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 | |||||||
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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) | ||||||
| ||||||||
Tina M. Payne Cohen & Steers Capital Management, Inc. 280 Park Avenue New York, New York 10017 | ||||||||
(Name and address of agent for service) | ||||||||
| ||||||||
Registrants telephone number, including area code: |
(212) 832-3232 |
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| ||||||||
Date of fiscal year end: |
December 31 |
| ||||||
| ||||||||
Date of reporting period: |
December 31, 2015 |
| ||||||
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 year ended December 31, 2015. The net asset value (NAV) at that date was $21.63 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 year end, the Fund's closing price on the NYSE was $18.44.
The total returns, including income, for the Fund and its comparative benchmarks were:
Six Months Ended December 31, 2015 |
Year Ended December 31, 2015 |
||||||||||
Cohen & Steers REIT and Preferred Income Fund at NAVa |
10.10 |
% |
8.45 |
% |
|||||||
Cohen & Steers REIT and Preferred Income Fund at Market Valuea |
9.86 |
% |
5.26 |
% |
|||||||
FTSE NAREIT Equity REIT Indexb |
9.40 |
% |
3.20 |
% |
|||||||
BofA Merrill Lynch Fixed-Rate Preferred Securities Indexb |
5.25 |
% |
7.58 |
% |
|||||||
Blended Benchmark50% FTSE NAREIT Equity REIT Index/50% BofA Merrill Lynch Fixed-Rate Preferred Securities Indexb |
7.41 |
% |
5.58 |
% |
|||||||
S&P 500 Indexb |
0.15 |
% |
1.38 |
% |
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 website at cohenandsteers.com. The Fund's returns assume the reinvestment of all dividends and distributions at prices obtained under the Fund's dividend reinvestment plan. Index performance does not reflect the deduction of any fees, taxes or expenses. An investor cannot invest directly in an index. Performance figures for periods shorter than one year are not annualized.
a As a closed-end investment company, the price of the Fund's NYSE-traded shares will be set by market forces and can deviate from the NAV per share of the Fund.
b The FTSE NAREIT Equity REIT Index contains all tax-qualified REITs except timber and infrastructure REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria. The BofA Merrill Lynch Fixed-Rate Preferred Securities Index tracks the performance of fixed-rate U.S. dollar-denominated preferred securities issued in the U.S. domestic market. The S&P 500 Index is an unmanaged index of 500 large-capitalization stocks that is frequently used as a general measure of U.S. stock market performance. Benchmark returns are shown for comparative purposes only and may not be representative of the Fund's portfolio. The Fund's benchmarks do not include below-investment grade 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 net 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.
Market Review
The year was a challenging period for equities, as investors reacted to signs of economic deceleration in China, falling commodity prices and slowing global growth generally. In the U.S. the prospect for an interest-rate hike by the Federal Reserve (the Fed) occasionally upset markets although when the Fed finally raised rates off of near-zero in December by 0.25%, investors seemed to take it in stride. The Fed's unanimous vote was based on steady U.S. economic growth and low unemployment, but showed concern for low inflation and the impact of the strong dollar on exports and manufacturing.
In this environment, U.S. REITs, which have a strong domestic orientation, had a positive total return and outperformed the broader U.S. market, aided by continued strength in real estate fundamentals. Throughout the year, REITs generally exceeded or met the market's high earnings expectations, and many raised their guidance. Meanwhile, acquisition activity continued to confirm high property valuation levels, also helping REIT shares recover from their mid-year lows.
Preferred Securities Also Advanced
Preferred securities had positive returns in 2015. Preferreds, which generally offer the highest income rates in the investment-grade universe, outperformed Treasuries and corporate bonds by wide margins. They were even stronger compared with high-yield debt, reflecting preferreds' relative insulation from the weakness in commodities, energy and other cyclical sectors that weighed on high yield in the period. By contrast, the preferreds universe is heavily represented by issues from banks and insurance companies, which generally have relatively little direct exposure to energy and materials companies.
Fund Performance
The Fund had a positive total return in the year and outperformed its blended benchmark on an NAV basis but underperformed based on market price. Our overweight and stock selection in the apartment sector contributed positively to relative performance. Apartment landlords were one of the top-performing property sectors in the year, overcoming concerns about rising supply as household formation continued to support demand.
The Fund's overweight in self storage REITs, which likewise had sizable share-price gains, also aided performance. Demand for self storage has continued to outstrip very limited new supply, driving strong same-store sales growth for these companies.
2
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
Stock selection in the regional mall sector was a positive contributor as well, reflecting our preference for owners of high-quality properties. In an uncertain retail environment, companies focused on Class A properties and outlet centers in desirable locations advanced, while landlords that predominately operate Class B malls had significant declines.
Our underweight in the hotel sector also helped performance, as it was the poorest-performing property type in the period. Hotels struggled amid moderating economic growth in the U.S. and abroad, with a strong dollar also dampening demand due to slowing tourism. Rising supply in certain large markets also weighed on returns. Factors that detracted from relative performance included stock selection in the industrial and shopping center sectors.
The Fund's allocation to preferred securities had a good absolute total return, although it underperformed the broad preferreds universe as measured by the BofA Merrill Lynch Fixed-Rate Preferred Securities Index. Favorable security selection in the brokerage sector was more than countered by underperformance among our insurance, utilities and real estate issues on a total-return basis.
Impact of Derivatives on Fund Performance
The Fund used derivatives in the form of options with the intention of enhancing total returns and reducing overall volatility, as well as forward foreign currency exchange contracts for managing currency risk on certain Fund positions denominated in foreign currencies. These contracts did not have a material effect on the Fund's total return during the 12-month period ended December 31, 2015.
Impact of Leverage on Fund 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), significantly contributed to the Fund's performance for the 12-month period ended December 31, 2015.
3
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
Sincerely,
|
|
||||||||||
ROBERT H. STEERS |
JOSEPH M. HARVEY |
||||||||||
Chairman |
Portfolio Manager |
||||||||||
|
|
||||||||||
WILLIAM F. SCAPELL |
THOMAS N. BOHJALIAN |
||||||||||
Portfolio Manager |
Portfolio Manager |
JASON YABLON
Portfolio Manager
The views and opinions in the preceding commentary are subject to change without notice and are as of the date of the report. 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 the Cohen & Steers family of mutual funds, visit cohenandsteers.com. Here you will find fund net asset values, fund fact sheets and portfolio highlights, as well as educational resources and timely market updates.
Our website also provides comprehensive information about Cohen & Steers, including our most recent press releases, profiles of our senior investment professionals and their investment approach to each asset class. The Cohen & Steers family of mutual funds invests in major real asset categories including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions.
4
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 Investment Company Act of 1940 to provide additional capital for the Fund, with an objective of increasing net income available for shareholders. As of December 31, 2015, leverage represented 25% of the Fund's managed assets.
Through a combination of variable and fixed rate financing, the Fund has locked in interest rates on a significant portion of this additional capital for periods expiring in 2017, 2018 and 2019c (where we effectively reduce our variable rate obligation and lock in our fixed rate obligation over various terms). 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 portions of the Fund's leveraging costs for the various terms partially protects the Fund's expenses from an increase in short-term interest rates.
Leverage Factsa,b
Leverage (as a % of managed assets) |
25% | ||||||
% Fixed Rate | 85% | ||||||
% Variable Rate | 15% | ||||||
Weighted Average Rate on Financing |
1.9%c | ||||||
Weighted Average Term on Financing | 5.3 yearsc |
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 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 an investment yield that is greater than the total cost of leverage, the leverage strategy will produce higher current net investment income for shareholders. On the other hand, to the extent that the total cost of leverage exceeds the incremental income gained from employing such leverage, 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 shareholders. Specifically, in an up market, leverage will typically generate greater capital appreciation than if the Fund were 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 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 December 31, 2015. Information is subject to change.
b See Note 7 in Notes to Financial Statements.
c On February 24, 2015, the Fund amended its credit agreement to extend the fixed rate financing terms by three years expiring in 2020, 2021 and 2022. The weighted average rate on financing does not include the three year extension and will increase as the extended fixed-rate tranches become effective. The weighted average term on financing includes the three year extension.
5
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
December 31, 2015
Top Ten Holdingsa
(Unaudited)
Security |
Value |
% of Managed Assets |
|||||||||
Simon Property Group |
$ |
68,550,016 |
5.0 |
||||||||
Equity Residential |
44,174,376 |
3.2 |
|||||||||
Extra Space Storage |
38,516,808 |
2.8 |
|||||||||
Vornado Realty Trust |
36,872,945 |
2.7 |
|||||||||
SL Green Realty Corp. |
28,465,424 |
2.1 |
|||||||||
Essex Property Trust |
25,716,943 |
1.9 |
|||||||||
UDR |
25,289,569 |
1.8 |
|||||||||
Host Hotels & Resorts |
24,601,433 |
1.8 |
|||||||||
Omega Healthcare Investors |
24,122,558 |
1.7 |
|||||||||
Equinix |
23,947,359 |
1.7 |
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)
6
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 2015
Number of Shares |
Value |
||||||||||||||
COMMON STOCKREAL ESTATE |
65.6% |
||||||||||||||
DIVERSIFIED |
4.4% |
||||||||||||||
American Assets Trusta |
214,357 |
$ |
8,220,591 |
||||||||||||
Vornado Realty Trusta,b |
368,877 |
36,872,945 |
|||||||||||||
45,093,536 |
|||||||||||||||
HEALTH CARE |
6.3% |
||||||||||||||
HCPa |
400,847 |
15,328,389 |
|||||||||||||
Healthcare Trust of America, Class Aa,b |
549,593 |
14,822,523 |
|||||||||||||
Omega Healthcare Investorsa,b |
689,610 |
24,122,558 |
|||||||||||||
Physicians Realty Trusta |
611,314 |
10,306,754 |
|||||||||||||
64,580,224 |
|||||||||||||||
HOTEL |
3.5% |
||||||||||||||
Host Hotels & Resortsa,b |
1,603,744 |
24,601,433 |
|||||||||||||
Sunstone Hotel Investorsa,b |
919,017 |
11,478,522 |
|||||||||||||
36,079,955 |
|||||||||||||||
OFFICE |
6.3% |
||||||||||||||
Douglas Emmetta,b |
308,082 |
9,605,997 |
|||||||||||||
Kilroy Realty Corp.a,b |
296,048 |
18,733,917 |
|||||||||||||
PS Business Parks |
90,942 |
7,951,059 |
|||||||||||||
SL Green Realty Corp.a,b |
251,951 |
28,465,424 |
|||||||||||||
64,756,397 |
|||||||||||||||
RESIDENTIAL |
14.3% |
||||||||||||||
APARTMENT |
12.9% |
||||||||||||||
Apartment Investment & Management Co.a,b |
386,748 |
15,481,523 |
|||||||||||||
Equity Residentiala,b |
541,419 |
44,174,376 |
|||||||||||||
Essex Property Trusta,b |
107,418 |
25,716,943 |
|||||||||||||
Mid-America Apartment Communitiesa |
167,228 |
15,185,975 |
|||||||||||||
Starwood Waypoint Residential Trusta,b |
306,079 |
6,929,629 |
|||||||||||||
UDRa,b |
673,132 |
25,289,569 |
|||||||||||||
132,778,015 |
|||||||||||||||
MANUFACTURED HOME |
1.4% |
||||||||||||||
Sun Communitiesa |
213,633 |
14,640,269 |
|||||||||||||
TOTAL RESIDENTIAL |
147,418,284 |
See accompanying notes to financial statements.
