UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number

811-21326

 

Cohen & Steers REIT and Preferred Income Fund, Inc.

(Exact name of registrant as specified in charter)

 

280 Park Avenue, New York, NY

 

10017

(Address of principal executive offices)

 

(Zip code)

 

Adam M. Derechin
Cohen & Steers Capital Management, Inc.
280 Park Avenue
New York, New York 10017

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(212) 832-3232

 

 

Date of fiscal year end:

December 31

 

 

Date of reporting period:

June 30, 2011

 

 



 

Item 1. Reports to Stockholders.

 



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

To Our Shareholders:

We would like to share with you our report for the six months ended June 30, 2011. The net asset value (NAV) at that date was $16.93 per common share. The Fund's common stock is traded on the New York Stock Exchange (NYSE) and its share price can differ from its NAV; at period end, the Fund's closing price on the NYSE was $16.22.

The total returns, including income, for the Fund and its comparative benchmarks were:

    Six Months Ended
June 30, 2011
 
Cohen & Steers REIT and Preferred Income Fund at Market Valuea     17.77 %  
Cohen & Steers REIT and Preferred Income Fund at NAVa     12.38 %  
FTSE NAREIT Equity REIT Indexb     10.20 %  
S&P 500 Indexb     6.02 %  
BofA Merrill Lynch Fixed Rate Preferred Indexb     5.41 %  
Blended benchmark—50% FTSE NAREIT Equity REIT Index/50%
BofA Merrill Lynch Fixed Rate Preferred Indexb
    7.85 %  

 

The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment return 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. Performance results reflect the effects of leverage, resulting from borrowings under a credit agreement. Current total returns of the Fund can be obtained by visiting our Web site at cohenandsteers.com.

The Fund implements fair value pricing when the daily change in a specific U.S. market index exceeds a predetermined percentage. Fair value pricing adjusts the valuation of non-U.S. holdings to account for such index change following the close of foreign markets. This standard practice has been adopted by a majority of the fund industry to deter investors from arbitraging funds with a large percentage of non-U.S. holdings. In the event fair value pricing is implemented on the first and/or last day of a performance measurement period, the Fund's return may diverge from the relative performance of its benchmark index, which does not use fair value pricing. An investor cannot invest directly in an index.

a  As a closed-end investment company, the price of the Fund's NYSE-traded shares will be set by market forces and at times may deviate from the NAV per share of the Fund.

b The FTSE 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 S&P 500 Index is an unmanaged index of common stocks that is frequently used as a general measure of stock market performance. The BofA Merrill Lynch Fixed Rate Preferred Index is an unmanaged index of preferred securities.


1



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

The Fund makes regular quarterly distributions at a level rate (the "Policy"). Distributions paid by the Fund are subject to recharacterization for tax purposes and are taxable up to the amount of the Fund's investment company taxable income and net realized gains. As a result of the Policy, the Fund may pay distributions in excess of the Fund's investment company taxable income and realized gains. This excess would be a "return of capital" distributed from the Fund's assets. Distributions of capital decrease the Fund's total assets and, therefore, could have the effect of increasing the Fund's expense ratio. In addition, in order to make these distributions, the Fund may have to sell portfolio securities at a less than opportune time.

Investment Review

For the six-month period ended June 30, 2011, U.S. real estate securities had good performance in absolute terms as well as relative to the broader equity market. REITs benefited from a steady improvement in real estate fundamentals, low and declining capital costs and an increasing number of transactions that revealed rising property values.

However, REITs, along with financial markets in general, faced frequent volatility resulting from natural disasters and economic uncertainty. Stocks came under pressure in March following the earthquake in Japan, and then again in June amid renewed fears of a Greek default and disappointing U.S. economic reports. The period ended on a positive note with news of passage of an austerity plan by Greece's parliament and encouraging U.S. manufacturing data.

Regional malls paced the rally

Nearly all property sectors had gains, led by regional mall owners (+15.8% total returnc within the index). The sector's strong showing reflected stabilizing retail sales and continued investor interest in acquiring regional malls that the Westfield Group was marketing for sale.

The apartment sector (+14.1%) outperformed amid increased demand, strong pricing power and very low new supply. Occupancies have been supported by positive demographics and fewer people having the confidence to purchase single-family homes.

Office companies (+12.5%) performed well as a group, but results varied widely. Those located in urban areas tended to benefit from improving leasing trends and rising global investment demand for office assets located in major cities. Office operators with suburban properties continued to face challenging fundamentals.

The health care sector (+6.0%) underperformed on relatively high valuations and uncertainty surrounding various Medicare budget proposals. Hotels (–2.4%) struggled amid high oil prices and concerns regarding the durability of global economic growth.

c  Sector returns as measured by the FTSE NAREIT Equity REIT Index.


2



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

Preferred securities also advanced

Preferred securities performed well in the first few months of the year amid good earnings reports from the important financial sector and signs of an improving economy. However, macro conditions became more challenging: U.S. economic data began to disappoint, while markets again focused on Europe's sovereign debt problems and China's attempts to cool its growth. Preferreds nonetheless added to their year-to-date gains in the second quarter, when a flight to safety drove Treasury yields lower, to the benefit of fixed income assets broadly.

Preferreds within the financial sector modestly trailed the index. U.S. banks reported better-than-expected improvements in credit quality and capital ratios, although revenue trends generally remained weak, in part reflecting slow loan growth. Bank stocks also faced regulatory uncertainty: global capital requirements remained unclear, as did the profitability of certain business lines and even the possibility of dividing banking and capital markets operations in the U.K., for instance.

Fund performance

Compared with its blended benchmark, the Fund's performance on a NAV basis was aided by favorable stock selection in the office and health care sectors. Within offices, we stayed focused on urban properties located in areas with above-average employment growth. Our overweight in regional mall owners also helped returns, as did stock selection in that sector. Stock selection in the apartment and hotel sectors detracted from performance.

Security selection within the Fund's allocation to preferred securities (which accounted for slightly more than 50% of the Fund's assets as of June 30, 2011) contributed to its outperformance. The Fund's preferreds issued by banks, insurance companies and telecommunication companies had the strongest relative performance.

The Fund employs leverage as part of a yield-enhancement strategy. Leverage, which can increase total return in rising markets (just as it can have the opposite effect in declining markets), enhanced the Fund's performance for the period compared with its benchmarks, which are not leveraged.

Impact of derivatives on Fund performance

In connection with its use of leverage, the Fund pays interest on borrowings based on a floating rate under the terms of its credit agreement. To reduce the impact that changes in interest rates could have on the performance of the Fund with respect to these borrowings, we used interest rate swaps to exchange the floating rate for a fixed rate.

During the period, the Fund's use of swaps had a negative impact on the NAV and performance of the Fund.

Investment Outlook

We have modified our estimates for 2011 GDP growth and employment gains very modestly downward, but we expect the economy to remain on an expansionary path. Heading into the second half of the year, we expect to see some normalization as Japan recovers from its recent disaster and as U.S. home prices begin to stabilize.


3



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

REITs had traded at a premium to net asset value through much of the six-month period, but ended June trading close to NAV, on average, partly reflecting a trend of rising NAVs due to higher property values revealed by increased transaction activity.

We favor economically sensitive sectors, including hotels, regional malls and high-growth urban offices protected from new supply. Among regional mall companies, we are focused on geographic locations with attractive income profiles that can better withstand inflation in food and gas prices. We are cautious toward health care property stocks based, in part, on their high premiums to net asset value and persistent and likely secular threats to Medicare reimbursement rates.

With regard to our preferreds allocation, slower growth and uncertainties in Europe have made us more selective and generally more cautious in our investments. Nonetheless, preferred income spreads over government and corporate bonds remain well above average, and fundamentals continue to improve for many issuers. In addition, preferreds should remain an attractive alternative to other sources of income, many of which offer yields at or near all-time lows. We continue to see scope for good performance in the months ahead, but also believe active management will remain important to delivering value.

We expect new supply of preferreds to continue to arise mostly from non-bank issuers, in the U.S. and abroad, including REITs and other non-financial companies. Banks will likely remain on the sidelines until there is more regulatory clarity. We will continue to look for value in transactions priced around the globe and across various currencies.


4



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

Sincerely,

   
MARTIN COHEN   ROBERT H. STEERS  
Co-chairman   Co-chairman  
   
JOSEPH M. HARVEY   WILLIAM F. SCAPELL  
Portfolio Manager   Portfolio Manager  

 

  

THOMAS N. BOHJALIAN

Portfolio Manager

The views and opinions in the preceding commentary are subject to change. There is no guarantee that any market forecast set forth in the commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.

Visit Cohen & Steers online at cohenandsteers.com

For more information about any of our funds, visit cohenandsteers.com, where you will find daily net asset values, fund fact sheets and portfolio highlights. You can also access newsletters, education tools and market updates covering the global real estate, listed infrastructure, utilities, large cap value 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.


5



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

Our Leverage Strategy

(Unaudited)

Our current leverage strategy utilizes borrowings up to the maximum permitted by the 1940 Act to provide additional capital for the Fund, with an objective of increasing the net income available for shareholders. As of June 30, 2011, leverage represented 30% of the Fund's managed assets.

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. Considering that borrowings have variable interest rate payments, we seek to lock in those rates on a significant portion 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, as of June 30, 2011, we have fixed the rate on 70% of our borrowings at an average interest rate of 3.2% for an average remaining period of 2.8 years (when we first entered into the swaps, the average term was 5.4 years). Locking in a significant portion of our leveraging costs is designed to protect the dividend-paying ability of the Fund. 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's expenses from an increase in short-term interest rates although this strategy will increase expenses when the rate on the Fund's borrowings is below the weighted average rate on the swaps.

Leverage Factsa

Leverage (as a % of managed assets)     30 %  
% Fixed Rate      70 %  
% Variable Rate       30 %  
Weighted Average Rate on Swaps     3.2 %  
Weighted Average Term on Swaps     2.8 years    
Current Rate on Borrowings b     1.2 %  

 

The Fund seeks to enhance its dividend yield through leverage. The use of leverage is a speculative technique and there are special risks and costs associated with leverage. The net asset value of the Fund's common shares may be reduced by the issuance and ongoing costs of leverage. So long as the Fund is able to invest in securities that produce a realized investment yield that is greater than the total cost of leverage, the leverage strategy will produce higher current net investment income for the common shareholders. On the other hand, to the extent that the total cost of leverage exceeds the incremental income gained from employing such leverage, the common shareholders would realize lower net investment income. In addition to the impact on net income, the use of leverage will have an effect of magnifying capital appreciation or depreciation for common shareholders. Specifically, in an up market, leverage will typically generate greater capital appreciation than if the Fund was not employing leverage. Conversely, in down markets, the use of leverage will generally result in greater capital depreciation than if the Fund had been unlevered. To the extent that the Fund is required or elects to reduce its leverage, the Fund may need to liquidate investments, including under adverse economic conditions which may result in capital losses potentially reducing returns to common shareholders. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.

a  Data as of June 30, 2011. Information is subject to change.

b See Note 6 in Notes to Financial Statements.


