.................. 390,000 9,925,500 6.60
--------------
87,815,398
--------------
REGIONAL MALL 4.98%
Glimcher Realty Trust.............................. 2,074,000 43,699,180 9.11
Macerich Co. ...................................... 215,200 8,123,800 6.04
Mills Corp. ....................................... 190,200 7,484,370 5.74
--------------
59,307,350
--------------
TOTAL SHOPPING CENTER.............................. 147,122,748
--------------
TOTAL COMMON STOCK (Identified
cost -- $934,890,739)....................... 979,337,656
--------------
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
PREFERRED SECURITIES -- $25 PAR VALUE 21.58%
AGRICULTURAL CHEMICALS 0.09%
Agrium, 8.00% (COPrS)(a)........................... 43,300 $ 1,092,892 7.92%
--------------
AUTOMOTIVE 0.88%
DaimlerChrysler, 7.50% (CBTCS)(b).................. 34,200 877,230 7.33
DaimlerChrysler, 7.875% (CORTS)(c)................. 9,600 249,504 7.58
DaimlerChrysler, 8.00% (CORTS)(c).................. 10,000 261,000 7.66
Ford Motor Co., 7.40% (CORTS)(c)................... 33,000 810,150 7.54
Ford Motor Co., 7.50%, Note........................ 172,251 4,280,437 7.57
Ford Motor Co., 8.00% (CORTS)(c)................... 125,000 3,156,250 7.92
Ford Motor Co., 8.125%, Series F (SATURNS)(d)...... 32,200 817,880 7.99
General Motors Corp., 7.375%, Senior Notes......... 3,100 77,965 7.32
--------------
10,530,416
--------------
BANK 1.59%
ASBC Capital I, 7.625%, Series A (TOPrS)(e)........ 65,300 1,742,204 7.16
BAC Captial Trust III, 7.00%....................... 11,800 317,892 6.50
Chittenden Capital Trust I, 8.00%, Capital
Securities...................................... 13,700 367,160 7.46
Colonial Capital Trust IV, 7.875%.................. 300,000 7,641,000 7.73
Compass Capital III, 7.35%, Capital Securities..... 8,600 228,330 6.93
Countrywide Capital II, 8.00% (CORTS)(c)........... 5,500 147,730 7.45
Countrywide Capital IV, 6.75%...................... 74,600 1,879,920 6.71
Fleet Capital Trust VII, 7.20% Series.............. 94,800 2,484,708 6.87
Fleet Capital Trust VIII, 7.20% Series............. 87,900 2,335,503 6.77
Old Second Bancorp Capital Trust I, 7.80%.......... 90,000 967,500 7.26
VNB Capital Trust I, 7.75% (TOPrS)(e).............. 9,300 251,100 7.19
Zions Capital Trust B, 8.00%....................... 18,600 502,758 7.40
--------------
18,865,805
--------------
BANK -- FOREIGN 1.42%
Abbey National PLC, 7.25%, Perpetual Subordinated
Notes........................................... 11,800 310,340 6.88
Abbey National PLC, 7.375%, Series B............... 130,700 3,555,040 6.76
Abbey National PLC, 7.375%, Series C............... 493,264 13,096,159 6.93
--------------
16,961,539
--------------
-------------------
(a) (COPrS) Canadian Origin Preferred Securities.
(b) (CBTCS) Corporate Backed Trust Certificates.
(c) (CORTS) Corporate Backed Trust Securities.
(d) (SATURNS) Structured Asset Trust Unit Repackagings.