7
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
SELF STORAGE |
6.9% |
||||||||||||||
CubeSmarta,b |
770,854 |
$ |
23,603,550 |
||||||||||||
Extra Space Storagea,b |
436,649 |
38,516,808 |
|||||||||||||
Sovran Self Storagea,b |
83,299 |
8,938,816 |
|||||||||||||
71,059,174 |
|||||||||||||||
SHOPPING CENTERS |
19.3% |
||||||||||||||
COMMUNITY CENTER |
5.7% |
||||||||||||||
DDR Corp.a,b |
949,842 |
15,995,339 |
|||||||||||||
Ramco-Gershenson Properties Trusta,b |
557,383 |
9,258,132 |
|||||||||||||
Regency Centers Corp.a,b |
317,295 |
21,614,135 |
|||||||||||||
Retail Properties of America, Class Aa,b |
836,509 |
12,355,238 |
|||||||||||||
59,222,844 |
|||||||||||||||
FREE STANDING |
2.9% |
||||||||||||||
National Retail Propertiesa |
409,272 |
16,391,344 |
|||||||||||||
Spirit Realty Capitala |
1,299,599 |
13,021,982 |
|||||||||||||
29,413,326 |
|||||||||||||||
REGIONAL MALL |
10.7% |
||||||||||||||
General Growth Propertiesa,b |
731,479 |
19,903,544 |
|||||||||||||
Macerich Co. (The)a,c |
162,713 |
13,129,312 |
|||||||||||||
Pennsylvania REIT |
377,207 |
8,249,517 |
|||||||||||||
Simon Property Groupa,b |
352,551 |
68,550,016 |
|||||||||||||
109,832,389 |
|||||||||||||||
TOTAL SHOPPING CENTERS |
198,468,559 |
||||||||||||||
SPECIALTY |
4.6% |
||||||||||||||
CyrusOnea |
258,025 |
9,663,036 |
|||||||||||||
Equinixa,b |
79,191 |
23,947,359 |
|||||||||||||
Four Corners Property Trustd |
11,026 |
266,388 |
|||||||||||||
QTS Realty Trust, Class Aa,b |
305,320 |
13,772,985 |
|||||||||||||
47,649,768 |
|||||||||||||||
TOTAL COMMON STOCK (Identified cost$488,216,675) |
675,105,897 |
See accompanying notes to financial statements.
8
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
PREFERRED SECURITIES$25 PAR VALUE |
26.6% |
||||||||||||||
BANKS |
6.2% |
||||||||||||||
Bank of America Corp., 6.50%, Series Ya |
359,600 |
$ |
9,608,512 |
||||||||||||
BB&T Corp., 5.20%, Series F |
99,981 |
2,509,523 |
|||||||||||||
Capital One Financial Corp., 6.25%, Series Ca |
27,584 |
727,666 |
|||||||||||||
Citigroup, 6.875%, Series Ka |
83,974 |
2,339,516 |
|||||||||||||
Farm Credit Bank of Texas, 6.75%, 144Aa,e |
63,000 |
6,575,625 |
|||||||||||||
Fifth Third Bancorp, 6.625%, Series Ia |
155,465 |
4,492,938 |
|||||||||||||
First Republic Bank, 5.50% |
54,276 |
1,363,413 |
|||||||||||||
GMAC Capital Trust I, 8.125%, due 2/15/40, Series II (TruPS) |
164,847 |
4,180,520 |
|||||||||||||
JPMorgan Chase & Co., 5.50%, Series O |
125,034 |
3,163,235 |
|||||||||||||
JPMorgan Chase & Co., 6.125%, Series Y |
130,000 |
3,395,600 |
|||||||||||||
PNC Financial Services Group, 6.125%, Series Pa |
122,500 |
3,496,150 |
|||||||||||||
Regions Financial Corp., 6.375%, Series B |
209,686 |
5,688,781 |
|||||||||||||
SunTrust Banks, 5.875%, Series E |
90,014 |
2,330,462 |
|||||||||||||
US Bancorp, 6.50%, Series Fa |
78,991 |
2,267,042 |
|||||||||||||
Wells Fargo & Co., 5.85%a |
270,142 |
7,056,109 |
|||||||||||||
Wells Fargo & Co., 6.625% |
46,774 |
1,343,817 |
|||||||||||||
Zions Bancorp, 7.90%, Series Fa |
95,656 |
2,561,668 |
|||||||||||||
Zions Bancorp, 6.30%, Series G |
45,086 |
1,178,052 |
|||||||||||||
64,278,629 |
|||||||||||||||
BANKSFOREIGN |
1.9% |
||||||||||||||
Barclays Bank PLC, 7.75%, Series IV (United Kingdom) |
100,000 |
2,635,000 |
|||||||||||||
Barclays Bank PLC, 8.125%, Series V (United Kingdom)a |
250,000 |
6,632,500 |
|||||||||||||
Deutsche Bank Contingent Capital Trust III, 7.60% |
121,716 |
3,218,171 |
|||||||||||||
National Westminster Bank PLC, 7.763%, Series C (United Kingdom)a |
172,192 |
4,459,773 |
|||||||||||||
RBS Capital Funding Trust VII, 6.08%, Series G (United Kingdom) |
87,542 |
2,182,422 |
|||||||||||||
19,127,866 |
|||||||||||||||
ELECTRIC |
1.3% |
||||||||||||||
INTEGRATED ELECTRIC |
0.4% |
||||||||||||||
Integrys Energy Group, 6.00%, due 8/1/73f |
162,977 |
4,211,945 |
See accompanying notes to financial statements.
9
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
REGULATED ELECTRIC |
0.9% |
||||||||||||||
Southern Co./The, 6.25%, due 10/15/75 |
330,000 |
$ |
8,873,700 |
||||||||||||
TOTAL ELECTRIC |
13,085,645 |
||||||||||||||
FINANCIALINVESTMENT BANKER/BROKER |
1.6% |
||||||||||||||
Morgan Stanley, 6.875%a |
316,012 |
8,769,333 |
|||||||||||||
Morgan Stanley, 6.375%, Series I |
303,517 |
8,055,341 |
|||||||||||||
16,824,674 |
|||||||||||||||
FOOD |
0.6% |
||||||||||||||
Dairy Farmers of America, 7.875%, 144A ($100 Par Value)e |
62,000 |
6,314,316 |
|||||||||||||
INDUSTRIALSCHEMICALS |
1.3% |
||||||||||||||
CHS, 6.75%a |
190,453 |
5,106,045 |
|||||||||||||
CHS, 7.50%, Series 4 |
74,495 |
2,015,090 |
|||||||||||||
CHS, 7.10%, Series IIa |
213,453 |
5,820,863 |
|||||||||||||
12,941,998 |
|||||||||||||||
INSURANCE |
4.6% |
||||||||||||||
LIFE/HEALTH INSURANCEFOREIGN |
0.1% |
||||||||||||||
Aegon NV, 6.50% (Netherlands)c |
44,521 |
1,151,313 |
|||||||||||||
MULTI-LINE |
2.1% |
||||||||||||||
American Financial Group, 5.75%, due 8/25/42 |
200,000 |
5,172,000 |
|||||||||||||
American Financial Group, 6.00%, due 11/15/55 |
99,000 |
2,541,330 |
|||||||||||||
American Financial Group, 6.25%, due 9/30/54 |
139,041 |
3,622,018 |
|||||||||||||
Hanover Insurance Group/The, 6.35%, due 3/30/53 |
78,400 |
1,996,848 |
|||||||||||||
Hartford Financial Services Group, 7.875%, due 4/15/42a |
133,052 |
4,204,443 |
|||||||||||||
WR Berkley Corp., 5.625%, due 4/30/53a |
159,845 |
4,063,260 |
|||||||||||||
21,599,899 |
|||||||||||||||
MULTI-LINEFOREIGN |
1.0% |
||||||||||||||
ING Groep N.V., 7.05% (Netherlands) |
149,060 |
3,866,616 |
|||||||||||||
PartnerRe Ltd., 6.50%, Series D (Bermuda) |
64,770 |
1,764,983 |
|||||||||||||
PartnerRe Ltd., 7.25%, Series E (Bermuda) |
167,275 |
4,779,047 |
|||||||||||||
10,410,646 |
See accompanying notes to financial statements.
10
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
REINSURANCE |
0.3% |
||||||||||||||
Reinsurance Group of America, 6.20%, due 9/15/42 |
108,573 |
$ |
3,152,960 |
||||||||||||
REINSURANCEFOREIGN |
1.1% |
||||||||||||||
Aspen Insurance Holdings Ltd., 5.95% (Bermuda) |
114,309 |
2,948,029 |
|||||||||||||
Aspen Insurance Holdings Ltd., 7.25% (Bermuda) |
106,000 |
2,784,620 |
|||||||||||||
Axis Capital Holdings Ltd., 6.875%, Series C (Bermuda) |
55,284 |
1,482,717 |
|||||||||||||
Endurance Speciality Holdings Ltd., 6.35%, Series C (Bermuda) |
137,000 |
3,515,420 |
|||||||||||||
10,730,786 |
|||||||||||||||
TOTAL INSURANCE |
47,045,604 |
||||||||||||||
INTEGRATED TELECOMMUNICATIONS SERVICES |
0.6% |
||||||||||||||
Qwest Corp., 6.875%, due 10/1/54 |
73,856 |
1,901,792 |
|||||||||||||
Qwest Corp., 7.00%, due 4/1/52 |
55,429 |
1,423,417 |
|||||||||||||
Qwest Corp., 7.375%, due 6/1/51 |
100,000 |
2,543,000 |
|||||||||||||
5,868,209 |
|||||||||||||||
REAL ESTATE |
7.6% |
||||||||||||||
DIVERSIFIED |
2.0% |
||||||||||||||
Coresite Realty Corp., 7.25%, Series A |
79,200 |
2,098,008 |
|||||||||||||
Lexington Realty Trust, 6.50%, Series C ($50 Par Value)a,b |
76,536 |
3,635,460 |
|||||||||||||
National Retail Properties, 5.70%, Series E |
73,266 |
1,817,730 |
|||||||||||||
NorthStar Realty Finance Corp., 8.50%, Series D |
119,300 |
2,743,900 |
|||||||||||||
VEREIT, 6.70%, Series Fa |
323,710 |
7,963,266 |
|||||||||||||
Wells Fargo Real Estate Investment Corp., 6.375%, Series A |
102,536 |
2,683,367 |
|||||||||||||
20,941,731 |
|||||||||||||||
FINANCE |
0.2% |
||||||||||||||
iStar Financial, 7.80%, Series F |
79,630 |
1,839,453 |
See accompanying notes to financial statements.