6



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

JUNE 30, 2011

Top Ten Holdingsa
(Unaudited)

Security   Value   % of
Managed
Assets
 
Simon Property Group   $ 72,184,177       6.2 %  
Boston Properties     31,879,424       2.7    
Vornado Realty Trust     30,438,179       2.6    
ProLogis     30,435,901       2.6    
Equity Residential     29,296,620       2.5    
Public Storage     23,111,081       2.0    
HSBC Capital Funding LP, 10.176%, due 12/29/49, 144A     19,613,820       1.7    
AgFirst Farm Credit Bank, 7.30%, due 10/14/49, 144A     17,580,960       1.5    
UDR     17,305,197       1.5    
Centaur Funding Corp., 9.08% due 4/1/20, 144A     17,056,906       1.5    

 

a  Top ten holdings are determined on the basis of the value of individual securities held. The Fund may also hold positions in other types of securities issued by the companies listed above. See the Schedule of Investments for additional details on such other positions.

Sector Breakdown

(Based on Managed Assets)
(Unaudited)


7




COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
COMMON STOCK   70.3%              
BANK   0.3%              
SJB Escrow Corp., Class A, 144Aa,b,c,d         107,000     $ 2,140,000    
REAL ESTATE   70.0%              
DIVERSIFIED   5.4%              
American Assets Trust         106,515       2,391,262    
Forest City Enterprisesd,e,f         616,372       11,507,665    
Vornado Realty Truste,f         326,660       30,438,179    
              44,337,106    
HEALTH CARE   6.4%              
Cogdell Spencere,f         671,054       4,019,613    
HCPe,f         149,992       5,503,207    
Health Care REITe,f         171,856       9,010,410    
Nationwide Health Propertiese,f         202,942       8,403,828    
Senior Housing Properties Truste,f         464,670       10,877,925    
Ventase,f         265,554       13,997,351    
              51,812,334    
HOTEL   5.8%              
DiamondRock Hospitality Co.e         479,805       5,148,308    
Hersha Hospitality Truste,f         762,708       4,248,284    
Hospitality Properties Truste,f         186,002       4,510,548    
Host Hotels & Resortse,f         507,534       8,602,701    
Hyatt Hotels Corp., Class Ad         130,576       5,330,112    
RLJ Lodging Trust         166,000       2,883,420    
Starwood Hotels & Resorts Worldwidee,f         146,900       8,232,276    
Strategic Hotels & Resortsd         471,400       3,337,512    
Sunstone Hotel Investorsd,e         525,934       4,875,408    
              47,168,569    
INDUSTRIAL   4.2%              
First Industrial Realty Trustd         240,000       2,748,000    
ProLogise,f         849,216       30,435,901    
Segro PLC (United Kingdom)c         277,689       1,392,291    
              34,576,192    

See accompanying notes to financial statements.
8



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
OFFICE   9.2%              
Boston Propertiese,f,g         300,296     $ 31,879,424    
Brandywine Realty Truste,f         293,646       3,403,357    
Douglas Emmette,f         234,600       4,666,194    
Hudson Pacific Properties         226,357       3,515,324    
Kilroy Realty Corp.e,f         173,721       6,860,242    
Liberty Property Truste,f         346,333       11,283,529    
Mack-Cali Realty Corp.e,f         172,340       5,676,880    
SL Green Realty Corp.e,f         96,131       7,966,376    
              75,251,326    
RESIDENTIAL   14.1%              
APARTMENT   12.8%              
Apartment Investment & Management Co.e,f         446,699       11,404,225    
Associated Estates Realty Corp.e,f         381,218       6,194,792    
AvalonBay Communitiese,f         83,894       10,771,990    
BRE Propertiesf         59,335       2,959,630    
Campus Crest Communitiese         218,907       2,832,657    
Education Realty Trust         342,305       2,933,554    
Equity Residentiale,f         488,277       29,296,620    
Essex Property Truste,f         44,497       6,019,999    
Home Propertiese,f         154,900       9,430,312    
Post Propertiese,f         124,149       5,060,313    
UDRe,f         704,896       17,305,197    
              104,209,289    
MANUFACTURED HOME   1.3%              
Equity Lifestyle Propertiese,f         165,341       10,323,892    
TOTAL RESIDENTIAL             114,533,181    
SELF STORAGE   4.2%              
Public Storagee,f         202,711       23,111,081    
Sovran Self Storagee,f         139,809       5,732,169    
U-Store-It Trust         494,976       5,207,148    
              34,050,398    

See accompanying notes to financial statements.
9



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
SHOPPING CENTER   19.2%              
COMMUNITY CENTER   7.3%              
Acadia Realty Truste,f         466,969     $ 9,493,480    
Developers Diversified Realty Corp.e,f         837,662       11,811,034    
Federal Realty Investment Truste         106,000       9,029,080    
Kimco Realty Corp.e,f         436,860       8,143,070    
Ramco-Gershenson Properties Trust         304,000       3,763,520    
Regency Centers Corp.e         272,518       11,982,617    
Urstadt Biddle Properties, Class Ae,f         293,122       5,308,439    
              59,531,240    
REGIONAL MALL   11.9%              
General Growth Propertiese,f         756,142       12,620,010    
Macerich Co.         114,343       6,117,351    
Pennsylvania REIT         201,223       3,159,201    
Simon Property Groupe,f         621,046       72,184,177    
Westfield Group (Australia)c         291,300       2,715,072    
              96,795,811    
TOTAL SHOPPING CENTER             156,327,051    
SPECIALTY   1.5%              
Digital Realty Truste,f         127,312       7,865,335    
DuPont Fabros Technologye,f         168,533       4,247,032    
              12,112,367    
TOTAL REAL ESTATE             570,168,524    
TOTAL COMMON STOCK (Identified cost—$427,981,896)             572,308,524    

See accompanying notes to financial statements.
10



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
PREFERRED SECURITIES—$25 PAR VALUE   28.5%              
BANK   6.0%              
Ally Financial, 7.25%, due 2/7/33         80,000     $ 1,877,600    
Ally Financial, 7.375%, due 12/16/44         219,701       5,187,141    
Ally Financial, 8.50%, due 5/15/16, Series A         84,000       2,102,520    
Citigroup Capital VII, 7.125%, due 7/31/31, (TruPS)e         215,000       5,418,000    
Citigroup Capital VIII, 6.95%, due 9/15/31, (TruPS)e,f,g         637,748       15,911,813    
Citigroup Capital XIII, 7.875%, due 10/30/40e         90,000       2,500,200    
CoBank ACB, 7.00%, 144A ($50 Par Value)a,b,e         135,000       6,159,375    
KeyCorp Capital IX, 6.75%, due 12/15/66e,f         192,929       4,879,174    
Regions Financing Trust III, 8.875%, due 6/15/78         100,000       2,543,000    
Zions Bancorp, 9.50%, due 12/29/49, Series C         100,000       2,614,000    
              49,192,823    
BANK—FOREIGN   2.7%              
Barclays Bank PLC, 7.10%, Series III         80,000       2,028,000    
Deutsche Bank Contingent Capital Trust III, 7.60%e         222,175       5,718,785    
HSBC Holdings PLC, 8.00%, Series IIe,f         95,005       2,583,186    
National Westminster Bank PLC, 7.76%, Series Ce         480,539       11,350,331    
              21,680,302    
FINANCE   2.6%              
INVESTMENT BANKER/BROKER   0.9%              
GMAC Capital Trust I, 8.125%, due 2/15/40, Series II         109,500       2,803,200    
Morgan Stanley Capital Trust III, 6.25%, due 3/1/33e         164,962       4,034,970    
              6,838,170    
MORTGAGE LOAN/BROKER   1.7%              
Countrywide Capital IV, 6.75%, due 4/1/33e,f         348,000       8,613,000    
Countrywide Capital V, 7.00%, due 11/1/36e         217,500       5,420,100    
              14,033,100    
TOTAL FINANCE             20,871,270    

See accompanying notes to financial statements.
11



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
INSURANCE   6.3%              
LIFE/HEALTH INSURANCE—FOREIGN   0.7%              
Aegon NV, 6.375%e         84,680     $ 1,999,295    
Aegon NV, 6.875%         158,294       3,792,724    
              5,792,019    
MULTI-LINE   0.8%              
American Financial Group, 7.00%, due 9/30/50e         145,000       3,678,650    
American International Group, 7.70%, due 12/18/62         93,605       2,345,741    
              6,024,391    
MULTI-LINE—FOREIGN   2.7%              
Allianz SE, 8.375%e         211,472       5,551,140    
ING Groep N.V., 6.375%         147,782       3,320,662    
ING Groep N.V., 7.375%e,f         408,290       10,084,763    
ING Groep N.V., 8.50%         127,900       3,330,516    
              22,287,081    
REINSURANCE—FOREIGN   2.1%              
Arch Capital Group Ltd., 7.875%, Series B         100,443       2,551,252    
Arch Capital Group Ltd., 8.00%         102,864       2,607,602    
Aspen Insurance Holdings Ltd., 7.401%, Series A         46,225       1,153,776    
Axis Capital Holdings Ltd., 7.50%, Series B ($100 par value)e         45,000       4,390,313    
Endurance Specialty Holdings Ltd., 7.50%, Series B         120,000       2,994,000    
Montpelier Re Holdings Ltd., 8.875%         130,000       3,354,000    
              17,050,943    
TOTAL INSURANCE             51,154,434    
INTEGRATED TELECOMMUNICATIONS SERVICES   3.1%              
Qwest Corp., 7.375%, due 6/1/51e         539,804       13,862,167    
Telephone & Data Systems, 6.875%, due 11/15/59         154,000       3,880,800    
Telephone & Data Systems, 7.00%, due 3/15/60         190,000       4,799,400    
United States Cellular Corp., 6.95%, due 5/15/60         120,000       3,006,000    
              25,548,367    