(e) (TOPrS) Trust Originated Preferred Securities.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
ELECTRIC -- INTEGRATED 1.04%
Energy East Capital Trust I, 8.25%................. 61,000 $ 1,645,170 7.64%
Entergy Louisiana, 7.60% Series, due 4/1/32........ 11,900 315,945 7.16
Georgia Power Capital Trust V, 7.128%.............. 20,200 537,522 6.69
Gulf Power Capital Trust III, 7.375% (TruPS)(a).... 11,199 293,526 7.02
Northern States Power Co., 8.00%, Notes (PINES)(b). 38,200 1,027,580 7.43
PSEG Funding Trust II, 8.75% Series................ 170,100 4,626,720 8.05
Puget Sound Energy Capital Trust II, 8.40%
(TOPrS)(c)...................................... 77,500 2,070,800 7.86
Southern Company Capital Trust VI, 7.125% Series... 7,800 209,508 6.63
Virginia Power Capital Trust II, 7.375%,
(TruPS)(a)...................................... 62,061 1,666,338 6.85
--------------
12,393,109
--------------
FINANCE 2.56%
AUTO LOAN 0.49%
Ford Motor Credit Co., 7.375%, Note................ 88,000 2,173,600 7.45
Ford Motor Credit Co., 7.60%, Note................. 39,300 993,111 7.52
General Motors Acceptance Corp., 7.25%, Notes...... 104,900 2,627,745 7.23
--------------
5,794,456
--------------
CREDIT CARD 0.68%
MBNA Capital, 8.125%, Series D (TruPS)(a).......... 189,800 5,029,700 7.66
MBNA Capital, 8.10%, Series E (TOPrs)(c)........... 115,900 3,099,166 7.59
--------------
8,128,866
--------------
DIVERSIFIED FINANCIAL SERVICES 0.12%
Household Capital Trust VII, 7.50%................. 6,400 173,440 6.94
National Rural Utilities, 7.40% (QUICS)(d)......... 48,300 1,297,821 6.89
--------------
1,471,261
--------------
INVESTMENT BANKER/BROKER 1.27%
JP Morgan Chase Capital Co. X, 7.00% Series J...... 5,900 155,701 6.63
Lehman Brothers Holdings, 6.50%, Series F.......... 550,000 14,492,500 6.19
Merrill Lynch Perferred Capital Trust V, 7.28%
(TOPrS)(c)...................................... 16,500 440,880 6.81
--------------
15,089,081
--------------
TOTAL FINANCE...................................... 30,483,664
--------------
-------------------
(a) (TruPS) Trust Preferred Securities.
(b) (PINES) Public Income Notes
(c) (TOPrS) Trust Originated Preferred Securities.
(d) (QUICS) Quarterly Income Capital Securities.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
GAS -- DISTRIBUTION 1.61%
Dominion CNG Capital, 7.80%........................ 3,300 $ 89,727 7.72%
Dominion CNG Capital, 8.40%........................ 78,700 2,140,640 7.17
Laclede Capital Trust I, 7.70% (TOPrS)(a).......... 47,400 1,279,800 7.15
Southwest Gas Capital Trust II, 7.70%.............. 600,000 15,690,000 7.38
--------------
19,200,167
--------------
INSURANCE 2.97%
BROKERS 0.05%
Aon Capital, 7.50%, Class A (SATURNS)(b)........... 22,528 559,821 7.57
--------------
LIFE/HEALTH INSURANCE 0.30%
Lincoln National Capital V, 7.65%, Series E
(TruPS)(c)...................................... 52,300 1,393,795 7.17
PLC Capital Trust III, 7.50% (TOPrS)(a)............ 42,000 1,109,640 7.12
Torchmark Capital Trust I, 7.75%................... 41,000 1,103,310 7.21
--------------
3,606,745
--------------
MULTI-LINE 1.12%
ING Groep NV, 7.05% Series......................... 341,600 8,908,928 6.75
ING Groep NV, 7.20% Series......................... 165,700 4,379,451 6.81
--------------
13,288,379
--------------
PROPERTY/CASUALTY 1.12%
ACE Ltd., 7.80%, Series C.......................... 380,400 9,966,480 7.44
St. Paul Capital Trust I, 7.60% (TruPS)(c)......... 114,130 3,030,151 7.16
XL Capital Ltd., 7.625%, Series B.................. 12,800 346,240 7.06
--------------
13,342,871
--------------
REINSURANCE -- FOREIGN 0.38%
Everest Re Capital Trust, 7.85%.................... 12,700 345,567 7.20
PartnerRe Ltd., 6.75%, Series C.................... 65,000 1,638,000 6.71
RenaissanceRE Holdings Ltd., 8.10%, Series A....... 30,900 830,901 7.55
RenaissanceRE Holdings Ltd., 7.30%, Series B....... 65,900 1,756,235 6.87
--------------
4,570,703
--------------
TOTAL INSURANCE.................................... 35,368,519
--------------
-------------------
(a) (TOPrS) Trust Originated Preferred Securities.