11
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
HOTEL |
0.8% |
||||||||||||||
Hersha Hospitality Trust, 6.875%, Series C |
134,345 |
$ |
3,377,433 |
||||||||||||
Hospitality Properties Trust, 7.125%, Series D |
107,050 |
2,767,243 |
|||||||||||||
Pebblebrook Hotel Trust, 7.875%, Series Aa,b |
100,000 |
2,512,000 |
|||||||||||||
8,656,676 |
|||||||||||||||
INDUSTRIALS |
0.6% |
||||||||||||||
Gramercy Property Trust, 7.125%, Series A |
151,270 |
3,781,750 |
|||||||||||||
Monmouth Real Estate Investment Corp., 7.875%, Series B |
87,500 |
2,273,250 |
|||||||||||||
6,055,000 |
|||||||||||||||
OFFICE |
0.3% |
||||||||||||||
Corporate Office Properties Trust, 7.375%, Series La,b |
100,000 |
2,571,000 |
|||||||||||||
RESIDENTIAL |
0.6% |
||||||||||||||
APARTMENT |
0.2% |
||||||||||||||
American Homes 4 Rent, 5.00%, Series A |
79,685 |
2,047,905 |
|||||||||||||
MANUFACTURED HOME |
0.4% |
||||||||||||||
Campus Crest Communities, 8.00%, Series A |
87,939 |
2,365,559 |
|||||||||||||
Equity Lifestyle Properties, 6.75%, Series C |
60,843 |
1,566,707 |
|||||||||||||
3,932,266 |
|||||||||||||||
TOTAL RESIDENTIAL |
5,980,171 |
||||||||||||||
SELF STORAGE |
0.3% |
||||||||||||||
Public Storage, 5.375%, Series V |
107,703 |
2,741,041 |
|||||||||||||
SHOPPING CENTERS |
2.3% |
||||||||||||||
COMMUNITY CENTER |
1.5% |
||||||||||||||
Cedar Realty Trust, 7.25%, Series Ba |
219,000 |
5,409,300 |
|||||||||||||
DDR Corp., 6.50%, Series J |
60,000 |
1,512,000 |
|||||||||||||
Inland Real Estate Corp., 8.125%, Series A |
135,000 |
3,412,800 |
|||||||||||||
Inland Real Estate Corp., 6.95%, Series B |
121,388 |
3,060,191 |
|||||||||||||
Saul Centers, 6.875%, Series C |
84,140 |
2,200,261 |
|||||||||||||
15,594,552 |
|||||||||||||||
REGIONAL MALL |
0.8% |
||||||||||||||
CBL & Associates Properties, 7.375%, Series Da |
324,982 |
8,218,795 |
|||||||||||||
TOTAL SHOPPING CENTERS |
23,813,347 |
See accompanying notes to financial statements.
12
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
SPECIALTY |
0.5% |
||||||||||||||
Digital Realty Trust, 7.375%, Series H |
60,000 |
$ |
1,614,000 |
||||||||||||
Digital Realty Trust, 6.35%, Series I |
140,000 |
3,595,200 |
|||||||||||||
5,209,200 |
|||||||||||||||
TOTAL REAL ESTATE |
77,807,619 |
||||||||||||||
TRANSPORTMARINEFOREIGN |
0.1% |
||||||||||||||
Seaspan Corp., 9.50%, Series C (Hong Kong) |
60,786 |
1,518,434 |
|||||||||||||
UTILITIES |
0.8% |
||||||||||||||
SCE Trust III, 5.75% |
52,698 |
1,409,671 |
|||||||||||||
SCE Trust IV, 5.375%, Series J |
272,000 |
7,387,520 |
|||||||||||||
8,797,191 |
|||||||||||||||
TOTAL PREFERRED SECURITIES$25 PAR VALUE (Identified cost$255,893,893) |
273,610,185 |
||||||||||||||
PREFERRED SECURITIESCAPITAL SECURITIES |
39.1% |
||||||||||||||
BANKS |
11.3% |
||||||||||||||
AgriBank FCB, 6.875% |
38,000 |
4,019,689 |
|||||||||||||
Bank of America Corp., 6.10%, Series AA |
3,075,000 |
3,121,125 |
|||||||||||||
Bank of America Corp., 6.50%, Series Za |
9,638,000 |
10,168,090 |
|||||||||||||
Citigroup, 5.875%, Series Oa |
3,950,000 |
3,925,313 |
|||||||||||||
Citigroup, 5.95%, Series Q |
3,000,000 |
2,993,541 |
|||||||||||||
Citigroup, 6.125%, Series R |
2,806,000 |
2,865,628 |
|||||||||||||
Citigroup Capital III, 7.625%, due 12/1/36a |
4,700,000 |
5,759,972 |
|||||||||||||
Citizens Financial Group, 5.50%, 144Ae |
1,400,000 |
1,381,800 |
|||||||||||||
CoBank ACB, 6.25%, 144Aa,e |
33,000 |
3,404,158 |
|||||||||||||
CoBank ACB, 6.125%, Series Ga |
46,500 |
4,215,518 |
|||||||||||||
Farm Credit Bank of Texas, 10.00%, Series Ia |
6,000 |
7,408,125 |
|||||||||||||
Goldman Sachs Capital I, 6.345%, due 2/15/34a,b |
2,100,000 |
2,463,718 |
|||||||||||||
Goldman Sachs Capital II, 4.00%, (FRN)a |
3,340,000 |
2,363,050 |
|||||||||||||
Huntington Bancshares, 8.50%, Series A (Convertible)a |
3,212 |
4,368,320 |
|||||||||||||
JPMorgan Chase & Co., 7.90%, Series Ia,b |
11,000,000 |
11,211,750 |
|||||||||||||
JPMorgan Chase & Co., 6.75%, Series Sa |
8,650,000 |
9,439,312 |
|||||||||||||
JPMorgan Chase & Co., 5.30%, Series Z |
4,300,000 |
4,294,625 |
|||||||||||||
PNC Financial Services Group, 6.75%a |
6,275,000 |
6,682,875 |
|||||||||||||
US Bancorp, 5.125%, Series I |
3,033,000 |
3,051,046 |
|||||||||||||
Wells Fargo & Co., 7.98%, Series Ka |
11,975,000 |
12,454,000 |
See accompanying notes to financial statements.
13
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
Wells Fargo & Co., 5.90%, Series S |
2,255,000 |
$ |
2,280,369 |
||||||||||||
Wells Fargo & Co., 5.875%, Series U |
3,870,000 |
4,078,013 |
|||||||||||||
Zions Bancorp, 7.20%, Series J |
3,997,000 |
4,281,786 |
|||||||||||||
116,231,823 |
|||||||||||||||
BANKSFOREIGN |
11.9% |
||||||||||||||
Allied Irish Banks PLC, 7.375%, Series EMTN (EUR) (Ireland) |
5,000,000 |
5,518,651 |
|||||||||||||
Banco Bilbao Vizcaya Argentaria SA, 9.00% (Spain) |
3,200,000 |
3,437,027 |
|||||||||||||
Barclays Bank PLC, 7.625%, due 11/21/22 (United Kingdom)a |
3,375,000 |
3,849,609 |
|||||||||||||
Barclays Bank PLC, 6.86%, 144A (United Kingdom)a,e |
4,300,000 |
4,912,750 |
|||||||||||||
Barclays PLC, 7.875% (GBP) (United Kingdom) |
1,000,000 |
1,477,137 |
|||||||||||||
Barclays PLC, 8.00% (EUR) (United Kingdom) |
2,050,000 |
2,421,826 |
|||||||||||||
Barclays PLC, 8.25% (United Kingdom)a |
5,320,000 |
5,682,271 |
|||||||||||||
BNP Paribas, 7.195%, 144A (France)a,e |
3,300,000 |
3,778,500 |
|||||||||||||
BNP Paribas, 7.375%, 144A (France)e |
8,200,000 |
8,425,500 |
|||||||||||||
Credit Suisse Group AG, 7.50%, 144A (Switzerland)a,e |
4,005,000 |
4,222,536 |
|||||||||||||
Dresdner Funding Trust I, 8.151%, due 6/30/31, 144A (Germany)a,b,e |
7,235,906 |
8,863,985 |
|||||||||||||
HBOS Capital Funding LP, 6.85% (United Kingdom) |
3,300,000 |
3,349,708 |
|||||||||||||
HSBC Capital Funding LP, 10.176%, 144A (United Kingdom)e |
8,442,000 |
12,705,210 |
|||||||||||||
HSBC Holdings PLC, 6.375% (United Kingdom)a,b |
7,400,000 |
7,409,250 |
|||||||||||||
Intesa Sanpaolo SpA, 7.70%, 144A (Italy)e |
3,600,000 |
3,673,728 |
|||||||||||||
Lloyds Banking Group PLC, 7.50% (United Kingdom)a |
7,366,000 |
7,863,205 |
|||||||||||||
Nationwide Building Society, 10.25% (GBP) (United Kingdom) |
4,790,000 |
9,147,220 |
|||||||||||||
Rabobank Nederland, 11.00%, 144A (Netherlands)a,e |
5,800,000 |
7,181,850 |
|||||||||||||
Royal Bank of Scotland Group PLC, 7.50% (United Kingdom) |
2,500,000 |
2,609,375 |
See accompanying notes to financial statements.
14
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
Royal Bank of Scotland Group PLC, 7.648% (United Kingdom)a |
5,691,000 |
$ |
7,078,181 |
||||||||||||
Royal Bank of Scotland Group PLC, 8.00% (United Kingdom) |
1,500,000 |
1,590,000 |
|||||||||||||
Standard Chartered PLC, 7.014%, 144A (United Kingdom)a,b,e |
2,250,000 |
2,427,187 |
|||||||||||||
UBS AG, 7.625%, due 8/17/22 (Switzerland)a,b |
1,750,000 |
1,997,634 |
|||||||||||||
UBS Group AG, 7.125% (Switzerland) |
3,000,000 |
3,150,000 |
|||||||||||||
122,772,340 |
|||||||||||||||
FINANCIALDIVERSIFIED FINANCIAL SERVICES |
0.6% |
||||||||||||||
Depository Trust & Clearing Corp/The, 4.875%, Series C, 144Ae |
3,000,000 |
2,985,000 |
|||||||||||||
State Street Corp., 5.25%, Series F |
3,005,000 |
3,023,781 |
|||||||||||||
6,008,781 |
|||||||||||||||
FOOD |
0.7% |
||||||||||||||
Dairy Farmers of America, 7.875%, 144Ae,g |
68,100 |
7,165,400 |
|||||||||||||
INDUSTRIALSDIVERSIFIED MANUFACTURING |
2.0% |
||||||||||||||
General Electric Co., 4.00%, Series A |
13,579,500 |
13,596,474 |
|||||||||||||
General Electric Co., 4.10%, Series B |
6,632,080 |
6,623,790 |
|||||||||||||
20,220,264 |
|||||||||||||||
INSURANCE |
10.5% |
||||||||||||||
LIFE/HEALTH INSURANCE |
2.7% |
||||||||||||||
MetLife, 5.25%, Series C |
5,602,000 |
5,714,040 |
|||||||||||||
MetLife Capital Trust X, 9.25%, due 4/8/68, 144Aa,e |
8,065,000 |
11,149,862 |
|||||||||||||
Principal Financial Group, 4.70%, due 5/15/55 |
4,100,000 |
4,085,650 |
|||||||||||||
Prudential Financial, 5.375%, due 5/15/45 |
2,136,000 |
2,136,000 |
|||||||||||||
Prudential Financial, 5.625%, due 6/15/43 |
4,550,000 |
4,663,750 |
|||||||||||||
27,749,302 |
|||||||||||||||
LIFE/HEALTH INSURANCEFOREIGN |
2.8% |
||||||||||||||
Dai-ichi Life Insurance Co. Ltd., 5.10%, 144A (Japan)e |
3,400,000 |
3,553,000 |
|||||||||||||
Demeter BV (Swiss Re Ltd.), 5.75%, due 8/15/50 (Netherlands) |
2,400,000 |
2,401,920 |
|||||||||||||
La Mondiale Vie, 7.625% (France) |
5,700,000 |
6,145,256 |
See accompanying notes to financial statements.