See accompanying notes to financial statements.
12



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
MEDIA—DIVERSIFIED SERVICES   0.3%              
Comcast Corp., 6.625%, due 5/15/56e         104,144     $ 2,679,625    
REAL ESTATE   6.5%              
DIVERSIFIED   1.4%              
Duke Realty Corp., 6.95%, Series Me,f         100,000       2,530,000    
Duke Realty Corp., 7.25%, Series Ne         133,400       3,341,670    
Lexington Realty Trust, 6.50%, Series C ($50 par value)e,f         96,586       4,343,955    
Vornado Realty Trust, 6.75%, Series He,f         56,100       1,400,256    
              11,615,881    
HOTEL   0.3%              
Pebblebrook Hotel Trust, 7.875%, Series A         100,000       2,514,000    
OFFICE   0.4%              
BioMed Realty Trust, 7.375%, Series Ae,f         55,000       1,396,450    
SL Green Realty Corp., 7.625%, Series Ce,f         70,000       1,756,300    
              3,152,750    
OFFICE/INDUSTRIAL   0.4%              
PS Business Parks, 7.00%, Series He         118,864       2,983,486    
RESIDENTIAL   1.2%              
APARTMENT   1.0%              
Apartment Investment & Management Co., 7.75%, Series U         100,000       2,518,000    
Apartment Investment & Management Co., 8.00%, Series Ve         101,000       2,559,340    
Apartment Investment & Management Co., 7.875%, Series Ye         110,000       2,772,000    
              7,849,340    
MANUFACTURED HOME   0.2%              
Equity Lifestyle Properties, 8.034%, Series A         60,000       1,519,800    
TOTAL RESIDENTIAL             9,369,140    

See accompanying notes to financial statements.
13



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
SHOPPING CENTER   2.8%              
COMMUNITY CENTER   1.9%              
Cedar Shopping Centers, 8.875%, Series A         62,000     $ 1,558,680    
Developers Diversified Realty Corp., 7.50%, Series Ie         158,603       3,992,037    
Kimco Realty Corp., 7.75%, Series Ge         134,996       3,517,996    
Regency Centers Corp., 7.25%, Series De         100,000       2,510,000    
Weingarten Realty Investors, 6.50%, Series Fe         157,540       3,930,623    
              15,509,336    
REGIONAL MALL   0.9%              
CBL & Associates Properties, 7.375%, Series De         304,982       7,551,355    
TOTAL SHOPPING CENTER             23,060,691    
TOTAL REAL ESTATE             52,695,948    
TRANSPORT—MARINE   1.0%              
Seaspan Corp., 9.50%, due 1/29/49, Series C         285,000       7,777,650    
TOTAL PREFERRED SECURITIES—$25 PAR VALUE
(Identified cost—$212,134,634)
            231,600,419    
PREFERRED SECURITIES—CAPITAL SECURITIES   39.8%              
BANK   12.4%              
AgFirst Farm Credit Bank, 6.585%, due 6/29/49, 144Ab,e         3,000,000       2,539,203    
AgFirst Farm Credit Bank, 7.30%, due 10/14/49, 144Aa,b,e,f         18,000,000       17,580,960    
Astoria Capital Trust I, 9.75%, due 11/1/29, Series Ba,e         9,600,000       9,999,859    
Bank of America Corp., 8.125%, due 12/29/49, Series M (FRN)e,f         9,300,000       9,723,708    
Citigroup Capital III, 7.625%, due 12/1/36         8,950,000       9,428,646    
CoBank ACB, 11.00%, Series C, 144A ($50 Par Value)b,e         125,000       6,570,313    
Farm Credit Bank of Texas, 10.00%, due 12/15/20
($1,000 Par Value), Series I
        4,000       4,572,500    
JP Morgan Chase & Co., 7.90%, due 4/29/49, Series I (FRN)e,f         15,000,000       16,166,175    
NB Capital Trust II, 7.83%, due 12/15/26         4,000,000       4,075,000    
Sovereign Capital Trust VI, 7.908%, due 6/13/36e         3,250,000       3,322,722    
Wells Fargo & Co., 7.98%, due 3/29/49, Series K (FRN)e         9,550,000       10,361,750    
Wells Fargo & Co., 7.50%, Series L (Convertible)e         6,500       6,890,000    
              101,230,836    

See accompanying notes to financial statements.
14



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
BANK—FOREIGN   10.5%              
Abbey National Capital Trust I, 8.963%, due 12/29/49e         7,559,000     $ 8,372,605    
Barclays Bank PLC, 6.278%, due 12/31/49e         8,350,000       7,173,176    
Barclays Bank PLC, 6.86%, due 9/29/49, 144A (FRN)b,e         8,000,000       7,420,000    
BNP Paribas, 7.195%, due 12/31/49, 144Ab,e         5,900,000       5,752,500    
BPCE SA, 9.00%, due 12/31/49         2,750,000       4,107,549    
Claudius Ltd., 7.875%, due 12/12/49         4,000,000       4,170,000    
HSBC Capital Funding LP, 10.176%, due 12/29/49, 144Ab,e         14,692,000       19,613,820    
Intesa Sanpaolo SpA, 9.50%, due 12/31/49         2,000,000       2,951,054    
LBG Capital No.1 PLC, 8.00%, due 12/29/49, 144Ab         6,800,000       6,154,000    
Rabobank Nederland, 11.00%, due 6/29/49, 144Ab,e         2,800,000       3,583,180    
Resona Preferred Global Securities, 7.191%,
due 12/29/49, 144A (FRN)b
        3,000,000       3,007,332    
Santander UK PLC, 7.95%, due 10/26/29         3,000,000       3,276,711    
SMFG Preferred Capital, 9.50%, due 7/29/49, 144A (FRN)b         2,950,000       3,466,250    
Standard Chartered PLC, 7.014%, due 7/29/49, 144Ab,e         6,850,000       6,588,659    
              85,636,836    
FINANCE   0.9%              
CREDIT CARD   0.5%              
American Express Co., 6.80%, due 9/1/66e         4,100,000       4,228,125    
DIVERSIFIED FINANCIAL SERVICES   0.4%              
Credit Suisse Group Guernsey I Ltd., 7.875%, due 2/24/41         3,000,000       3,087,000    
TOTAL FINANCE             7,315,125    
FOOD   0.6%              
Dairy Farmers of America, 7.875%, 144Aa,b,e         50,000       4,501,565    
INSURANCE   10.0%              
LIFE/HEALTH INSURANCE   1.7%              
American General Institutional Capital B, 8.125%,
due 3/15/46, 144Ab
        5,250,000       5,683,125    
Great-West Life & Annuity Insurance Co., 7.153%,
due 5/16/46, 144Ab,e
        2,700,000       2,794,500    
Lincoln National Corp., 7.00%, due 5/17/66         5,250,000       5,311,950    
              13,789,575    

See accompanying notes to financial statements.
15



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
LIFE/HEALTH INSURANCE—FOREIGN   0.5%              
Prudential PLC, 7.75%, due 6/23/16         3,750,000     $ 3,853,125    
MULTI-LINE   3.0%              
American International Group, 8.175%, due 5/15/58, (FRN)e         5,150,000       5,646,202    
MetLife, 10.75%, due 8/1/69e         3,000,000       4,233,558    
MetLife Capital Trust X, 9.25%, due 4/8/38, 144Ab,e         12,015,000       14,718,375    
              24,598,135    
MULTI-LINE—FOREIGN   1.4%              
AXA SA, 6.379%, due 12/14/49, 144Ab,e         3,385,000       2,995,725    
AXA SA, 6.463%, due 12/29/49, 144Ab,e         2,850,000       2,493,750    
AXA SA, 8.60%, due 12/15/30e         2,000,000       2,388,892    
Old Mutual Capital Funding PLC, 8.00%, due 5/29/49         3,000,000       2,992,500    
              10,870,867    
PROPERTY CASUALTY   2.6%              
ACE Capital Trust II, 9.70%, due 4/1/30e         5,160,000       6,698,253    
Liberty Mutual Group, 7.00%, due 3/15/37, 144Ab,e         3,000,000       2,869,794    
Liberty Mutual Group, 7.80%, due 3/15/37, 144Ab,e         4,000,000       4,030,000    
Liberty Mutual Group, 10.75%, due 6/15/58, 144Ab,e         2,500,000       3,343,750    
USF&G Capital, 8.312%, due 7/1/46, 144Ab,e         3,845,000       4,447,504    
              21,389,301    
REINSURANCE—FOREIGN   0.8%              
Catlin Insurance Co., 7.249%, due 12/31/49, 144Ab,e         6,800,000       6,528,000    
TOTAL INSURANCE             81,029,003    
INTEGRATED TELECOMMUNICATIONS SERVICES   2.1%              
Centaur Funding Corp., 9.08%, due 4/21/20, 144Ab         14,954       17,056,906    
OIL & GAS EXPLORATION & PRODUCTION   0.4%              
Origin Energy Finance Ltd., 7.875%, due 6/16/71
(Australia) (EUR)c
        2,500,000       3,616,311    
PIPELINES   1.8%              
Enbridge Energy Partners LP, 8.05%, due 10/1/37e,f         6,000,000       6,517,686    
Enterprise Products Operating LP, 8.375%, due 8/1/66e         7,710,000       8,354,718    
              14,872,404    

See accompanying notes to financial statements.
16



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

        Number
of Shares
  Value  
UTILITIES   1.1%              
ELECTRIC UTILITIES   0.6%              
FPL Group Capital, 7.30%, due 9/1/67, Series De,f         5,000,000     $ 5,243,975    
MULTI UTILITIES   0.5%              
Dominion Resources, 7.50%, due 6/30/66, Series A         3,650,000       3,859,309    
TOTAL UTILITIES             9,103,284    
TOTAL PREFERRED SECURITIES—CAPITAL SECURITIES
(Identified cost—$297,330,014)
            324,362,270    
        Principal
Amount
     