(b) (SATURNS) Structured Asset Trust Unit Repackagings.
(c) (TruPS) Trust Preferred Securities.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
MEDIA 1.24%
CABLE TELEVISION 0.67%
Shaw Communications, 8.45%, Series A (COPrS)(a).... 146,092 $ 3,646,456 8.45%
Shaw Communications, 8.50%, Series B (COPrS)(a).... 173,500 4,332,295 8.53
--------------
7,978,751
--------------
DIVERSIFIED SERVICES 0.57%
AOL Time Warner, 7.625%, Series A-1 (CABCO)(b)..... 53,200 1,373,624 7.40
Liberty Media Corp., 8.75% (CBTCS)(c).............. 143,300 3,814,646 8.23
Liberty Media Corp., 8.75% (PPLUS)(d).............. 44,145 1,191,915 8.11
Viacom, 7.25%, Senior Notes........................ 16,500 436,095 6.85
--------------
6,816,280
--------------
TOTAL MEDIA........................................ 14,795,031
--------------
MEDICAL -- HMO 0.05%
Aetna, 8.50%, Senior Notes......................... 23,800 644,266 7.87
--------------
REAL ESTATE 6.20%
Apartment Investment and Management Co., 8.00%,
Series T........................................ 93,700 2,342,500 8.00
CBL & Associates Properties, 7.75%, Series C....... 200,000 5,140,000 7.55
CarrAmerica Realty Corp., 7.50%, Series E.......... 300,000 7,590,000 7.43
Cousins Properties, 7.75%, Series A................ 457,500 11,629,650 7.63
Developers Diversified Realty Corp., 8.00%,
Series G........................................ 88,700 2,328,375 7.62
Glimcher Realty Trust, 8.75%, Series F............. 280,000 7,168,000 8.55
Health Care REIT, 7.875%, Series D................. 100,000 2,550,000 7.73
iStar Financial, 7.875%, Series E.................. 400,000 10,180,000 7.74
iStar Financial, 7.80%, Series F................... 168,000 4,242,000 7.72
Mid-America Apartment Communities, 8.30%,
Series H........................................ 690,600 18,024,660 7.97
Mills Corp., 8.75%, Series E....................... 100,000 2,645,000 8.28
--------------
73,840,185
--------------
RETAIL -- DEPARTMENT STORE 0.41%
Sears Roebuck Acceptance Corp., 7.00%, Notes....... 166,500 4,240,755 6.87
Sears Roebuck Acceptance Corp., 7.40%, Notes....... 22,417 593,602 6.99
--------------
4,834,357
--------------
-------------------
(a) (COPrS) Canadian Origin Preferred Securities.
(b) (CABCO) Corporate Assets Backed Corporation.
(c) (CBTCS) Corporate Backed Trust Certificates.
(d) (PPLUS) Preferred Plus Trust.