15
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
Meiji Yasuda Life Insurance Co., 5.20%, due 10/20/45, 144A (Japan)e |
9,350,000 |
$ |
9,643,889 |
||||||||||||
Nippon Life Insurance Co., 5.10%, due 10/16/44, 144A (Japan)e |
2,200,000 |
2,310,000 |
|||||||||||||
Sumitomo Life Insurance Co., 6.50%, due 9/20/73, 144A (Japan)a,e |
3,800,000 |
4,254,100 |
|||||||||||||
28,308,165 |
|||||||||||||||
MULTI-LINE |
0.8% |
||||||||||||||
American International Group, 8.175%, due 5/15/68, (FRN)a |
2,723,000 |
3,587,553 |
|||||||||||||
MetLife, 10.75%, due 8/1/69a |
3,000,000 |
4,706,250 |
|||||||||||||
8,293,803 |
|||||||||||||||
MULTI-LINEFOREIGN |
0.8% |
||||||||||||||
Aviva PLC, 8.25% (United Kingdom) |
2,700,000 |
2,943,132 |
|||||||||||||
AXA SA, 8.60%, due 12/15/30 (France)a |
1,800,000 |
2,427,748 |
|||||||||||||
AXA SA, 6.463%, 144A (France)a,b,e |
3,250,000 |
3,337,750 |
|||||||||||||
8,708,630 |
|||||||||||||||
PROPERTY CASUALTY |
0.7% |
||||||||||||||
Liberty Mutual Group, 7.80%, due 3/7/87, 144Aa,e |
6,150,000 |
7,026,375 |
|||||||||||||
PROPERTY CASUALTYFOREIGN |
2.1% |
||||||||||||||
Atradius Finance BV, 5.25%, due 9/23/44 (EUR) (Netherlands) |
2,200,000 |
2,146,517 |
|||||||||||||
Mitsui Sumitomo Insurance Co., Ltd., 7.00%, due 3/15/72, 144A (Japan)a,e |
3,250,000 |
3,814,687 |
|||||||||||||
QBE Capital Funding III Ltd., 7.25%, due 5/24/41, 144A (Australia)a,e |
3,800,000 |
4,199,156 |
|||||||||||||
QBE Insurance Group Ltd., 6.75%, due 12/2/44 (Australia) |
6,003,000 |
6,288,142 |
|||||||||||||
RL Finance Bonds No. 3 PLC, 6.125%, due 11/13/28 (GBP) (United Kingdom) |
3,200,000 |
4,807,902 |
|||||||||||||
21,256,404 |
See accompanying notes to financial statements.
16
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
REINSURANCEFOREIGN |
0.6% |
||||||||||||||
Aquarius + Investments PLC, 8.25% (Switzerland) |
6,000,000 |
$ |
6,544,500 |
||||||||||||
TOTAL INSURANCE |
107,887,179 |
||||||||||||||
INTEGRATED TELECOMMUNICATIONS SERVICES |
0.7% |
||||||||||||||
Centaur Funding Corp., 9.08%, due 4/21/20, 144A (Cayman Islands)a,e |
6,254 |
7,528,253 |
|||||||||||||
UTILITIES |
1.4% |
||||||||||||||
ELECTRIC UTILITIES |
0.4% |
||||||||||||||
NextEra Energy Capital Holdings, 7.30%, due 9/1/67, Series Da,b |
4,107,000 |
3,935,327 |
|||||||||||||
ELECTRIC UTILITIESFOREIGN |
0.8% |
||||||||||||||
Enel SpA, 8.75%, due 9/24/73, 144A (Italy)a,e |
7,010,000 |
8,000,163 |
|||||||||||||
MULTI-UTILITIES |
0.2% |
||||||||||||||
Dominion Resources, 5.75%, due 10/1/54a |
2,426,000 |
2,383,060 |
|||||||||||||
TOTAL UTILITIES |
14,318,550 |
||||||||||||||
TOTAL PREFERRED SECURITIESCAPITAL SECURITIES (Identified cost$367,285,989) |
402,132,590 |
||||||||||||||
Principal Amount |
|||||||||||||||
CORPORATE BONDSINTEGRATED TELECOMMUNICATIONS SERVICES |
0.8% |
||||||||||||||
Embarq Corp., 7.995%, due 6/1/36 |
$ |
3,210,000 |
3,314,326 |
||||||||||||
Frontier Communications Corp., 9.00%, due 8/15/31a |
5,660,000 |
4,782,700 |
|||||||||||||
TOTAL CORPORATE BONDS (Identified cost$8,910,071) |
8,097,026 |
See accompanying notes to financial statements.
17
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Number of Shares |
Value |
||||||||||||||
SHORT-TERM INVESTMENTS |
0.5% |
||||||||||||||
MONEY MARKET FUNDS |
|||||||||||||||
State Street Institutional Treasury Money Market Fund, 0.07%h |
5,900,000 |
$ |
5,900,000 |
||||||||||||
TOTAL SHORT-TERM INVESTMENTS (Identified cost$5,900,000) |
5,900,000 |
||||||||||||||
TOTAL INVESTMENTS (Identified cost$1,126,206,628) |
132.6 |
% |
1,364,845,698 |
||||||||||||
WRITTEN OPTION CONTRACTS |
0.0 |
(19,368 |
) |
||||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS |
(32.6 |
) |
(335,833,859 |
) |
|||||||||||
NET ASSETS (Equivalent to $21.63 per share based on 47,566,736 shares of common stock outstanding) |
100.0 |
% |
$ |
1,028,992,471 |
|||||||||||
Number of Contracts |
|||||||||||||||
WRITTEN OPTION CONTRACTS |
0.0% |
||||||||||||||
General Growth Properties, Put, USD Strike Price 24, expires 1/15/16 |
1,614 |
(19,368 |
) |
||||||||||||
TOTAL WRITTEN OPTION CONTRACTS (Premiums received$72,629) |
$ |
(19,368 |
) |
Note: Percentages indicated are based on the net assets of the Fund.
a All or a portion of the security is pledged as collateral in connection with the Fund's credit agreement. $705,324,477 in aggregate has been pledged as collateral.
b A portion of the security has been rehypothecated in connection with the Fund's credit agreement. $320,888,147 in aggregate has been rehypothecated.
c All or a portion of the security is pledged as collateral in connection with written option contracts. $961,311 in aggregate has been pledged as collateral.
d Non-income producing security.
e Resale is restricted to qualified institutional investors. Aggregate holdings equal 14.5% of the net assets of the Fund, of which 0.7% are illiquid.
f A portion of the security is segregated as collateral for open forward foreign currency exchange contracts. $775,314 in aggregate has been segregated as collateral.
g Illiquid security. Aggregate holdings equal 0.7% of the net assets of the Fund.
h Rate quoted represents the annualized seven-day yield of the Fund.
See accompanying notes to financial statements.
18
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
December 31, 2015
Forward foreign currency exchange contracts outstanding at December 31, 2015 were as follows:
Counterparty |
Contracts to Deliver |
In Exchange For |
Settlement Date |
Unrealized Appreciation (Depreciation) |
|||||||||||||||
Brown Brothers Harriman |
EUR |
5,239,205 |
USD |
5,538,049 |
1/5/16 |
$ |
(155,656 |
) |
|||||||||||
Brown Brothers Harriman |
EUR |
4,043,561 |
USD |
4,292,968 |
1/5/16 |
(101,371 |
) |
||||||||||||
Brown Brothers Harriman |
GBP |
10,322,355 |
USD |
15,536,280 |
1/5/16 |
319,064 |
|||||||||||||
Brown Brothers Harriman |
USD |
15,217,216 |
GBP |
10,322,355 |
1/5/16 |
0 |
a |
||||||||||||
Brown Brothers Harriman |
USD |
10,085,911 |
EUR |
9,282,766 |
1/5/16 |
2,133 |
|||||||||||||
Brown Brothers Harriman |
EUR |
9,285,604 |
USD |
10,094,529 |
2/2/16 |
(3,575 |
) |
||||||||||||
Brown Brothers Harriman |
GBP |
10,441,487 |
USD |
15,392,245 |
2/2/16 |
(1,822 |
) |
||||||||||||
$ |
58,773 |
a Amount is less than $1.
Glossary of Portfolio Abbreviations
EUR Euro Currency
FRN Floating Rate Note
GBP Great British Pound
REIT Real Estate Investment Trust
TruPS Trust Preferred Securities
USD United States Dollar
See accompanying notes to financial statements.
19
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2015
ASSETS: |
|||||||
Investments in securities, at value (Identified cost$1,126,206,628) |
$ |
1,364,845,698 |
|||||
Cash |
7,052,980 |
||||||
Foreign currency, at value (Identified cost$451,343) |
446,519 |
||||||
Receivable for: |
|||||||
Dividends and interest |
9,736,226 |
||||||
Unrealized appreciation on forward foreign currency exchange contracts |
321,197 |
||||||
Other assets |
49,420 |
||||||
Total Assets |
1,382,452,040 |
||||||
LIABILITIES: |
|||||||
Unrealized depreciation on forward foreign currency exchange contracts |
262,424 |
||||||
Written option contracts, at value (Premiums received$72,629) |
19,368 |
||||||
Payable for: |
|||||||
Credit agreement |
350,000,000 |
||||||
Investment securities purchased |
1,383,170 |
||||||
Investment management fees |
756,424 |
||||||
Dividends declared |
722,603 |
||||||
Administration fees |
63,535 |
||||||
Interest expense |
36,750 |
||||||
Directors' fees |
245 |
||||||
Other liabilities |
215,050 |
||||||
Total Liabilities |
353,459,569 |
||||||
NET ASSETS |
$ |
1,028,992,471 |
|||||
NET ASSETS consist of: |
|||||||
Paid-in capital |
$ |
802,134,535 |
|||||
Accumulated undistributed net investment income |
1,769,977 |
||||||
Accumulated net realized loss |
(13,656,324 |
) |
|||||
Net unrealized appreciation |
238,744,283 |
||||||
$ |
1,028,992,471 |
||||||
NET ASSET VALUE PER SHARE: |
|||||||
($1,028,992,471 ÷ 47,566,736 shares outstanding) |
$ |
21.63 |
|||||
MARKET PRICE PER SHARE |
$ |
18.44 |
|||||
MARKET PRICE DISCOUNT TO NET ASSET VALUE PER SHARE |
(14.75 |
)% |
See accompanying notes to financial statements.