CORPORATE BONDS   3.9%              
BANK   0.5%              
Regions Bank, 7.50%, due 5/15/18       $ 1,376,000       1,440,815    
Regions Financial Corp., 7.375%, due 12/10/37         2,500,000       2,384,333    
              3,825,148    
INSURANCE   1.4%              
PROPERTY CASUALTY   0.5%              
Liberty Mutual Insurance, 7.697%, due 10/15/97, 144Ab         4,500,000       4,170,483    
REINSURANCE—FOREIGN   0.9%              
QBE Capital Funding III Ltd., 7.25%, due 5/24/41, 144Ab         3,500,000       3,517,941    
Swiss Reinsurance Co. Ltd., Series I, 7.635%,
due 12/31/49 (Australia)
      AUD 4,600,000       4,039,849    
              7,557,790    
TOTAL INSURANCE             11,728,273    
INTEGRATED TELECOMMUNICATIONS SERVICES   0.5%              
Citizens Communications Co., 9.00%, due 8/15/31       $ 4,000,000       4,120,000    
INVESTMENT ADVISORY SERVICES   0.4%              
Old Mutual PLC, 8.00%, due 6/3/21 (United Kingdom)       GBP 2,000,000       3,228,230    
REAL ESTATE   1.1%              
OFFICE   0.7%              
BR Properties SA, 9.00%, due 12/31/49, 144A (Brazil)a,b,e       $ 5,500,000       5,775,000    
SHOPPING CENTER   0.4%              
General Shopping Finance Ltd., 10.00%, due 11/9/15, 144Ab         2,965,000       3,128,075    

See accompanying notes to financial statements.
17



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

            Value  
TOTAL REAL ESTATE           $ 8,903,075    
TOTAL CORPORATE BONDS (Identified Cost—$31,396,040)             31,804,726    
        Number
of Shares
     
SHORT-TERM INVESTMENTS     1.1%                
MONEY MARKET FUNDS  
Federated Government Obligations Fund, 0.01%h
(Identified cost—$8,800,129)
        8,800,129       8,800,129    
TOTAL INVESTMENTS (Identified cost—$977,642,713)     143.6 %           1,168,876,068    
LIABILITIES IN EXCESS OF OTHER ASSETS     (43.6 )           (355,027,356 )  
NET ASSETS (Equivalent to $16.93 per share based on 48,075,534
shares of common stock outstanding)
    100.0 %         $ 813,848,712    

 

Glossary of Portfolio Abbreviations

AUD  Australian Dollar

EUR  Euro Currency

FRN  Floating Rate Note

GBP  Great British Pound

REIT  Real Estate Investment Trust

TruPS  Trust Preferred Securities

Note: Percentages indicated are based on the net assets of the Fund.

a  Illiquid security. Aggregate holdings equal 5.7% of net assets of the Fund.

b  Resale is restricted to qualified institutional investors. Aggregate holdings equal 21.9% of net assets of the Fund, of which 4.4% is illiquid.

c   Fair valued security. This security has been valued at its fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Board of Directors. Aggregate fair value securities represent 1.2% of the net assets of the Fund, of which 0.5% have been fair valued pursuant to foreign security fair value pricing procedures approved by the Board of Directors.

d  Non-income producing security

e   A portion or all of the security is pledged in connection with the revolving credit agreement: $726,156,453 has been pledged as collateral.

f  A portion or all of the security has been rehypothecated in connection with the Fund's revolving credit agreement in the aggregate amount of $319,922,506.

See accompanying notes to financial statements.
18



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

SCHEDULE OF INVESTMENTS—(Continued)

June 30, 2011 (Unaudited)

g  A portion of the security is segregated as collateral for interest rate swap transactions: $17,171,500 has been segregated as collateral.

h  Rate quoted represents the seven day yield of the fund.

Interest rate swaps outstanding at June 30, 2011 are as follows:

Counterparty   Notional
Amount
  Fixed
Rate
Payable
  Floating Ratea
(reset monthly)
Receivable
  Termination
Date
  Unrealized
Depreciation
 
Merrill Lynch Derivative Products AG   $ 45,000,000       3.510 %     0.186 %   December 22, 2012   $ (2,037,000 )  
Royal Bank of Canada   $ 60,000,000       3.653 %     0.185 %   July 17, 2013     (3,770,696 )  
Royal Bank of Canada   $ 70,000,000       3.615 %     0.186 %   March 29, 2014     (5,065,580 )  
Royal Bank of Canada   $ 35,000,000       1.865 %     0.190 %   June 13, 2015     (510,312 )  
Royal Bank of Canada   $ 35,000,000       2.474 %     0.190 %   February 10, 2016     (1,101,089 )  
    $ (12,484,678 )  

 

a  Based on LIBOR (London Interbank Offered Rate). Represents rates in effect at June 30, 2011.

See accompanying notes to financial statements.
19




COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

June 30, 2011 (Unaudited)

ASSETS:  
Investments in securities, at value (Identified cost—$977,642,713)   $ 1,168,876,068    
Cash (includes $2,269,000 pledged as collateral for open swap positions)     2,417,114    
Receivable for:  
Dividends and interest     6,799,324    
Investment securities sold     2,188,608    
Other assets     29,936    
Total Assets     1,180,311,050    
LIABILITIES:  
Unrealized depreciation on interest rate swap transactions     12,484,678    
Payable for:  
Revolving credit agreement     350,000,000    
Investment securities purchased     2,175,858    
Dividends declared on common shares     875,046    
Investment management fees     621,439    
Administration fees     54,681    
Interest expense     24,025    
Directors' fees     63    
Other liabilities     226,548    
Total Liabilities     366,462,338    
NET ASSETS   $ 813,848,712    
NET ASSETS consist of:  
Paid-in capital   $ 913,752,698    
Dividends in excess of net investment income     (6,135,721 )  
Accumulated net realized loss     (272,518,471 )  
Net unrealized appreciation     178,750,206    
    $ 813,848,712    
NET ASSET VALUE PER COMMON SHARE:  
($813,848,712 ÷ 48,075,534 shares outstanding)   $ 16.93    
MARKET PRICE PER COMMON SHARE   $ 16.22    
MARKET PRICE DISCOUNT TO NET ASSET VALUE PER COMMON SHARE     (4.19 )%  

 

See accompanying notes to financial statements.
20



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2011 (Unaudited)

Investment Income:  
Dividend income (net of $7,973 of foreign withholding tax)   $ 13,837,534    
Interest income     12,897,254    
Rehypothecation income     112,249    
Total Income     26,847,037    
Expenses:  
Investment management fees     3,701,487    
Interest expense     2,252,531    
Administration fees     425,641    
Custodian fees and expenses     91,610    
Shareholder reporting expenses     56,315    
Professional fees     49,877    
Directors' fees and expenses     31,997    
Transfer agent fees and expenses     10,876    
Registration and filing fees     5,713    
Line of credit fees     467    
Miscellaneous     78,323    
Total Expenses     6,704,837    
Net Investment Income     20,142,200    
Net Realized and Unrealized Gain (Loss):  
Net realized gain (loss) on:  
Investments     48,275,108    
Foreign currency transactions     24,451    
Interest rate swap transactions     (3,472,399 )  
Net realized gain     44,827,160    
Net change in unrealized appreciation (depreciation) on:  
Investments     26,667,509    
Foreign currency translations     4,416    
Interest rate swap transactions     (549,339 )  
Net change in unrealized appreciation (depreciation)     26,122,586    
Net realized and unrealized gain     70,949,746    
Net Increase in Net Assets Resulting from Operations   $ 91,091,946    

 

See accompanying notes to financial statements.
21



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

STATEMENT OF CHANGES IN NET ASSETS (Unaudited)

    For the
Six Months Ended
June 30, 2011
  For the
Year Ended
December 31, 2010
 
Change in Net Assets Applicable to Common Shares:  
From Operations:  
Net investment income   $ 20,142,200     $ 42,035,488    
Net realized gain     44,827,160       55,667,224    
Net change in unrealized appreciation (depreciation)     26,122,586       84,554,916    
Net increase in net assets resulting from operations     91,091,946       182,257,628    
Dividends to Common Shareholders from Net Investment              
Income     (28,820,706 )     (48,163,738 )  
Capital Stock Transactions:  
Increase (decrease) in net assets from Fund share
transactions
    694,536       (3,531,311 )  
Total increase in net assets applicable to
common shares
    62,965,776       130,562,579    
Net Assets Applicable to Common Shares:  
Beginning of period     750,882,936       620,320,357    
End of perioda   $ 813,848,712     $ 750,882,936    

 

a  Includes dividends in excess of net investment income and accumulated undistributed net investment income of $6,135,721 and $2,542,785, respectively.

See accompanying notes to financial statements.
22



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2011 (Unaudited)

Decrease in Cash:  
Cash Flows from Operating Activities:  
Net increase in net assets resulting from operations   $ 91,091,946    
Adjustments to reconcile net increase in net assets from
operations to net cash provided by operating activities:
 
Purchases of long-term investments     (343,184,463 )  
Net purchases, sales and maturities of short-term investments     16,627,640    
Net amortization/accretion of premium (discount)     85,742    
Proceeds from sales and maturities of long-term investments     336,760,772    
Net decrease in dividends and interest receivable and other assets     776,735    
Net decrease in interest expense payable, accrued expenses and other liabilities     (126,735 )  
Net change in unrealized appreciation on investments     (26,667,509 )  
Net change in unrealized depreciation on interest rate swaps     549,339    
Net realized gain from investments     (48,275,108 )  
Cash provided for operating activities     27,638,359    
Cash Flows from Financing Activities:  
Increase in net assets from Fund share transactions     694,536    
Distributions paid on common shares     (29,771,852 )  
Cash used for financing activities     (29,077,316 )  
Decrease in cash     (1,438,957 )  
Cash at beginning of period     3,856,071    
Cash at end of period   $ 2,417,114    

 

See accompanying notes to financial statements.
23




COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

FINANCIAL HIGHLIGHTS (Unaudited)

The following table includes selected data for a common share outstanding throughout each period and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto.