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
TELECOMMUNICATION SERVICES 1.42%
Centaur Funding Corp., 9.08%....................... 11,028 $ 12,802,685 7.82%
Telephone & Data Systems, 7.60%, Series A.......... 156,000 4,110,600 7.21
--------------
16,913,285
--------------
TELEPHONE -- INTEGRATED 0.10%
Bellsouth Telecommunications, 6.75% (CABCO)(a)..... 3,700 93,906 6.66
Bellsouth Telecommunications, 7.00% (CBTCS)(b)..... 7,300 190,895 6.69
Bellsouth Telecommunications, 7.00% (CORTS)(c)..... 2,000 53,500 6.54
Bellsouth Telecommunications, 7.125% (SATURNS)(d).. 2,600 67,132 6.89
Verizon Global Funding Trust, 7.75% (CBTCS)(b)..... 2,000 54,000 7.07
Verizon Global Trust, 7.375% (CORTS)(c)............ 4,600 123,510 6.85
Verizon New England, 7.00% (QUIBS)(e).............. 11,900 315,707 6.60
Verizon South, 7.00%, Series F..................... 10,200 270,402 6.60
--------------
1,169,052
--------------
TOTAL PREFERRED SECURITIES -- $25 PAR VALUE
(Identified cost -- $252,929,000)........... 257,092,287
--------------
PREFERRED SECURITIES -- CAPITAL TRUST 22.75%
BANK 2.35%
Astoria Capital Trust I, 9.75%, due 11/1/29,
Series B........................................ 12,500,000 14,750,000 8.26
BankBoston Capital Trust II, 7.75%, due 12/15/26... 1,500,000 1,692,150 6.87
BT Capital Trust B, 7.90%, due 1/15/27............. 365,000 406,618 7.09
Great Western Financial Trust II, 8.206%, due
2/1/27, Series A................................ 5,232,000 6,013,305 7.14
NB Capital Trust IV, 8.25%, due 4/15/27............ 570,000 679,474 6.92
Republic New York Capital I, 7.75%, due 11/15/26
(TruPS)(f)...................................... 1,000,000 1,105,193 7.01
Sky Financial Capital Trust I, 9.75%, due 5/1/30,
Series B........................................ 3,000,000 3,359,355 8.34
--------------
28,006,095
--------------
-------------------
(a) (CABCO) Corporate Assets Backed Corporation.
(b) (CBTCS) Corporate Backed Trust Certificates.
(c) (CORTS) Corporate Backed Trust Securities.
(d) (SATURNS) Structured Asset Trust Unit Repackagings.
(e) (QUIBS) Quarterly Interest Bonds.
(f) (TruPS) Trust Preferred Securities.
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12
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
BANK -- FOREIGN 7.23%
BNP Paribas Capital Trust V, 7.20%................. 12,000,000 $ 12,368,040 6.99%
CA Preferred Fund Trust, 7.00%, due 1/29/49
(Eurobond)...................................... 25,700,000 25,947,285 6.93
HBOS Capital Funding LP, 6.85%..................... 19,500,000 19,546,781 6.83
HSBC Capital Funding LP, 10.176%................... 9,680,000 14,539,360 6.78
RBS Capital Trust B, 6.80%......................... 13,700,000 13,733,866 6.78
--------------
86,135,332
--------------
ELECTRIC -- INTEGRATED 1.07%
Dominion Resources Capital Trust III, 8.40%, due
1/15/31......................................... 10,421,000 12,767,257 6.86
--------------
FINANCE 4.13%
CREDIT CARD 0.18%
MBNA Capital, 8.278%, due 12/1/26, Series A........ 2,000,000 2,167,806 7.64
--------------
DIVERSIFIED FINANCIAL SERVICES 1.99%
Old Mutual Capital Funding, 8.00%, due 5/29/49
(Eurobond)...................................... 23,500,000 23,676,250 7.94
--------------
INVESTMENT BANKER/BROKER 0.85%
Chase Capital I, 7.67%, due 12/1/06................ 2,519,000 2,817,862 6.86
JPM Capital Trust II, 7.95%, due 2/27/07........... 6,400,000 7,289,235 6.98
--------------
10,107,097
--------------
MORTGAGE LOAN/BROKER 1.11%
Countrywide Capital III, 8.05%, due 6/15/27,
Series B (SKIS)(a).............................. 11,285,000 13,295,874 6.83
--------------
TOTAL FINANCE...................................... 49,247,027
--------------
INSURANCE 7.02%
BROKERS 0.53%
Aon Capital Trust A, 8.205%, due 1/1/27............ 5,500,000 6,319,395 7.15
--------------
LIFE/HEALTH 0.35%
AmerUS Capital, 8.85%, due 2/1/27, Series A........ 4,000,000 4,203,392 8.42
--------------
MULTI-LINE 5.67%
AXA, 7.10%, due 5/29/49 (Eurobond)................. 25,000,000 25,053,750 7.08
GenAmerica Capital I, 8.525%, due 6/30/27.......... 10,000,000 11,300,060 7.55
USF&G Capital, 8.312%, due 7/1/46.................. 2,000,000 2,137,170 7.78
Zurich Capital Trust I, 8.376%, due 6/1/37......... 25,212,000 28,991,657 7.29
--------------
67,482,637
--------------
-------------------
(a) (SKIS) Subordinated Capital Income Securities.