20
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2015
Investment Income: |
|||||||
Dividend income |
$ |
35,703,731 |
|||||
Interest income (net of $3,246 of foreign withholding tax) |
24,634,995 |
||||||
Rehypothecation income |
73,044 |
||||||
Total Investment Income |
60,411,770 |
||||||
Expenses: |
|||||||
Investment management fees |
8,985,753 |
||||||
Interest expense |
6,586,112 |
||||||
Administration fees |
954,074 |
||||||
Shareholder reporting expenses |
151,575 |
||||||
Custodian fees and expenses |
140,103 |
||||||
Line of credit fees |
125,521 |
||||||
Professional fees |
104,551 |
||||||
Directors' fees and expenses |
68,798 |
||||||
Transfer agent fees and expenses |
21,162 |
||||||
Registration and filing fees |
9,020 |
||||||
Miscellaneous |
100,276 |
||||||
Total Expenses |
17,246,945 |
||||||
Net Investment Income |
43,164,825 |
||||||
Net Realized and Unrealized Gain (Loss): |
|||||||
Net realized gain (loss) on: |
|||||||
Investments |
60,030,075 |
||||||
Written option contracts |
(3,281,229 |
) |
|||||
Foreign currency transactions |
2,494,049 |
||||||
Net realized gain |
59,242,895 |
||||||
Net change in unrealized appreciation (depreciation) on: |
|||||||
Investments |
(31,512,337 |
) |
|||||
Written option contracts |
122,518 |
||||||
Foreign currency translations |
(402,224 |
) |
|||||
Net change in unrealized appreciation (depreciation) |
(31,792,043 |
) |
|||||
Net realized and unrealized gain |
27,450,852 |
||||||
Net Increase in Net Assets Resulting from Operations |
$ |
70,615,677 |
See accompanying notes to financial statements.
21
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 2015 |
For the Year Ended December 31, 2014 |
||||||||||
Change in Net Assets: |
|||||||||||
From Operations: |
|||||||||||
Net investment income |
$ |
43,164,825 |
$ |
46,069,917 |
|||||||
Net realized gain |
59,242,895 |
95,626,490 |
|||||||||
Net change in unrealized appreciation (depreciation) |
(31,792,043 |
) |
98,347,098 |
||||||||
Net increase in net assets resulting from operations |
70,615,677 |
240,043,505 |
|||||||||
Dividends to Shareholders from Net Investment Income |
(70,488,885 |
) |
(61,623,000 |
) |
|||||||
Capital Stock Transactions: |
|||||||||||
Decrease in net assets from Fund share transactions |
(3,824,582 |
) |
|
||||||||
Total increase (decrease) in net assets |
(3,697,790 |
) |
178,420,505 |
||||||||
Net Assets: |
|||||||||||
Beginning of year |
1,032,690,261 |
854,269,756 |
|||||||||
End of yeara |
$ |
1,028,992,471 |
$ |
1,032,690,261 |
a Includes accumulated undistributed net investment income of $1,769,977 and $2,459,875, respectively.
See accompanying notes to financial statements.
22
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2015
Increase in Cash: |
|||||||
Cash Flows from Operating Activities: |
|||||||
Net increase in net assets resulting from operations |
$ |
70,615,677 |
|||||
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: |
|||||||
Purchases of long-term investments |
(564,489,406 |
) |
|||||
Net purchases, sales and maturities of short-term investments |
(4,400,000 |
) |
|||||
Net amortization of premium on Investments |
595,297 |
||||||
Proceeds from sales and maturities of long-term investments |
606,740,496 |
||||||
Net increase in dividends and interest receivable and other assets |
(251,658 |
) |
|||||
Net increase in interest expense payable, accrued expenses and other liabilities |
4,288 |
||||||
Decrease in premiums received from written option contracts |
(1,587,331 |
) |
|||||
Net change in unrealized appreciation on written option contracts |
(122,518 |
) |
|||||
Net change in unrealized depreciation on investments |
31,512,337 |
||||||
Net change in unrealized depreciation on forward foreign currency exchange contracts |
435,561 |
||||||
Net realized gain on investments |
(60,030,075 |
) |
|||||
Cash provided by operating activities |
79,022,668 |
||||||
Cash Flows from Financing Activities: |
|||||||
Decrease in net assets from Fund share transactions |
(3,824,582 |
) |
|||||
Dividends paid |
(70,450,317 |
) |
|||||
Cash used for financing activities |
(74,274,899 |
) |
|||||
Increase in cash |
4,747,769 |
||||||
Cash at beginning of year |
2,751,730 |
||||||
Cash at end of year (including foreign currency) |
$ |
7,499,499 |
Supplemental Disclosure of Cash Flow Information:
During the year ended December 31, 2015, interest paid was $6,585,360.
See accompanying notes to financial statements.
23
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout each year and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto.
For the Year Ended December 31, |
|||||||||||||||||||||||
Per Share Operating Performance: |
2015 |
2014 |
2013 |
2012 |
2011 |
||||||||||||||||||
Net asset value, beginning of year |
$ |
21.62 |
$ |
17.88 |
$ |
18.37 |
$ |
15.34 |
$ |
15.63 |
|||||||||||||
Income (loss) from investment operations: |
|||||||||||||||||||||||
Net investment income |
0.91 |
a |
0.96 |
a |
0.83 |
a |
0.95 |
a |
1.21 |
||||||||||||||
Net realized and unrealized gain (loss) |
0.57 |
4.07 |
b |
(0.13 |
)c |
3.28 |
(0.30 |
) |
|||||||||||||||
Total from investment operations |
1.48 |
5.03 |
0.70 |
4.23 |
0.91 |
||||||||||||||||||
Less dividends to shareholders from: |
|||||||||||||||||||||||
Net investment income |
(1.48 |
) |
(1.29 |
) |
(1.20 |
) |
(1.20 |
) |
(1.20 |
) |
|||||||||||||
Total dividends to shareholders |
(1.48 |
) |
(1.29 |
) |
(1.20 |
) |
(1.20 |
) |
(1.20 |
) |
|||||||||||||
Anti-dilutive effect from the issuance of reinvested shares |
|
|
|
|
0.00 |
d |
|||||||||||||||||
Anti-dilutive effect from the repurchase of shares |
0.01 |
|
0.01 |
|
|
||||||||||||||||||
Net increase (decrease) in net asset value |
0.01 |
3.74 |
(0.49 |
) |
3.03 |
(0.29 |
) |
||||||||||||||||
Net asset value, end of year |
$ |
21.63 |
$ |
21.62 |
$ |
17.88 |
$ |
18.37 |
$ |
15.34 |
|||||||||||||
Market value, end of year |
$ |
18.44 |
$ |
18.99 |
$ |
15.70 |
$ |
16.99 |
$ |
14.15 |
|||||||||||||
Total net asset value returne |
8.45 |
% |
29.87 |
% |
4.48 |
% |
28.45 |
% |
6.46 |
% |
|||||||||||||
Total market value returne |
5.26 |
% |
29.91 |
% |
0.80 |
% |
28.79 |
% |
7.41 |
% |
See accompanying notes to financial statements.
24
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
FINANCIAL HIGHLIGHTS(Continued)
For the Year Ended December 31, |
|||||||||||||||||||||||
Ratios/Supplemental Data: |
2015 |
2014 |
2013 |
2012 |
2011 |
||||||||||||||||||
Net assets, end of year (in millions) |
$ |
1,029.0 |
$ |
1,032.7 |
$ |
854.3 |
$ |
883.1 |
$ |
737.7 |
|||||||||||||
Ratio of expenses to average daily net assets |
1.67 |
% |
1.71 |
% |
1.82 |
% |
1.63 |
% |
1.72 |
% |
|||||||||||||
Ratio of expenses to average daily net assets (excluding interest expense) |
1.03 |
% |
1.03 |
% |
1.10 |
% |
1.10 |
% |
1.13 |
% |
|||||||||||||
Ratio of net investment income to average daily net assets |
4.18 |
% |
4.76 |
% |
4.38 |
% |
5.45 |
% |
5.62 |
% |
|||||||||||||
Ratio of expenses to average daily managed assetsf |
1.25 |
% |
1.26 |
% |
1.31 |
% |
1.15 |
% |
1.18 |
% |
|||||||||||||
Portfolio turnover rate |
42 |
% |
54 |
% |
51 |
% |
49 |
% |
52 |
% |
|||||||||||||
Credit Agreement |
|||||||||||||||||||||||
Asset coverage ratio for credit agreement |
394 |
% |
395 |
% |
344 |
% |
352 |
% |
311 |
% |
|||||||||||||
Asset coverage per $1,000 for credit agreement |
$ |
3,940 |
$ |
3,951 |
$ |
3,441 |
$ |
3,523 |
$ |
3,108 |
a Calculation based on average shares outstanding.
b Includes gains resulting from class action litigation payments on securities owned in prior years. Without these gains, the net realized and unrealized gains (losses) on investments per share would have been $3.99 and the total return on an NAV basis would have been 29.58%.
c Includes gains resulting from class action litigation payments on securities owned in prior years. Without these gains, the net realized and unrealized gains (losses) on investments per share would have been $(0.17) and the total return on an net asset value (NAV) basis would have been 4.33%.
d Amount is less than $0.005.
e Total net asset value return measures the change in net asset value per share over the period indicated. Total market value return is computed based upon the Fund's NYSE market price per share and excludes the effects of brokerage commissions. Dividends and distributions are assumed, for purposes of these calculations, to be reinvested at prices obtained under the Fund's dividend reinvestment plan.
f Average daily managed assets represent net assets plus the outstanding balance of the credit agreement.
See accompanying notes to financial statements.
25
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and 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 (the 1940 Act) 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 Fund is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 946Investment Companies. The accounting policies of the Fund 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 NYSE are valued, except as indicated below, at the last sale price reflected at the close of the NYSE 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 ask prices on such day or, if no ask 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 on the valuation date. In the absence of a last sale price on such day, options are valued at the average of the quoted bid and ask prices as of the close of business. Over-the-counter options are valued based upon prices provided by the respective counterparty. Forward contracts are valued daily at the prevailing forward exchange rate.
Securities not listed on the NYSE 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 reflected at the close of the exchange representing the principal market for such securities on the business day as of which such value is being determined. 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 non-U.S. equity holdings 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 Cohen & Steers Capital Management, Inc. (the investment manager) to be over-the-counter, are valued at the last sale price on the valuation date as reported by sources deemed appropriate by the Board of Directors 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 ask prices on such day or, if no ask price is available, at the bid price. However, certain fixed-income securities may be valued on the basis of prices provided by a third-party pricing service or third-party broker-dealers 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. The pricing services or broker-dealers use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists,
26
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
the pricing services or broker-dealers may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services or broker-dealers also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining fair value and/or characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features which are used to calculate the fair values.
Short-term debt securities with a maturity date of 60 days or less are valued at amortized cost, which approximates fair value. Investments in open-end mutual funds are valued at their closing net asset value.