    For the Six   For Year Ended December 31,  
    Months Ended      
Per Share Operating Performance:   June 30, 2011   2010   2009   2008   2007   2006  
Net asset value per common share,
beginning of period
  $ 15.63     $ 12.83     $ 8.51     $ 21.88     $ 32.02     $ 28.25    
Income from investment operations:  
Net investment income     0.42       1.02       0.73       1.54       2.03       1.92    
Net realized and unrealized
gain (loss)
    1.48       2.76       4.46       (11.99 )     (7.56 )     6.61    
Total income (loss) from
investment operations
    1.90       3.78       5.19       (10.45 )     (5.53 )     8.53    
Less dividends and distributions
to preferred shareholders from:
 
Net investment income                 (0.03 )     (0.52 )     (0.46 )     (0.35 )  
Net realized gain                             (0.36 )     (0.39 )  
Total dividends and
distributions to
preferred shareholders
                (0.03 )     (0.52 )     (0.82 )     (0.74 )  
Total from investment
operations applicable
to common shares
    1.90       3.78       5.16       (10.97 )     (6.35 )     7.79    
Anti-dilutive effect from the issuance
of reinvested common shares
    0.00 a                  0.00 a               
Anti-dilutive effect from the purchase
of common shares
          0.02                            
Less dividends and distributions
to common shareholders from:
 
Net investment income     (0.60 )     (1.00 )     (0.71 )     (0.87 )     (1.61 )     (1.60 )  
Net realized gain                             (1.30 )     (1.66 )  
Tax return of capital                 (0.13 )     (1.53 )     (0.88 )     (0.76 )  
Total dividends and
distributions to
common shareholders
    (0.60 )     (1.00 )     (0.84 )     (2.40 )     (3.79 )     (4.02 )  
Net increase (decrease) in net asset
value per common share
    1.30       2.80       4.32       (13.37 )     (10.14 )     3.77    
Net asset value, per common share,
end of period
  $ 16.93     $ 15.63     $ 12.83     $ 8.51     $ 21.88     $ 32.02    
Market value, per common share,
end of period
  $ 16.22     $ 14.29     $ 10.35     $ 6.21     $ 18.90     $ 31.00    
Total net asset value returnb     12.38 %c     31.63 %     69.85 %     –53.42 %     –20.00 %     29.40 %  
Total market value returnb     17.77 %c     49.18 %     87.76 %     –60.65 %     –28.62 %     36.91 %  

See accompanying notes to financial statements.
24



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

FINANCIAL HIGHLIGHTS (Unaudited)—(Continued)

    For the Six   For Year Ended December 31,  
    Months Ended      
Ratios/Supplemental Data:   June 30, 2011   2010   2009   2008   2007   2006  
Net assets applicable to common
shares, end of period (in millions)
  $ 813.8     $ 750.9     $ 620.3     $ 411.3     $ 1,055.6     $ 1,545.0    
Ratio of expenses to average daily
net assets applicable to
common shares
    1.69 %d     1.87 %     2.62 %e     1.72 %e     1.27 %e     1.25 %e  
Ratio of expenses to average daily net
assets applicable to common shares
(excluding interest expense)
    1.12 %d     1.22 %     2.06 %e     1.70 %e              
Ratio of net investment income to
average daily net assets applicable
to common shares
    5.09 %d     6.08 %     9.02 %e     9.06 %e     6.34 %e     5.92 %e  
Ratio of expenses to average daily
managed-assetsf
    1.18 %d     1.26 %     1.56 %e     0.98 %e     0.84 %e     0.84 %e  
Portfolio turnover rate     29 %c     66 %     81 %     53 %     52 %     34 %  
Preferred Shares/
Revolving Credit Agreement:
 
Liquidation value, end of period
(in 000's)
                    $ 254,000     $ 726,000     $ 726,000    
Total shares outstanding (in 000's)                       10       29       29    
Asset coverage ratio for revolving
credit agreement
    333 %     315 %g     286 %g     5,644 %              
Asset coverage per $1,000 for revolving
credit agreement
  $ 3,325     $ 3,145     $ 2,862     $ 56,443                
Asset coverage ratio for auction
market preferred shares
                      255 %h     245 %     313 %  
Asset coverage per share for auction
market preferred sharesh
                    $ 63,750     $ 61,351     $ 78,204    
Liquidation preference per share                     $ 25,000     $ 25,000     $ 25,000    
Average market value per sharei                     $ 25,000     $ 25,000     $ 25,000    

 

a  Amount is less than $0.005.

b  Total market value return is computed based upon the New York Stock Exchange market price of the Fund's shares and excludes the effects of brokerage commissions. Total net asset value return measures the changes in value over the period indicated, taking into account dividends as reinvested. Dividends and distributions, if any, are assumed for purposes of these calculations, to be reinvested at prices obtained under the Fund's dividend reinvestment plan.

c  Not annualized.

d  Annualized.

e  Ratios do not reflect dividend payments to preferred shareholders, where applicable.

f  Average daily managed assets represent net assets applicable to common shares plus liquidation preference of preferred shares and/or the outstanding balance of the revolving credit agreement.

g  For the period June 1, 2009 through June 15, 2010, the Fund utilized temporary relief from the Securities and Exchange Commission permitting the Fund to maintain 200% asset coverage.

h  Includes the effect of the outstanding borrowings from the revolving credit agreement.

i  Based on weekly prices.

See accompanying notes to financial statements.
25




COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

Note 1. Significant Accounting Policies

Cohen & Steers REIT and Preferred Income Fund, Inc. (the Fund) was incorporated under the laws of the State of Maryland on March 25, 2003 and is registered under the Investment Company Act of 1940 as amended, as a diversified, closed-end management investment company. The Fund's investment objective is high current income.

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Portfolio Valuation: Investments in securities that are listed on the New York Stock Exchange are valued, except as indicated below, at the last sale price reflected at the close of the New York Stock Exchange on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day or, if no asked price is available, at the bid price. Exchange traded options are valued at their last sale price as of the close of options trading on applicable exchanges. In the absence of a last sale, options are valued at the average of the quoted bid and asked prices as of the close of business. Over-the-counter options quotations are provided by the respective counterparty when such prices are believed by Cohen & Steers Capital Management, Inc. (the investment manager), pursuant to delegation by the Board of Directors to reflect the fair market value.

Securities not listed on the New York Stock Exchange but listed on other domestic or foreign securities exchanges are valued in a similar manner. Securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined as reflected on the tape at the close of the exchange representing the principal market for such securities. If after the close of a foreign market, but prior to the close of business on the day the securities are being valued, market conditions change significantly, certain foreign securities may be fair valued pursuant to procedures established by the Board of Directors.

Readily marketable securities traded in the over-the-counter market, including listed securities whose primary market is believed by the investment manager to be over-the-counter, are valued at the official closing prices as reported by sources as the Board of Directors deem appropriate to reflect their fair market value. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day, or if no asked price is available, at the bid price. However, certain fixed-income securities may be valued on the basis of prices provided by a pricing service when such prices are believed by the investment manager, pursuant to delegation by the Board of Directors, to reflect the fair market value of such securities.


26



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

Securities for which market prices are unavailable, or securities for which the investment manager determines that the bid and/or asked price or a counterparty valuation does not reflect market value, will be valued at fair value pursuant to procedures approved by the Fund's Board of Directors. Circumstances in which market prices may be unavailable include, but are not limited to, when trading in a security is suspended, the exchange on which the security is traded is subject to an unscheduled close or disruption or material events occur after the close of the exchange on which the security is principally traded. In these circumstances, the Fund determines fair value in a manner that fairly reflects the market value of the security on the valuation date based on consideration of any information or factors it deems appropriate. These may include, but are not limited to, recent transactions in comparable securities, information relating to the specific security and developments in the markets. Interest rate swaps are valued utilizing quotes received from an outside pricing service.

The Fund's use of fair value pricing may cause the net asset value of Fund shares to differ from the net asset value that would be calculated using market quotations. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security.

Short-term debt securities with a maturity date of 60 days or less are valued at amortized cost, which approximates value. Investments in open-end mutual funds are valued at their closing net asset value.

Fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. The hierarchy of inputs that are used in determining the fair value of the Fund's investments is summarized below.

•  Level 1—quoted prices in active markets for identical investments

•  Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.)

•  Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

When foreign fair value pricing procedures are utilized, securities are categorized as Level 2. The utilization of these procedures results in transfers between Level 1 and Level 2. The following is a summary of the inputs used as of June 30, 2011 in valuing the Fund's investments carried at value:


27



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

    Total   Quoted Prices In
Active Market for
Identical Assets
(Level 1)
  Significant
Other Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Common Stock—Bank   $ 2,140,000     $     $     $ 2,140,000    
Common Stock—Real Estate—
Industrial
    34,576,192       33,183,901       1,392,291          
Common Stock—Real Estate—
Shopping Center—
Regional Mall
    96,795,811       94,080,739       2,715,072          
Common Stock—Other Industries     438,796,521       438,796,521                
Preferred Securities—$25 Par Value—
Bank
    49,192,823       43,033,448             6,159,375    
Preferred Securities—$25 Par Value—
Insurance—Multi-Line—
Foreign
    22,287,081       16,735,941       5,551,140          
Preferred Securities—$25 Par Value—
Insurance—Reinsurance—
Foreign
    17,050,943       12,660,630       4,390,313          
Preferred Securities—$25 Par Value—
Other Industries
    143,069,572       143,069,572                
Preferred Securities—Capital
Securities—Bank
    101,230,836       6,890,000       94,340,836          
Preferred Securities—Capital
Securities—Food
    4,501,565                   4,501,565    
Preferred Securities—Capital
Securities—Oil & Gas
Exploration & Production
    3,616,311                   3,616,311    
Preferred Securities—Capital
Securities—Other Industries
    215,013,558             215,013,558          
Corporate Bonds—Real Estate     8,903,075                   8,903,075    
Corporate Bonds—Other Industries     22,901,651             22,901,651          
Money Market Funds     8,800,129             8,800,129          
Total Investments   $ 1,168,876,068     $ 788,450,752     $ 355,104,990     $ 25,320,326    
Other Financial Instruments*   $ (12,484,678 )         $ (12,484,678 )        

 

*  Other financial instruments are interest rate swap contracts.

 


28



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

    Total
Investments
in Securities
  Common
Stock—
Bank
  Preferred
Securities—
$25 Par
Value—
Bank
  Preferred
Securities—
Capital
Securities—
Food
  Preferred
Securities—
Capital
Securities—
Oil & Gas
Exploration &
Production
  Corporate
Bonds—
Real
Estate
 
Balance as of December 31, 2010   $ 17,490,000     $ 2,140,000     $ 5,415,000     $ 4,462,500           $ 5,472,500    
Change in unrealized
appreciation(depreciation)
    366,665             35,175       39,065     $ (10,075 )     302,500    
Purchases     4,335,586             709,200             3,626,386          
Transfers in and/or out
of Level 3
    3,128,075                               3,128,075    
Balance as of June 30, 2011   $ 25,320,326     $ 2,140,000     $ 6,159,375     $ 4,501,565     $ 3,616,311     $ 8,903,075    

 

Investments classified as Level 3 infrequently trade and have significant unobservable inputs. The Level 3 preferred securities have been deemed illiquid and were valued by a pricing service which has utilized independent broker quotes. The Level 3 common stock, preferred securities and corporate bonds have been fair valued utilizing inputs and assumptions which include book value, recent comparables in similar securities, as well as liquidity and market risk factors.