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13
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
----------- -------------- --------
PROPERTY/CASUALITY 0.47%
W.R. Berkley Capital Trust, 8.197% due 12/15/45.... 5,100,000 $ 5,582,144 7.49%
--------------
TOTAL INSURANCE.................................... 83,587,568
--------------
PIPELINES 0.95%
K N Capital Trust I, 8.56%, due 4/15/27 (TruPS)(a). 9,513,000 11,266,094 7.23
--------------
TOTAL PREFERRED SECURITIES -- CAPITAL TRUST
(Identified cost -- $263,966,314)........... 271,009,373
--------------
CORPORATE BOND 5.62%
AUTOMOTIVE 4.33%
Ford Holdings, 9.30%, due 3/1/30.................... $ 2,500,000 $ 2,676,998
Ford Motor Co., 9.98%, due 2/15/47.................. 14,400,000 16,078,032
General Motors Corp., 7.375%, due 5/23/48........... 18,500,000 17,132,924
General Motors Corp, 8.25%, due 7/15/23............. 15,000,000 15,725,550
--------------
51,613,504
--------------
MEDIA -- DIVERSIFIED SERVICES 1.20%
Liberty Media, 8.25%, due 2/1/30.................... 12,250,000 14,231,389
--------------
REAL ESTATE 0.09%
Highwoods/Forsyth Limited Partnership, 7.50%, due
4/15/18.......................................... 1,000,000 1,034,604
--------------
TOTAL CORPORATE BOND (Identified
cost -- $64,029,651)......................... 66,879,497
--------------
-------------------
(a) (TruPS) Trust Preferred Securities.
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14
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
----------- --------------
COMMERCIAL PAPER 21.16%
American General Financial Corp., 0.90% due
10/1/03...................................... 50,000,000 50,000,000
BNP Paribas Financial, 0.90% due 10/1/03....... 50,000,000 50,000,000
General Electric Capital Corp., 0.90% due
10/1/03...................................... 1,969,000 1,969,000
San Paolo U.S. Finance Co., 0.90% due
10/1/03...................................... 50,000,000 50,000,000
State Street Boston Corp., 0.90% due 10/1/03... 50,000,000 50,000,000
UBS Financial, 0.90% due 10/1/03............... 50,000,000 50,000,000
--------------
TOTAL COMMERCIAL PAPER (Identified
cost -- $251,969,000)................... 251,969,000
--------------
TOTAL INVESTMENTS (Identified
cost -- $1,767,784,704) ...................... 153.34% 1,826,287,813
LIABILITIES IN EXCESS OF OTHER ASSETS .......... (1.28)% (15,284,779)
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 AND SERIES W28C (Equivalent to $25,000 per
share based on 2,800 shares outstanding per class) ... (52.06)% (620,000,000)
------
NET ASSETS -- COMMON STOCK (Equivalent to $24.68 per
share based on 48,251,666 shares of capital stock
outstanding) ......................................... 100.00% $1,191,003,034
------ --------------
------ --------------
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15
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NOTE 1. INVESTMENTS IN INTEREST RATE SWAPS
The fund has entered into interest rate swap transactions with UBS AG and Royal
Bank of Canada. Under the agreements, the fund receives a floating rate of
interest and pays a respective fixed rate of interest on the nominal values of
the swaps. Details of the interest rate swap transactions as of September 30,
2003 are as follows:
NOTIONAL FLOATING RATE(a) UNREALIZED
COUNTERPARTY AMOUNT FIXED RATE (RESET MONTHLY) TERMINATION DATE DEPRECIATION
------------ ----------- ---------- -------------------- ---------------- ------------
Royal Bank of Canada.... $58,125,000 3.3980% 1.1200% 8/27/2007 $(1,455,411)
Royal Bank of Canada.... 43,250,000 3.4525% 1.1200% 9/16/2008 (610,557)
UBS AG.................. 58,125,000 2.8325% 1.1200% 8/25/2006 (960,962)
UBS AG.................. 58,125,000 3.9900% 1.1200% 8/25/2009 (1,667,009)
UBS AG.................. 58,125,000 4.3975% 1.1200% 8/25/2010 (2,468,734)
UBS AG.................. 58,125,000 4.5950% 1.1200% 8/25/2011 (2,654,767)
-----------
$(9,817,440)
-----------
-----------
-------------------
(a) Based on LIBOR (London Interbank Offered Rate).