The policies and procedures approved by the Fund's Board of Directors delegate authority to make fair value determinations to the investment manager, subject to the oversight of the Board of Directors. The investment manager has established a valuation committee (Valuation Committee) to administer, implement and oversee the fair valuation process according to the policies and procedures approved annually by the Board of Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
Securities for which market prices are unavailable, or securities for which the investment manager determines that the bid and/or ask price or a counterparty valuation does not reflect market value, will be valued at fair value, as determined in good faith by the Valuation Committee, 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.
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.
Fair value is defined as the price that the Fund would expect to receive upon the sale of an investment or expect to 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
27
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
investment or liability. The hierarchy of inputs that are used in determining the fair value of the Fund's investments is summarized below.
• Level 1quoted prices in active markets for identical investments
• Level 2other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.)
• Level 3significant 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.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfer at the end of the period in which the underlying event causing the movement occurred. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. As of December 31, 2015, there was a transfer of $4,211,945 from Level 1 to Level 2, which resulted from a change in the use of a quoted price to an evaluated mean price, supplied by an independent pricing service, for one security.
The following is a summary of the inputs used as of December 31, 2015 in valuing the Fund's investments carried at value:
Total |
Quoted Prices In Active Markets for Identical Investments (Level 1) |
Other Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Common Stock |
$ |
675,105,897 |
$ |
675,105,897 |
$ |
|
$ |
|
|||||||||||
Preferred Securities $25 Par Value: |
|||||||||||||||||||
Banks |
64,278,629 |
57,703,004 |
6,575,625 |
|
|||||||||||||||
Electric-Integrated Electric |
4,211,945 |
|
4,211,945 |
|
|||||||||||||||
Food |
6,314,316 |
|
6,314,316 |
|
|||||||||||||||
Other Industries |
198,805,295 |
198,805,295 |
|
|
|||||||||||||||
Preferred Securities Capital Securities: |
|||||||||||||||||||
Banks |
116,231,823 |
4,368,320 |
107,647,985 |
4,215,518 |
|||||||||||||||
Food |
7,165,400 |
|
|
7,165,400 |
|||||||||||||||
Other Industries |
278,735,367 |
|
278,735,367 |
|
|||||||||||||||
Corporate Bonds |
8,097,026 |
|
8,097,026 |
|
|||||||||||||||
Short-Term Investments |
5,900,000 |
|
5,900,000 |
|
|||||||||||||||
Total Investmentsa |
$ |
1,364,845,698 |
$ |
935,982,516 |
$ |
417,482,264 |
$ |
11,380,918 |
b |
28
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
Total |
Quoted Prices In Active Markets for Identical Investments (Level 1) |
Other Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Forward foreign currency exchange contracts |
$ |
321,197 |
$ |
|
$ |
321,197 |
$ |
|
|||||||||||
Total Appreciation in Other Financial Instrumentsa |
$ |
321,197 |
$ |
|
$ |
321,197 |
$ |
|
|||||||||||
Forward foreign currency exchange contracts |
$ |
(262,424 |
) |
$ |
|
$ |
(262,424 |
) |
$ |
|
|||||||||
Written option contracts |
(19,368 |
) |
(19,368 |
) |
|
|
|||||||||||||
Total Depreciation in Other Financial Instrumentsa |
$ |
(281,792 |
) |
$ |
(19,368 |
) |
$ |
(262,424 |
) |
$ |
|
a Portfolio holdings are disclosed individually on the Schedule of Investments.
b Level 3 investments are valued by a third-party pricing service. The inputs for these securities are not readily available or cannot be reasonably estimated. A change in the significant unobservable inputs could result in a significantly lower or higher value in such Level 3 investments.
Following is a reconciliation of investments for which significant unobservable inputs (Level 3) were used in determining fair value:
Total Investments in Securities |
Preferred SecuritiesCapital SecuritiesBanks |
Preferred SecuritiesCapital SecuritiesFood |
|||||||||||||
Balance as of December 31, 2014 |
$ |
14,621,194 |
$ |
7,338,750 |
$ |
7,282,444 |
|||||||||
Change in unrealized appreciation (depreciation) |
(47,669 |
) |
69,375 |
(117,044 |
) |
||||||||||
Transfers into Level 3a |
4,215,518 |
4,215,518 |
|
||||||||||||
Transfers out of Level 3b |
(7,408,125 |
) |
(7,408,125 |
) |
|
||||||||||
Balance as of December 31, 2015 |
$ |
11,380,918 |
$ |
4,215,518 |
$ |
7,165,400 |
The change in unrealized appreciation (depreciation) attributable to securities owned on December 31, 2015 which were valued using significant unobservable inputs (Level 3) amounted to $(124,307).
a Transfers from Level 2 to Level 3 are due to a decrease in market activity (e.g. frequency of trades), which resulted in a lack of available market inputs to determine prices.
b Transfers from Level 3 to Level 2 are due to an increase in market activity (e.g. frequency of trades), which resulted in an increase in available market inputs to determine prices.
29
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
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. Distributions from Real Estate Investment Trusts (REITs) are recorded as ordinary income, net realized capital gain or return of capital based on information reported by the REITs and management's estimates of such amounts based on historical information. These estimates are adjusted when the actual source of distributions is disclosed by the REITs and actual amounts may differ from the estimated amounts.
Options: The Fund may purchase and write exchange-listed and over-the-counter put or call options on securities, stock indices and other financial instruments to enhance portfolio returns and reduce overall volatility.
When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is recorded on the Statement of Assets and Liabilities as a liability. The amount of 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 premium 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 premium is added to the proceeds of the security sold to determine the realized 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 contracts.
Put and call options purchased are accounted for in the same manner as portfolio securities. Premiums paid for purchasing options which expire are treated as realized losses. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss when the underlying transaction is executed. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract.
Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based upon prevailing exchange rates on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
30
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency exchange contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates. Pursuant to U.S. federal income tax regulations, certain foreign currency gains/losses included in realized and unrealized gains/losses are included in or are a reduction of ordinary income for federal income tax purposes.
Foreign Securities: The Fund directly purchases 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 securities of comparable U.S. issuers.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts to hedge the currency exposure associated with certain of its non-U.S. dollar denominated securities. A forward foreign currency exchange contract is a commitment between two parties to purchase or sell foreign currency at a set price on a future date. The market value of a forward foreign currency exchange contract fluctuates with changes in foreign currency exchange rates. These contracts are marked to market daily and the change in value is recorded by the Fund as unrealized appreciation and/or depreciation on foreign currency translations. Realized gains or losses equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed are included in net realized gain or loss on foreign currency transactions. For federal income tax purposes, the Fund has made an election to treat gains and losses from forward foreign currency exchange contracts as capital gains and losses.
Forward foreign currency exchange contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the contract. Risks may also arise upon entering these contracts from the potential inability of the counterparties to meet the terms of their contracts. In connection with these contracts, securities may be identified as collateral in accordance with the terms of the respective contracts.
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 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. Dividends from net investment income are subject to recharacterization for tax purposes.
31
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
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. Also, in order to avoid the payment of any federal excise taxes, the Fund will distribute substantially all of its net investment income and net realized gains on a calendar year basis. 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 and applicable state income tax returns as well as its tax positions in non-U.S. jurisdictions in which it trades for all open tax years and has concluded that as of December 31, 2015, no additional provisions for income tax are 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 provided to the Fund, the investment manager receives a fee, accrued daily and paid monthly, at the annual rate of 0.65% of the average daily managed assets of the Fund. Managed assets are equal to the net assets 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 average daily managed assets of the Fund up to $1 billion, 0.04% of the average daily managed assets of the Fund in excess of $1 billion and up to $1.5 billion and 0.02% of the average daily managed assets of the Fund in excess of $1.5 billion. For the year ended December 31, 2015, the Fund incurred $752,969 in fees under this administration agreement. 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 directors and officers affiliated with the investment manager except for the Chief Compliance Officer, who received compensation from the investment manager, which was reimbursed by the Fund, in the amount of $17,140 for the year ended December 31, 2015.
32
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
Note 3. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, for the year ended December 31, 2015, totaled $567,724,079 and $596,680,453, respectively.
Transactions in written option contracts during the year ended December 31, 2015, were as follows:
Number of Contracts |
Premiums |
||||||||||
Written option contracts outstanding at December 31, 2014 |
18,444 |
$ |
1,659,960 |
||||||||
Option contracts written |
1,614 |
72,629 |
|||||||||
Option contracts expired |
(9,222 |
) |
(977,532 |
) |
|||||||
Option contracts terminated in closing transactions |
(9,222 |
) |
(682,428 |
) |
|||||||
Written option contracts outstanding at December 31, 2015 |
1,614 |
$ |
72,629 |
Note 4. Derivative Investments
The following tables present the value of derivatives held at December 31, 2015 and the effect of derivatives held during the year ended December 31, 2015, along with the respective location in the financial statements. The volume of activity for written option contracts for the year ended December 31, 2015 is summarized in Note 3.
Statement of Assets and Liabilities |
|||||||||||||||||||
Assets |
Liabilities |
||||||||||||||||||
Derivatives |
Location |
Fair Value |
Location |
Fair Value |
|||||||||||||||
Foreign Exchange Risk: |
|||||||||||||||||||
Forward foreign currency exchange contractsa |
Unrealized appreciation |
$ |
321,197 |
Unrealized depreciation |
$ |
262,424 |
|||||||||||||
Equity Risk: |
|||||||||||||||||||
Written optionb contracts |
|
|
Written option contracts |
19,368 |
a Forward foreign currency exchange contracts executed with Brown Brothers Harriman are not subject to a master netting arrangement or another similar agreement.
b Option contracts executed with Goldman Sachs & Co. are not subject to a master netting arrangement or another similar arrangement.
33
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
Statement of Operations |
|||||||||||||||
Derivatives |
Location |
Realized Gain (Loss) |
Change in Unrealized Appreciation (Depreciation) |
||||||||||||
Foreign Exchange Risk: |
|||||||||||||||
Forward foreign currency exchange contracts |
Net Realized and Unrealized Gain (Loss) |
$ |
2,502,387 |
$ |
(435,561 |
) |
|||||||||
Equity Risk: |
|||||||||||||||
Written option contracts |
Net Realized and Unrealized Gain (Loss) |
(3,281,229 |
) |
122,518 |
The following summarizes the volume of the Fund's forward foreign currency exchange contracts activity during the year ended December 31, 2015:
Forward Foreign Currency Exchange Contracts |
|||||||
Average Notional Amount |
$ |
25,085,522 |
|||||
Ending Notional Amount |
25,486,774 |
Note 5. Income Tax Information
The tax character of dividends paid was as follows:
For the Year Ended December 31, |
|||||||||||
2015 |
2014 |
||||||||||
Ordinary income |
$ |
70,488,885 |
$ |
61,623,000 |
|||||||
Total dividends |
$ |
70,488,885 |
$ |
61,623,000 |
As of December 31, 2015, the tax-basis components of accumulated earnings and the federal tax cost were as follows:
Cost for federal income tax purposes |
$ |
1,126,373,161 |
|||||
Gross unrealized appreciation |
$ |
247,712,940 |
|||||
Gross unrealized depreciation |
(9,240,403 |
) |
|||||
Net unrealized appreciation |
$ |
238,472,537 |
34
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
As of December 31, 2015, the Fund had a net capital loss carryforward of $11,853,313, which may be used to offset future capital gains. These losses are comprised of short-term capital loss carryovers, which will expire on December 31, 2017. The Fund incurred short-term capital losses of $478,187 and long-term capital losses of $417,870 after October 31, 2015, that it has elected to treat as arising in the following fiscal year. In addition, the Fund incurred net ordinary loss of $1,202,899, that it has elected to treat as arising in the following fiscal year.