Security Transactions and Investment Income: Security transactions are recorded on trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost. Interest income is recorded on the accrual basis. Discounts are accreted and premiums are amortized over the life of the respective securities. Dividend income is recorded on the ex-dividend date, except for certain dividends on foreign securities, which are recorded as soon as the Fund is informed after the ex-dividend date. The Fund records distributions received in excess of income from underlying investments as a reduction of cost of investments and/or an increase in realized gain. Such amounts are based on estimates if actual amounts are not available, and actual amounts of income, realized gain and return of capital may differ from the estimated amounts. The Fund adjusts the estimated amounts of the components of distributions (and consequently its net investment income) as an increase to unrealized appreciation/(depreciation) and realized gain/(loss) on investments as necessary once the issuers provide information about the actual composition of the distributions.

Options: The Fund may write put or call options on an index and put or covered call options on security with the intention of earning option premiums. Option premiums may increase the Fund's realized gains and therefore may help increase distributable income. When a Fund writes (sells) an option, an amount equal to the premium received by the Fund is recorded in the Statement of Assets and Liabilities as a liability. The amount of


29



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

the liability is subsequently marked-to-market to reflect the current market value of the option written. When an option expires, the Fund realizes a gain on the option to the extent of the premiums received. Premiums received from writing options which are exercised or closed, are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. If a put option on a security is exercised, the premium reduces the cost basis of the security purchased by the Fund. If a call option is exercised, the call premium is added to the proceeds of the security sold to determine its gain or loss. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the underlying index or security. Other risks include the possibility of an illiquid options market or the inability of the counterparties to fulfill their obligations under the contract.

Foreign Currency Translations: The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and foreign currency contracts are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities.

Foreign Securities and Forward Foreign Currency Exchange Contracts: The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers.

In connection with its investments in foreign securities, the Fund may be exposed to foreign currency risks associated with portfolio investments and therefore use forward foreign currency exchange contracts (forward contracts) to hedge or manage these exposures. Forward contracts represent obligations to purchase or sell foreign currency on a specified future date at a price fixed at the time the contracts are entered into. The risks include the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Forward contracts are valued daily at the applicable forward rate. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency translation gains or losses. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery.

Interest Rate Swaps: The Fund uses interest rate swaps in connection with borrowing under its credit agreement. The interest rate swaps are intended to reduce the risk that an increase in short-term interest rates


30



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

could have on the performance of the Fund's common shares as a result of the floating rate structure of interest owed pursuant to the credit agreement. In these interest rate swaps, the Fund agrees to pay the other party to the interest rate swap (which is known as the counterparty) a fixed rate payment in exchange for the counterparty agreeing to pay the Fund a variable rate payment that is intended to approximate the Fund's variable rate payment obligation on the credit agreement. The payment obligation is based on the notional amount of the swap. Depending on the state of interest rates in general, the use of interest rate swaps could enhance or harm the overall performance of the common shares. The market value of interest rate swaps is based on pricing models that consider the time value of money, volatility, the current market and contractual prices of the underlying financial instrument. Unrealized appreciation is reported as an asset and unrealized depreciation is reported as a liability on the Statement of Assets and Liabilities. The change in value of swaps, including the accrual of periodic amounts of interest to be paid or received on swaps, is reported as unrealized appreciation or depreciation in the Statement of Operations. A realized gain or loss is recorded upon payment or receipt of a periodic payment or termination of swap agreements. Swap agreements involve, to varying degrees, elements of market and counterparty risk, and exposure to loss in excess of the related amounts reflected in the Statement of Assets and Liabilities. The Fund's maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract's remaining life, to the extent that such amount is positive.

For each swap counterparty, the Fund entered into an International Swap and Derivatives Association Inc. Master Agreement and related annexes thereto ("ISDAs") which sets forth the general terms and conditions of the Fund's swap transactions. During 2008, the Fund notified Merrill Lynch Derivatives Product AG ("MLDP") that it breached certain terms and conditions of its ISDAs. During 2009, the Fund notified MLDP of additional breaches. MLDP has required that the Fund post collateral in the form of cash or U.S. Treasury securities. The collateral amount is determined by the approximate unrealized depreciation of a particular swap transaction on each valuation date. As of June 30, 2011, this amount was $2,269,000 and was pledged in cash by the Fund to MLDP. At June 30, 2011, the Fund continues to operate under the existing terms of all of its various ISDAs, including those with MLDP. However, MLDP reserves any and all rights to take any future action with respect to such events, including termination of outstanding swap transactions; termination or renegotiation of the ISDAs; requiring posting of collateral in the form of cash or U.S. Treasury securities representing the unrealized depreciation on outstanding interest rate swap transactions or continuation under the current terms of the ISDAs. Any action resulting in the early termination of an interest rate swap transaction would cause the Fund to realize any market depreciation that existed on such transaction. In addition to realizing such losses, the early termination of a swap transaction may generate additional expenses for the Fund.

Dividends and Distributions to Shareholders: Dividends from net investment income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from GAAP. Dividends from net investment income, if any, are declared and paid quarterly. Net realized capital gains, unless offset by any available capital loss carryforward, are typically distributed to shareholders at least annually. Dividends


31



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

and distributions to shareholders are recorded on the ex-dividend date and are automatically reinvested in full and fractional shares of the Fund in accordance with the Fund's Reinvestment Plan unless the shareholder has elected to have them paid in cash. Distributions paid by the Fund are subject to recharacterization for tax purposes.

Income Taxes: It is the policy of the Fund to continue to qualify as a regulated investment company, if such qualification is in the best interest of the shareholders, by complying with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies, and by distributing substantially all of its taxable earnings to its shareholders. Accordingly, no provision for federal income or excise tax is necessary. Dividend and interest income from holdings in non-U.S. securities is recorded net of non-U.S. taxes paid. Management has analyzed the Fund's tax positions taken on federal income tax returns as well as its tax positions in non-U.S. jurisdictions where it trades for all open tax years and has concluded that as of June 30, 2011, no additional provisions for income tax would be required in the Fund's financial statements. The Fund's tax positions for the tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service, state departments of revenue and by foreign tax authorities.

Note 2. Investment Management Fees, Administration Fees and Other Transactions with Affiliates

Investment Management Fees: The investment manager serves as the Fund's investment manager pursuant to an investment management agreement (the investment management agreement). Under the terms of the investment management agreement, the investment manager provides the Fund with day-to-day investment decisions and generally manages the Fund's investments in accordance with the stated policies of the Fund, subject to the supervision of the Board of Directors.

For the services under the investment management agreement, the Fund pays the investment manager a management fee, accrued daily and paid monthly, at an annual rate of 0.65% of the Fund's average daily managed asset value. Managed asset value is the net asset value of the common shares plus the amount of any borrowings used for leverage outstanding.

Administration Fees: The Fund has entered into an administration agreement with the investment manager under which the investment manager performs certain administrative functions for the Fund and receives a fee, accrued daily and paid monthly, at the annual rate of 0.06% of the Fund's average daily managed assets up to $1 billion, 0.04% of the Fund's average daily managed assets in excess of $1 billion up to $1.5 billion and 0.02% of the Fund's average daily managed assets in excess of $1.5 billion. For the six months ended June 30, 2011, the Fund incurred $326,962 in administration fees. Additionally, the Fund pays State Street Bank and Trust Company as co-administrator under a fund accounting and administration agreement.

Directors' and Officers' Fees: Certain directors and officers of the Fund are also directors, officers, and/or employees of the investment manager. The Fund does not pay compensation to any affiliated directors and officers


32



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

except for the Chief Compliance Officer, who received $9,175 from the Fund for the six months ended June 30, 2011.

Note 3. Purchases and Sales of Securities

Purchases and sales of securities, excluding short-term investments, for the six months ended June 30, 2011, totaled $339,820,334 and $330,564,180, respectively.

Note 4. Income Tax Information

As of June 30, 2011, the federal tax cost and net unrealized appreciation on securities were as follows:

Cost for federal income tax purposes   $ 977,642,713    
Gross unrealized appreciation   $ 197,405,267    
Gross unrealized depreciation     (6,171,912 )  
Net unrealized appreciation   $ 191,233,355    

 

As of December 31, 2010, the Fund had a net capital loss carryforward of $311,565,578, of which $180,604,662 will expire on December 31, 2016 and $130,960,916 will expire on December 31, 2017. This carryforward may be used to offset future capital gains to the extent provided by regulations. The Regulated Investment Company Modernization Act of 2010 (the "Act") requires that capital loss carryforwards incurred after the effective date of the Act be used before those previously incurred, thereby increasing the chances that all or a portion of these losses will not be able to be utilized prior to their expiration.

Note 5. Capital Stock

The Fund is authorized to issue 100 million shares of common stock at a par value of $0.001 per share.

During the six months ended June 30, 2011, and the year ended December 31, 2010, the Fund issued 41,024 and 0 shares of common stock, respectively, for the reinvestment of dividends.

On December 14, 2010, the Board of Directors approved the continuation of the delegation of its authority to management to effect repurchases, pursuant to management's discretion and subject to market conditions and investment considerations, of up to 10% of the Fund's common shares outstanding ("Share Repurchase Program") as of January 1, 2011 through the fiscal year ended December 31, 2011. During the six months ended June 30, 2011, the Fund did not effect any repurchases. During the year ended December 31, 2010, the Fund repurchased 323,068 Treasury shares of its common stock at an average price of $10.93 per share (including brokerage


33



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

commissions) at a weighted average discount of 18.9%. These repurchases, which had a total cost of $3,531,311, resulted in an increase of $0.02 to the Fund's net asset value per share.