--------------------------------------------------------------------------------
16
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COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
FINANCIAL HIGHLIGHTS (a)
SEPTEMBER 30, 2003 (UNAUDITED)
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
------------------------------- ---------------
NET ASSET VALUE:
Beginning of period: 6/27/03............. $ 100,275 $23.88
Net investment income................ $ 17,697,425 $ 0.30
Net realized and unrealized gain on
investments and interest rate swap
transactions...................... 48,266,370 1.07
Offering and organization costs
charged to paid in
capital -- common shares.......... (2,409,500) (0.05)
Offering and organization costs
charged to paid in
capital -- preferred shares....... (7,185,000) (0.16)
Distributions from net investment income
to:
Common shareholders.................. (16,395,797) (0.34)
Preferred shareholders............... (982,733) (0.02)
------
Capital stock transactions:
Sold................................. 1,150,536,250
Distributions reinvested............. 1,375,744
--------------
Net increase in net asset value.......... 1,190,902,759 0.80
-------------- ------
End of period: 9/30/03................... $1,191,003,034 $24.68
-------------- ------
-------------- ------
AVERAGE ANNUAL TOTAL RETURNS(b)
(PERIOD ENDED SEPTEMBER 30, 2003) (UNAUDITED)
SINCE INCEPTION
(6/27/03)
---------
4.83%
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) 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.
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17
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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 LOGO REALTY SHARES LOGO
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
A, B, C AND I SHARES AVAILABLE REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, SYMBOL: CSRSX
CSDIX
FOR CAPITAL APPRECIATION: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
SPECIAL EQUITY FUND LOGO INSTITUTIONAL REALTY SHARES LOGO
IDEAL FOR INVESTORS SEEKING MAXIMUM CAPITAL IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
APPRECIATION, INVESTING IN A LIMITED NUMBER RETURN THROUGH BOTH CURRENT INCOME AND
OF REITS AND OTHER REAL ESTATE COMPANIES CAPITAL APPRECIATION, INVESTING PRIMARILY IN
CONCENTRATED, HIGHLY FOCUSED PORTFOLIO REITS
SYMBOL: CSSPX OFFERS LOW TOTAL EXPENSE RATIO
HIGHER MINIMUM PURCHASE REQUIRED
SYMBOL: CSRIX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-REIT, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT EACH FUND INCLUDING ALL CHARGES AND EXPENSES,
AND SHOULD BE READ CAREFULLY BEFORE YOU INVEST.
COHEN & STEERS SECURITIES, LLC, DISTRIBUTOR
--------------------------------------------------------------------------------
18
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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
LEGAL COUNSEL
Willard H. Smith Jr. Simpson Thacher & Bartlett
Director 425 Lexington Avenue
New York, NY 10017
Greg E. Brooks
Vice president New York Stock Exchange Symbol: RNP
Web site: cohenandsteers.com
Adam Derechin
Vice president and assistant This report is for shareholder
treasurer information. This is not a prospectus
intended for use in the purchase or sale
Lawrence B. Stoller of fund shares. Past performance is of
Assistant secretary course no guarantee of future results and
your investment may be worth more or less
at the time you sell.
--------------------------------------------------------------------------------
19
COHEN & STEERS
REIT AND PREFERRED INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
REIT AND PREFERRED INCOME FUND
----------------------
QUARTERLY REPORT
SEPTEMBER 30, 2003