During the year ended December 31, 2015, the Fund utilized net capital loss carryforwards of $60,416,202.
As of December 31, 2015, the Fund had temporary book/tax differences primarily attributable to wash sales on portfolio securities and certain fixed income securities and permanent book/tax differences primarily attributable to Fund distributions, certain fixed income securities and foreign currency transactions. To reflect reclassifications arising from the permanent differences, paid-in capital was charged $28,097,633, accumulated net realized loss was credited $1,463,471 and accumulated undistributed net investment income was credited $26,634,162. Net assets were not affected by this reclassification.
Note 6. 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 years ended December 31, 2015 and December 31, 2014, the Fund did not issue any shares of common stock for the reinvestment of dividends.
On December 8, 2015, 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, 2016, through the fiscal year ended December 31, 2016.
During the year ended December 31, 2015, the Fund repurchased 203,031 Treasury shares of its common stock at an average price of $18.84 per share (including brokerage commissions) at a weighted average discount of 13.8%. These repurchases, which had a total cost of $3,824,582, resulted in an increase of $0.01 to the Fund's net asset value per share. During the year ended December 31, 2014, the Fund did not effect any repurchases.
Note 7. Borrowings
The Fund has entered into an amended and restated credit agreement (the credit agreement) with BNP Paribas Prime Brokerage International, Ltd. (BNPP) in which the Fund pays a monthly financing charge based on a combination of LIBOR-based variable and fixed rates. The commitment amount of the credit agreement is $350,000,000. The Fund also pays a fee of 0.55% per annum on the unused portion of the credit agreement. BNPP may not change certain terms of the credit agreement except upon 360 days' notice. Also, if the Fund violates certain conditions, the credit agreement may be terminated. The Fund is required to pledge portfolio securities as collateral in an amount up to two
35
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
times the loan balance outstanding (or more depending on the terms of the credit agreement) 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 Fund may, upon prior written notice to BNPP, prepay all or a portion of the fixed and variable rate portions of the credit facility. The Fund may have to pay a breakage fee with respect to a prepayment of all or a portion of the fixed rate financing under the credit facility. 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.
On February 24, 2015, the Fund entered into an amendment to the credit agreement in order to extend the term length of the 5-year, 6-year and 7-year fixed rate tranches of the credit agreement by three years to 2020, 2021 and 2022, respectively. The new rates will increase and become effective upon maturity date of the current fixed rate tranches. In connection with the extension, the Fund paid an arrangement fee based on the aggregate fixed rate financing amount.
As of December 31, 2015, the Fund had outstanding borrowings of $350,000,000. During the year ended December 31, 2015, the Fund borrowed an average daily balance of $350,000,000 at a weighted average borrowing cost of 1.9%. As of December 31, 2015, the aggregate value of rehypothecated securities, which are reflected as part of investments in securities on the Statement of Assets and Liabilities, was $320,888,147. The value of the outstanding borrowings under the credit agreement exceeded the value of the rehypothecated securities at December 31, 2015. During the year ended December 31, 2015, the Fund earned $73,044 in fees from rehypothecated securities.
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
Management has evaluated events and transactions occurring after December 31, 2015 through the date that the financial statements were issued, and has determined that no additional disclosure in the financial statements is required.
36
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cohen & Steers REIT and Preferred Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of changes in net assets and of cash flows and the financial highlights present fairly, in all material respects, the financial position of Cohen & Steers REIT and Preferred Income Fund, Inc. (the "Fund") at December 31, 2015, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2015 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 25, 2016
37
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS
(Periods ended December 31, 2015) (Unaudited)
Based on Net Asset Value |
Based on Market Value |
||||||||||||||||||||||||||||||
One Year |
Five Years |
Ten Years |
Since Inception (6/27/03) |
One Year |
Five Years |
Ten Years |
Since Inception (6/27/03) |
||||||||||||||||||||||||
8.45 |
% |
15.01 |
% |
8.05 |
% |
9.97 |
% |
5.26 |
% |
13.41 |
% |
7.29 |
% |
8.18 |
% |
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 from utilization of borrowings under a credit agreement and/or from the issuance of preferred shares. Current total returns of the Fund can be obtained by visiting our website at cohenandsteers.com. The Fund's returns assume the reinvestment of all dividends and distributions at prices obtained under the Fund's dividend reinvestment plan.
TAX INFORMATION2015 (Unaudited)
Pursuant to the Jobs and Growth Relief Reconciliation Act of 2003, the Fund designates qualified dividend income of $28,732,677. Additionally, 21.04% of the ordinary dividends qualified for the dividends received deduction available to corporations.
REINVESTMENT PLAN
The Fund has a dividend reinvestment plan commonly referred to as an "opt-out" plan (the Plan). Each common shareholder who participates in the Plan will have all distributions of dividends and capital gains (Dividends) automatically reinvested in additional common shares by Computershare as agent (the Plan Agent). Shareholders who elect not to participate in the Plan will receive all Dividends in cash paid by check mailed directly to the shareholder of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, as dividend disbursing agent. Shareholders whose common shares are held in the name of a broker or nominee should contact the broker or nominee to determine whether and how they may participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan. After the Fund declares a Dividend, the Plan Agent will, as agent for the shareholders, either: (i) receive the cash payment and use it to buy common shares in the open market, on the NYSE or elsewhere, for the participants' accounts or (ii) distribute newly issued common shares of the Fund on behalf of the participants.
The Plan Agent will receive cash from the Fund with which to buy common shares in the open market if, on the Dividend payment date, the net asset value (NAV) per share exceeds the market price per share plus estimated brokerage commissions on that date. The Plan Agent will receive the Dividend in newly issued common shares of the Fund if, on the Dividend payment date, the market price per share plus estimated brokerage commissions equals or exceeds the NAV per share of the Fund on that date. The number of shares to be issued will be computed at a per share rate equal to the greater of (i) the NAV or (ii) 95% of the closing market price per share on the payment date.
38
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
If the market price per share is less than the NAV on a Dividend payment date, the Plan Agent will have until the last business day before the next ex-dividend date for the common stock, but in no event more than 30 days after the Dividend payment date (as the case may be, the Purchase Period), to invest the Dividend amount in shares acquired in open market purchases. If at the close of business on any day during the Purchase Period on which NAV is calculated the NAV equals or is less than the market price per share plus estimated brokerage commissions, the Plan Agent will cease making open market purchases and the uninvested portion of such Dividends shall be filled through the issuance of new shares of common stock from the Fund at the price set forth in the immediately preceding paragraph.
Participants in the Plan may withdraw from the Plan upon notice to the Plan Agent. Such withdrawal will be effective immediately if received not less than ten days prior to a Dividend record date; otherwise, it will be effective for all subsequent Dividends. If any participant elects to have the Plan Agent sell all or part of his or her shares and remit the proceeds, the Plan Agent is authorized to deduct a $15.00 fee plus $0.10 per share brokerage commissions.
The Plan Agent's fees for the handling of reinvestment of Dividends will be paid by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of Dividends. The automatic reinvestment of Dividends will not relieve participants of any income tax that may be payable or required to be withheld on such Dividends.
The Fund reserves the right to amend or terminate the Plan. All correspondence concerning the Plan should be directed to the Plan Agent at 800-432-8224.
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 website at cohenandsteers.com or (iii) on the Securities and Exchange Commission's (the SEC) website 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 website 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 website 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 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 investment company taxable income and net 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 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
39
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
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 1940 Act that the Fund may purchase, from time to time, shares of its common stock in the open market.
Election of Directors
Effective October 1, 2015, the Board of Directors has elected Gerald J. Maginnis and Jane F. Magpiong as directors of the Fund to serve until the annual meeting of stockholders in 2016 and 2018, respectively, and until his or her successor is duly elected and qualifies. Please refer to the section titled "Management of the Fund" for the biographical information of each director.
40
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the Board of Directors. The Board of Directors approves all significant agreements between the Fund and persons or companies furnishing services to it, including the Fund's agreements with its investment advisor, administrator, co-administrator, custodian and transfer agent. The management of the Fund's day-to-day operations is delegated to its officers, the investment advisor, administrator and co-administrator, subject always to the investment objective and policies of the Fund and to the general supervision of the Board of Directors.
The Board of Directors and officers of the Fund and their principal occupations during at least the past five years are set forth below. The statement of additional information (SAI) includes additional information about fund directors and is available, without charge, upon request by calling 800-330-7348.