Note 6. Borrowings

The Fund has a $350,000,000 revolving credit agreement (the credit agreement) with BNP Paribas Prime Brokerage Inc. (BNPP). The Fund pays a facility fee of 0.55% per annum (prior to May 19, 2011, the rate was 0.95%) on the unused portion of the credit agreement. The credit agreement has a 270-day rolling term that resets daily; however, if the Fund exceeds certain net asset value triggers, the credit agreement may convert to a 60-day rolling term that resets daily. The Fund is required to pledge portfolio securities as collateral in an amount up to two times the loan balance outstanding and has granted a security interest in the securities pledged to, and in favor of, BNPP as security for the loan balance outstanding. If the Fund fails to meet certain requirements, or maintain other financial covenants required under the credit agreement, the Fund may be required to repay immediately, in part or in full, the loan balance outstanding under the credit agreement necessitating the sale of portfolio securities at potentially inopportune times. The credit agreement also permits, subject to certain conditions, BNPP to rehypothecate portfolio securities pledged by the Fund up to the amount of the loan balance outstanding. The Fund continues to receive dividends and interest on rehypothecated securities. The Fund also has the right under the credit agreement to recall the rehypothecated securities from BNPP on demand. If BNPP fails to deliver the recalled security in a timely manner, the Fund will be compensated by BNPP for any fees or losses related to the failed delivery or, in the event a recalled security will not be returned by BNPP, the Fund, upon notice to BNPP, may reduce the loan balance outstanding by the amount of the recalled security failed to be returned. The Fund will receive a portion of the fees earned by BNPP in connection with the rehypothecation of portfolio securities.

As of June 30, 2011, the Fund has outstanding borrowings of $350,000,000. During the six months ended June 30, 2011, the Fund borrowed an average daily balance of $350,000,000 at a weighted average borrowing cost of 1.28%. As of June 30, 2011, the aggregate value of rehypothecated securities was $319,922,506. During the six months ended June 30, 2011, the Fund earned $112,249 in fees from rehypothecated securities.

Note 7. Derivative Investments

The following tables present the value of derivatives held at June 30, 2011 and the effect of derivatives held during the six months ended June 30, 2011, along with the respective location in the financial statements. The balance of outstanding interest rate swaps at June 30, 2011 is representative of the volume outstanding throughout the six months ended June 30, 2011.


34



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)

Statement of Assets and Liabilities  
    Assets   Liabilities  
Derivatives   Location   Fair Value   Location   Fair Value  
Interest rate contracts   Unrealized appreciation         Unrealized depreciation   $ 12,484,678    
Statement of Operations  

 

Derivatives   Location   Realized
Loss
  Change in Unrealized
Depreciation
 
Interest rate contracts   Net Realized and Unrealized Gain (Loss)   $ (3,472,399 )   $ (549,339 )  

 

Note 8. Other

In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund's maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.

Note 9. Subsequent Events

Events and transactions occurring after June 30, 2011 and through the date that the financial statements were issued, have been evaluated in the preparation of the financial statements and no additional disclosure is required.

 


35




COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

PROXY RESULTS (Unaudited)

Cohen & Steers REIT and Preferred Income Fund, Inc. shareholders voted on the following proposals at the annual meeting held on April 28, 2011. The description of each proposal and number of shares voted are as follows:

Common Shares

    Shares Voted
For
  Authority
Withheld
 
To elect Directors:  
Bonnie Cohen     43,730,685.963       1,238,764.148    
Richard E. Kroon     44,063,007.857       906,442.254    
Willard H. Smith Jr.     44,025,558.608       943,891.503    


36



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

AVERAGE ANNUAL TOTAL RETURNS

(periods ended June 30, 2011) (Unaudited)

Based on Net Asset Value   Based on Market Value  
One Year   Five Years   Since Inception
(06/27/03)
  One Year   Five Years   Since Inception
(06/27/03)
 
  39.73 %     2.16 %     7.87 %     66.32 %     3.01 %     6.68 %  

 

The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment 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. Performance results reflect the effect of leverage resulting from the issuance of preferred shares and/or borrowings under a credit agreement. Current total returns of the Fund can be obtained by visiting our Web site at cohenandsteers.com.

DIVIDEND 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.

OTHER INFORMATION

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 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. In addition, the Fund's proxy voting record for the most recent 12-month period ended June 30 is available by August 31 of each year (i) without charge, upon request, by calling 800-330-7348 or (ii) on the SEC's Web site at http://www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available (i) without charge, upon request by calling 800-330-7348, or (ii) on the SEC's Web site at http://www.sec.gov. In addition, the Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.

Please note that the distributions paid by the Fund to shareholders are subject to recharacterization for tax purposes and are taxable up to the amount of the Fund's investment company taxable income and net realized gains. Distributions in excess of the Fund's net investment company taxable income and realized gains are a return of capital distributed from the Fund's assets. To the extent this occurs, the Fund's shareholders of record will be notified of the estimated amount of capital returned to shareholders for each such distribution and this information will also be available at cohenandsteers.com. The final tax treatment of all distributions is reported


37



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

to shareholders on their 1099-DIV forms, which are mailed after the close of each calendar year. Distributions of capital decrease the Fund's total assets and, therefore, could have the effect of increasing the Fund's expense ratio. In addition, in order to make these distributions, the Fund may have to sell portfolio securities at a less than opportune time.

Notice is hereby given in accordance with Rule 23c-1 under the Investment Company Act of 1940 that the Fund may purchase, from time to time, shares of its common stock in the open market.

Change to Investment Policy

The Board of Directors approved revisions to the ratings criteria for determining whether a security is deemed investment grade or below investment grade. The determination of whether a security is deemed investment grade or below investment grade will be determined at the time of investment. A security will be considered to be investment grade if it is rated as such by one nationally recognized statistical rating organization (NRSRO) (for example minimum Baa3 or BBB- by Moody's or S&P) or, if unrated, is judged to be investment grade by the Advisor.

APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT

The Board of Directors of the Fund, including a majority of the directors who are not parties to the Fund's investment management agreement (the "Management Agreement"), or interested persons of any such party ("Independent Directors"), has the responsibility under the 1940 Act to approve the Fund's Management Agreement for its initial two year term and its continuation annually thereafter at a meeting of the Board of Directors called for the purpose of voting on the approval or continuation. At a telephonic meeting held on June 14, 2011 and at a meeting held in person on June 21-22, 2011, the Management Agreement was discussed and was unanimously continued for a term ending June 30, 2012 by the Fund's Board of Directors, including the Independent Directors. The Independent Directors were represented by independent counsel who assisted them in their deliberations during the meeting and executive session.

In considering whether to continue the Management Agreement, the Board of Directors reviewed materials provided by the Fund's investment manager (the "Investment Manager") and Fund counsel which included, among other things, fee, expense and performance information compared to peer funds ("Peer Funds") and performance comparisons to a larger category universe, prepared by an independent data provider; summary information prepared by the Investment Manager; and a memorandum outlining the legal duties of the Board of Directors. The Board of Directors also spoke directly with representatives of the independent data provider and met with investment management personnel. In addition, the Board of Directors considered information provided from time to time by the Investment Manager throughout the year at meetings of the Board of Directors, including presentations by portfolio managers relating to the investment performance of the Fund and the investment strategies used in pursuing the Fund's objective. In particular, the Board of Directors considered the following:

(i) The nature, extent and quality of services provided by the Investment Manager: The Board of Directors reviewed the services that the Investment Manager provides to the Fund, including, but not limited to,


38



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

making the day-to-day investment decisions for the Fund, and generally managing the Fund's investments in accordance with the stated policies of the Fund. The Board of Directors also discussed with officers and portfolio managers of the Fund the types of transactions that were being done on behalf of the Fund. Additionally, the Board of Directors took into account the services provided by the Investment Manager to its other funds, including those that have investment objectives and strategies similar to the Fund. The Board of Directors next considered the education, background and experience of the Investment Manager's personnel, noting particularly that the favorable history and reputation of the portfolio managers for the Fund has had, and would likely continue to have, a favorable impact on the Fund. The Board of Directors further noted the Investment Manager's ability to attract qualified and experienced personnel. After consideration of the above factors, among others, the Board of Directors concluded that the nature, extent and quality of services provided by the Investment Manager are adequate and appropriate.

(ii) Investment performance of the Fund and the Investment Manager: The Board of Directors considered the investment performance of the Fund compared to Peer Funds and compared to a relevant blended benchmark. The Board of Directors noted that the Fund's dual focus on REITs and preferred securities is unique and as a result, the Peer Funds generally consisted of real-estate only or preferred-only funds, making it difficult to make quantitative comparisons of the Fund's performance with the Peer Funds. The Board of Directors noted that the Fund outperformed the Peer Funds' medians for the one-year period, performed at the median for the three-year period and underperformed for the five-year period, each ended March 31, 2011. The Board of Directors further considered the performance rankings of the Fund compared to a peer group comprised of an equal number of real estate funds and preferred funds selected by the Investment Manager and noted that the Fund outperformed the Investment Manager-selected peer group for the one-, three-, and five-year periods ended March 31, 2011. The Board of Directors noted that the Fund outperformed its blended benchmark for the one- and three-year periods, and underperformed its blended benchmark for the five-year period ended March 31, 2011. The Board of Directors engaged in discussions with the Investment Manager regarding the contributors and detractors to the Fund's performance during the periods, as well as the impact of leverage on the Fund's performance. The Board of Directors also considered supplemental information provided by the Investment Manager, including a narrative summary of various factors affecting performance, and the Investment Manager's performance in managing other funds investing in real estate and preferred securities. The Board of Directors then determined that Fund performance, in light of all the considerations noted above, was satisfactory.

(iii) Cost of the services provided and profits realized by the Investment Manager from the relationship with the Fund: Next, the Board of Directors considered the management fees and administrative fees payable by the Fund, as well as the Fund's expense ratio. As part of its analysis, the Board of Directors gave consideration to the fee and expense analyses provided by the independent data provider. The Board of Directors considered that the Fund's actual management fees, at managed and common asset levels, were at or higher than the Peer Funds' medians, while the Fund's contractual management fees at common asset levels were less than the Peer Funds' median. The Board of Directors also noted that the Fund's net expense ratios including investment-related expenses


39



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

at managed and common asset levels were higher than the medians of the Peer Funds. The Board of Directors also noted that the Fund's net expense ratio excluding investment-related expenses was lower than the Peer Fund's median at managed asset levels and higher at common asset levels. The Board considered the impact of leverage levels and change to the capital structure by replacing auction market preferred securities with borrowings on the Fund's fees and expenses at managed and common asset levels. The Board of Directors then considered the administrative services provided by the Investment Manager, including compliance and accounting services, and further noted that the Fund pays an administration fee to the Investment Manager. The Board of Directors concluded that the Fund's current expense structure is satisfactory.

The Board of Directors also reviewed information regarding the profitability to the Investment Manager of its relationship with the Fund. The Board of Directors considered the level of the Investment Manager's profits and whether the profits were reasonable for the Investment Manager. The Board of Directors took into consideration other benefits to be derived by the Investment Manager in connection with the Management Agreement, noting particularly the research and related services, within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended, that the Investment Manager receives by allocating the Fund's brokerage transactions. The Board of Directors also considered the fees received by the Investment Manager under the Administration Agreement, and noted the significant services received, such as compliance, accounting and operational services and furnishing office space and facilities for the Fund, and providing persons satisfactory to the Board of Directors to serve as officers of the Fund, and that these services were beneficial to the Fund. The Board of Directors concluded that the profits realized by the Investment Manager from its relationship with the Fund were reasonable and consistent with fiduciary duties.

(iv) The extent to which economies of scale would be realized as the Fund grows and whether fee levels would reflect such economies of scale: The Board of Directors noted that, as a closed-end fund, the Fund would not be expected to have inflows of capital that might produce increasing economies of scale. The Board of Directors determined that there were no significant economies of scale that were not being shared with shareholders.

(v) Comparison of services rendered and fees paid to those under other investment management contracts, such as contracts of the same and other investment advisors or other clients: As discussed above in (iii), the Board of Directors compared the fees paid under the Management Agreement to those under other investment management contracts of other investment advisors managing Peer Funds. The Board of Directors also considered the services rendered, fees paid and profitability under the Management Agreement to the Investment Manager's other fund contracts with institutional and other clients with similar investment mandates, including subadvised mutual funds and proprietary funds. The Board of Directors also considered the entrepreneurial risk and financial exposure assumed by the Investment Manager in developing and managing the Fund that the Investment Manager does not have with institutional and other clients. The Board of Directors determined that on a comparative basis the fees under the Management Agreement were reasonable in relation to the services provided.

No single factor was cited as determinative to the decision of the Board of Directors. Rather, after weighing all of the considerations and conclusions discussed above, the Board of Directors, including the Independent Directors, unanimously approved the continuation of the Management Agreement.


40



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

Cohen & Steers Privacy Policy

Facts   What Does Cohen & Steers Do With Your Personal Information?  
Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.  
What?   The types of personal information we collect and share depend on the product or service you have with us. This information can include:
• Social Security number and account balances
• Transaction history and account transactions
• Purchase history and wire transfer instructions
 
How?   All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons Cohen & Steers chooses to share; and whether you can limit this sharing.  

 

Reasons we can share your personal information   Does Cohen & Steers
share?
  Can you limit this
sharing?
 
For our everyday business purposes—
such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or reports to credit bureaus
  Yes   No  
For our marketing purposes—
to offer our products and services to you
  Yes   No  
For joint marketing with other financial companies—   No   We don't share  
For our affiliates' everyday business purposes—
information about your transactions and experiences
  No   We don't share  
For our affiliates' everyday business purposes—
information about your creditworthiness
  No   We don't share  
For our affiliates to market to you—   No   We don't share  
For non-affiliates to market to you—   No   We don't share  

 

Questions?  Call 800.330.7348


41



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

Cohen & Steers Privacy Policy—(Continued)

Who we are    
Who is providing this notice?   Cohen & Steers Capital Management, Inc., Cohen & Steers Asia Limited, Cohen & Steers UK Limited, Cohen & Steers Europe SA, Cohen & Steers Securities, LLC, Cohen & Steers Private Funds, and Cohen & Steers Open and Closed-End Funds (collectively, "Cohen & Steers").  
What we do    
How does Cohen & Steers protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. We restrict access to your information to those employees who need it to perform their jobs, and also require companies that provide services on our behalf to protect your information.  
How does Cohen & Steers collect my personal information?   We collect your personal information, for example, when you
• Open an account or buy securities from us
• Provide account information or give us your contact information
• Make deposits or withdrawals from your account
We also collect your personal information from other companies.
 
Why can't I limit all sharing?   Federal law gives you the right to limit only
• sharing for affiliates' everyday business purposes—information about your creditworthiness
• affiliates from using your information to market to you
• sharing for non-affiliates to market to you
State law and individual companies may give you additional rights to limit sharing.
 
Definitions    
Affiliates   Companies related by common ownership or control. They can be financial and nonfinancial companies.
• Cohen & Steers does not share with affiliates.
 
Non-affiliates   Companies not related by common ownership or control. They can be financial and nonfinancial companies
• Cohen & Steers does not share with non-affiliates so they can market to you.
 
Joint marketing   A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
• Cohen & Steers does not jointly market.
 


42




COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

Cohen & Steers Investment Solutions

COHEN & STEERS
GLOBAL REALTY SHARES

  •  Designed for investors seeking total return, investing primarily in global real estate equity securities

  •  Symbols: CSFAX, CSFBX*, CSFCX, CSSPX

COHEN & STEERS
INSTITUTIONAL GLOBAL REALTY SHARES

  •  Designed for institutional investors seeking total return, investing primarily in global real estate securities

  •  Symbol: GRSIX

COHEN & STEERS REALTY INCOME FUND

  •  Designed for investors seeking total return, investing primarily in real estate securities with an emphasis on both income and capital appreciation

  •  Symbols: CSEIX, CSBIX*, CSCIX, CSDIX

COHEN & STEERS
INTERNATIONAL REALTY FUND

  •  Designed for investors seeking total return, investing primarily in international real estate securities

  •  Symbols: IRFAX, IRFCX, IRFIX

COHEN & STEERS
EMERGING MARKETS REAL ESTATE FUND

  •  Designed for investors seeking total return, investing primarily in emerging market real estate securities

  •  Symbols: APFAX, APFCX, APFIX

COHEN & STEERS REALTY SHARES

  •  Designed for investors seeking total return, investing primarily in REITs

  •  Symbol: CSRSX

COHEN & STEERS
INSTITUTIONAL REALTY SHARES

  •  Designed for institutional investors seeking total return, investing primarily in REITs

  •  Symbol: CSRIX

COHEN & STEERS
GLOBAL INFRASTRUCTURE FUND

  •  Designed for investors seeking total return, investing primarily in global infrastructure securities

  •  Symbols: CSUAX, CSUBX*, CSUCX, CSUIX

COHEN & STEERS
DIVIDEND VALUE FUND

  •  Designed for investors seeking high current income and long-term growth of income and capital appreciation, investing primarily in dividend paying common stocks and preferred stocks

  •  Symbols: DVFAX, DVFCX, DVFIX

COHEN & STEERS
PREFERRED SECURITIES AND INCOME FUND

  •  Designed for investors seeking total return (high current income and capital appreciation), investing primarily in preferred and debt securities

  •  Symbols: CPXAX, CPXCX, CPXIX

Distributed by Cohen & Steers Securities, LLC.

COHEN & STEERS
GLOBAL REALTY MAJORS ETF

  •  Designed for investors who seek a relatively low-cost "passive" approach for investing in a portfolio of real estate equity securities of companies in a specified index

  •  Symbol: GRI

Distributed by ALPS Distributors, Inc.

ISHARES COHEN & STEERS
REALTY MAJORS INDEX FUND

  •  Designed for investors who seek a relatively low-cost "passive" approach for investing in a portfolio of real estate equity securities of companies in a specified index

  •  Symbol: ICF

Distributed by SEI Investments Distribution Co.

*  Class B shares are no longer offered except through dividend reinvestment and permitted exchanges by existing Class B shareholders.

Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. A prospectus containing this and other information can be obtained by calling 800-330-7348 or by visiting cohenandsteers.com. Please read the prospectus carefully before investing.


43



COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

OFFICERS AND DIRECTORS

Robert H. Steers
Director and co-chairman

Martin Cohen
Director and co-chairman

Michael G. Clark
Director

Bonnie Cohen
Director

George Grossman
Director

Richard E. Kroon
Director

Richard J. Norman
Director

Frank K. Ross
Director

Willard H. Smith Jr.
Director

C. Edward Ward, Jr.
Director

Adam M. Derechin
President and chief executive officer

Joseph M. Harvey
Vice president

William F. Scapell
Vice president

Thomas N. Bohjalian
Vice president

Yigal D. Jhirad
Vice president

Francis C. Poli
Secretary

James Giallanza
Treasurer and chief financial officer

Lisa D. Phelan
Chief compliance officer

KEY INFORMATION

Investment Manager

Cohen & Steers Capital Management, Inc.
280 Park Avenue
New York, NY 10017
(212) 832-3232

Fund Co-administrator and Custodian

State Street Bank and Trust Company
One Lincoln Street
Boston, MA 02111

Transfer Agent—Common Shares

The Bank of New York Mellon
480 Washington Boulevard
Jersey City, NJ 07310
(866) 227-0757

Legal Counsel

Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038

New York Stock Exchange Symbol: RNP

Web site: cohenandsteers.com

This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares. Past performance is no guarantee of future results and your investment may be worth more or less at the time you sell.


44




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COHEN & STEERS

REIT AND PREFERRED INCOME FUND

280 PARK AVENUE

NEW YORK, NY 10017

SEMIANNUAL REPORT

JUNE 30, 2011

RNPSAR




 

Item 2. Code of Ethics.

 

Not applicable.

 

Item 3. Audit Committee Financial Expert.

 

Not applicable.

 

Item 4. Principal Accountant Fees and Services.

 

Not applicable.

 

Item 5. Audit Committee of Listed Registrants.

 

Not applicable.

 

Item 6. Schedule of Investments.

 

Included in Item 1 above.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable.

 

Item 8.  Portfolio Managers of Closed-End Investment Companies.

 

Not applicable.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

Not applicable.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

Not applicable.

 

Item 11. Controls and Procedures.

 

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.

 



 

(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12. Exhibits.

 

(a)(1) Not applicable.

 

(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.

 

(a)(3) Not applicable.

 

(b) Certifications of chief executive officer and chief financial officer as required by Rule 30a- 2(b) under the Investment Company Act of 1940.

 



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.

 

 

By:

/s/ Adam M. Derechin

 

 

Name:

Adam M. Derechin

 

 

Title:

President and Chief Executive Officer

 

 

Date: August 31, 2011

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

By:

/s/ Adam M. Derechin

 

 

Name:

Adam M. Derechin

 

Title:

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

By:

/s/ James Giallanza

 

 

Name:

James Giallanza

 

Title:

Treasurer and Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

Date: August 31, 2011