Name, Address and |
Position(s) Held |
Term of |
Principal Occupation |
Number of |
Length |
||||||||||||||||||
Interested Directors4 |
|||||||||||||||||||||||
Robert H. Steers |
Director and Chairman |
Until next election of directors |
Chief Executive Officer of Cohen & Steers Capital Management, Inc. (CSCM or the Advisor) and its parent, Cohen & Steers, Inc. (CNS) since 2014. Prior to that, Co-Chairman and Co-Chief Executive Officer of the Advisor since 2003 and CNS since 2004. |
22 |
Since 1991 |
||||||||||||||||||
Joseph M. Harvey |
Director and Vice President |
Until next election of directors |
President and Chief Investment Officer of the Advisor since 2003 and President of CNS since 2004. |
22 |
Since 2014 |
(table continued on next page)
41
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
(table continued from previous page)
Name, Address and |
Position(s) Held |
Term of |
Principal Occupation |
Number of |
Length |
||||||||||||||||||
Disinterested Directors |
|||||||||||||||||||||||
Michael G. Clark |
Director |
Until next election of directors |
From 2006 to 2011, President and Chief Executive Officer of DWS Funds and Managing Director of Deutsche Asset Management. |
22 |
Since 2011 |
||||||||||||||||||
Bonnie Cohen |
Director |
Until next election of directors |
Consultant. Board Member, DC Public Library Foundation since 2012, President since 2014; Board Member, Telluride Mountain Film Festival since 2010; Trustee, H. Rubenstein Foundation since 1996; Trustee, District of Columbia Public Libraries from 2004 to 2014. |
22 |
Since 2001 |
||||||||||||||||||
George Grossman |
Director |
Until next election of directors |
Attorney-at-law. |
22 |
Since 1996 |
||||||||||||||||||
Dean Junkans |
Director |
Until next election of directors |
C.F.A.; Chief Investment Officer at Wells Fargo Private Bank from 2004 to 2014 and Chief Investment Officer of the Wealth, Brokerage and Retirement group at Wells Fargo & Company from 2011 to 2014; Member and former Chair, Claritas Advisory Committee at the CFA Institute since 2013; Board Member and Investment Committee member, Bethel University Foundation since 2010; formerly, Corporate Executive Board Member of the National Chief Investment Officers Circle, 2010 to 2015; formerly, Member of the Board of Governors of the University of Wisconsin Foundation, River Falls, 1996 to 2004; U.S. Army Veteran, Gulf War. |
22 |
Since 2015 |
(table continued on next page)
42
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
(table continued from previous page)
Name, Address and Year of Birth1 |
Position(s) Held With Fund |
Term of Office2 |
Principal Occupation During At Least The Past 5 Years (Including Other Directorships Held) |
Number of Funds Within Fund Complex Overseen by Director (Including the Fund) |
Length of Time Served3 |
||||||||||||||||||
Richard E. Kroon 1942 |
Director |
Until next election of directors |
Member of Investment Committee, Monmouth University since 2004; Retired Chairman and Managing Partner of Sprout Group venture capital funds, then an affiliate of Donaldson, Lufkin and Jenrette Securities Corporation from 1981 to 2001. Former Director of the National Venture Capital Association from 1997 to 2000, and Chairman for the year 2000. |
22 |
Since 2004 |
||||||||||||||||||
Gerald J. Maginnis 1955 |
Director |
Until next election of directors |
Philadelphia Office Managing Partner, KPMG LLP from 2006 to 2015; Partner in Charge, KPMG Pennsylvania Audit Practice from 2002 to 2008; President, Pennsylvania Institute of Certified Public Accountants (PICPA) from 2014 to 2015; member, PICPA Board of Directors; member, Council of the American Institute of Certified Public Accountants (AICPA); member, Board of Trustees of AICPA Foundation. |
22 |
Since 2015 |
(table continued on next page)
43
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
(table continued from previous page)
Name, Address and Year of Birth1 |
Position(s) Held With Fund |
Term of Office2 |
Principal Occupation During At Least The Past 5 Years (Including Other Directorships Held) |
Number of Funds Within Fund Complex Overseen by Director (Including the Fund) |
Length of Time Served3 |
||||||||||||||||||
Jane F. Magpiong 1960 |
Director |
Until next election of directors |
President, Untap Potential since 2013; Board Member, Crespi High School Since 2014; Senior Managing Director, TIAA-CREF, from 2011 to 2013; National Head of Wealth Management, TIAA-CREF, from 2008 to 2011; and prior to that, President, Bank of America Private Bank from 2005 to 2008. |
22 |
Since 2015 |
||||||||||||||||||
Richard J. Norman 1943 |
Director |
Until next election of directors |
Private Investor. Member, Montgomery County, Maryland Department of Corrections Volunteer Corps. since 2010; Liason for Business Leadership, Salvation Army World Service Organization (SAWSO) since 2010; Advisory Board Member, The Salvation Army since 1985; Prior thereto, Investment Representative of Morgan Stanley Dean Witter from 1966 to 2000. |
22 |
Since 2001 |
(table continued on next page)
44
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
(table continued from previous page)
Name, Address and Year of Birth1 |
Position(s) Held With Fund |
Term of Office2 |
Principal Occupation During At Least The Past 5 Years (Including Other Directorships Held) |
Number of Funds Within Fund Complex Overseen by Director (Including the Fund) |
Length of Time Served3 |
||||||||||||||||||
Frank K. Ross 1943 |
Director |
Until next election of directors |
Visiting Professor of Accounting and Director of the Center for Accounting Education at Howard University School of Business since 2004; Board member and member of Audit Committee (Chairman from 2007 to 2012) and Human Resources and Compensation Committee, Pepco Holdings, Inc. (electric utility) from 2004 to 2014; Formerly, Mid-Atlantic Area Managing Partner for Assurance Services at KPMG LLP and Managing Partner of its Washington, DC offices from 1995 to 2003. |
22 |
Since 2004 |
||||||||||||||||||
C. Edward Ward, Jr. 1946 |
Director |
Until next election of directors |
Member of The Board of Trustees of Manhattan College, Riverdale, New York from 2004 to 2014. Formerly Director of closed-end fund management for the New York Stock Exchange (the NYSE) where he worked from 1979 to 2004. |
22 |
Since 2004 |
1 The address for each director is 280 Park Avenue, New York, NY 10017.
2 On March 12, 2008, the Board of Directors adopted a mandatory retirement policy stating a Director must retire from the Board on December 31st of the year in which he or she turns 75 years of age.
3 The length of time served represents the year in which the Director was first elected or appointed to any fund in the Cohen & Steers fund complex.
4 "Interested person", as defined in the 1940 Act, of the Fund because of affiliation with CSCM (Interested Directors).
45
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
The officers of the Fund (other than Messrs. Steers and Harvey, whose biographies are provided above), their address, their year of birth and their principal occupations for at least the past five years are set forth below.
Name, Address and Year of Birth1 |
Position(s) Held With Fund |
Principal Occupation During At Least the Past 5 Years |
Length of Time Served2 |
||||||||||||
Adam M. Derechin 1964 |
President and Chief Executive Officer |
Chief Operating Officer of CSCM since 2003 and CNS since 2004. |
Since 2005 |
||||||||||||
William F. Scapell 1968 |
Vice President |
Executive Vice President of CSCM since 2014. Prior to that, Senior Vice President of CSCM since 2003. |
Since 2003 |
||||||||||||
Thomas N. Bohjalian 1965 |
Vice President |
Executive Vice President of CSCM since 2012. Prior to that, Senior Vice President of the CSCM since 2006. |
Since 2006 |
||||||||||||
Yigal D. Jhirad 1964 |
Vice President |
Senior Vice President of CSCM since 2007. |
Since 2007 |
||||||||||||
Tina M. Payne 1974 |
Secretary and Chief Legal Officer |
Senior Vice President and Associate General Counsel of CSCM since 2010. |
Since 2007 |
||||||||||||
James Giallanza 1966 |
Treasurer and Chief Financial Officer |
Executive Vice President of CSCM since 2014. Prior to that, Senior Vice President of CSCM since 2006. |
Since 2006 |
||||||||||||
Lisa D. Phelan 1968 |
Chief Compliance Officer |
Executive Vice President of CSCM since 2015. Prior to that, Senior Vice President of CSCM since 2008. Chief Compliance Officer of CSCM, the Cohen & Steers funds, Cohen & Steers Asia Limited and CSSL since 2007, 2006, 2005 and 2004, respectively. |
Since 2006 |
1 The address of each officer is 280 Park Avenue, New York, NY 10017.
2 Officers serve one-year terms. The length of time served represents the year in which the officer was first elected to that position in any fund in the Cohen & Steers fund complex. All of the officers listed above are officers of one or more of the other funds in the complex.
46
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
47
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 Japan, LLC, Cohen & Steers UK Limited, 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 purposesinformation 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. |
||||||
Joint marketing |
A formal agreement between non-affiliated financial companies that together market financial products or services to you. • Cohen & Steers does not jointly market. |
48
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, CSFCX, CSSPX, GRSRX, CSFZX
COHEN & STEERS INSTITUTIONAL REALTY SHARES
• Designed for institutional investors seeking total return, investing primarily in U.S. real estate securities
• Symbol: CSRIX
COHEN & STEERS REAL ESTATE SECURITIES FUND
• Designed for investors seeking total return, investing primarily in U.S. real estate securities
• Symbols: CSEIX, CSCIX, CSDIX, CIRRX, CSZIX
COHEN & STEERS INTERNATIONAL REALTY FUND
• Designed for investors seeking total return, investing primarily in international real estate securities
• Symbols: IRFAX, IRFCX, IRFIX, IRFRX, IRFZX
COHEN & STEERS REALTY SHARES
• Designed for investors seeking total return, investing primarily in U.S. real estate securities
• Symbol: CSRSX
COHEN & STEERS
INSTITUTIONAL GLOBAL REALTY SHARES
• Designed for institutional investors seeking total return, investing primarily in global real estate securities
• Symbol: GRSIX
COHEN & STEERS GLOBAL INFRASTRUCTURE FUND
• Designed for investors seeking total return, investing primarily in global infrastructure securities
• Symbols: CSUAX, CSUCX, CSUIX, CSURX, CSUZX
COHEN & STEERS DIVIDEND VALUE FUND
• Designed for investors seeking long-term growth of income and capital appreciation, investing primarily in dividend paying common stocks and preferred stocks
• Symbols: DVFAX, DVFCX, DVFIX, DVFRX, DVFZX
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, CPRRX, CPXZX
COHEN & STEERS
LOW DURATION PREFERRED AND INCOME FUND
• Designed for investors seeking high current income and capital preservation by investing in low-duration preferred and other income securities
• Symbols: LPXAX, LPXCX, LPXIX, LPXRX, LPXZX
COHEN & STEERS REAL ASSETS FUND
• Designed for investors seeking total return and the maximization of real returns during inflationary environments by investing primarily in real assets
• Symbols: RAPAX, RAPCX, RAPIX, RAPRX, RAPZX
COHEN & STEERS
MLP & ENERGY OPPORTUNITY FUND
• Designed for investors seeking total return, investing primarily in midstream energy master limited partnership (MLP) units and related stocks
• Symbols: MLOAX, MLOCX, MLOIX, MLORX, MLOZX
COHEN & STEERS
ACTIVE COMMODITIES STRATEGY FUND
• Designed for investors seeking total return, investing primarily in a diversified portfolio of exchange-traded commodity future contracts and other commodity-related derivative instruments
• Symbols: CDFAX, CDFCX, CDFIX, CDFRX, CDFZX
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.
Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. A summary prospectus and prospectus containing this and other information can be obtained by calling 800-330-7348 or by visiting cohenandsteers.com. Please read the summary prospectus and prospectus carefully before investing.
49
COHEN & STEERS REIT AND PREFERRED INCOME FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Joseph M. Harvey
Director and Vice President
Michael G. Clark
Director
Bonnie Cohen
Director
George Grossman
Director
Dean Junkans
Director
Richard E. Kroon
Director
Gerald J. Maginnis
Director
Jane F. Magpiong
Director
Richard J. Norman
Director
Frank K. Ross
Director
C. Edward Ward, Jr.
Director
Adam M. Derechin
President and Chief Executive Officer
William F. Scapell
Vice President
Thomas N. Bohjalian
Vice President
Yigal D. Jhirad
Vice President
Tina M. Payne
Secretary and Chief Legal Officer
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
Co-administrator and Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, MA 02111
Transfer Agent
Computershare
480 Washington Boulevard
Jersey City, NJ 07310
(866) 227-0757
Legal Counsel
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
New York Stock Exchange Symbol: RNP
Website: cohenandsteers.com
This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares. Performance data quoted represent past performance. Past performance is no guarantee of future results and your investment may be worth more or less at the time you sell your shares.
50
COHEN & STEERS
REIT AND PREFERRED INCOME FUND
280 PARK AVENUE
NEW YORK, NY 10017
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RNPAR
Annual Report December 31, 2015
Cohen & Steers REIT and Preferred Income Fund
Item 2. Code of Ethics.
The Registrant has adopted an Amended and Restated Code of Ethics that applies to its Principal Executive Officer and Principal Financial Officer. The Code of Ethics was in effect during the reporting period. The Registrant has not amended the Code of Ethics as described in Form N-CSR during the reporting period. The Registrant has not granted any waiver, including an implicit waiver, from a provision of the Code of Ethics as described in Form N-CSR during the reporting period. A current copy of the Code of Ethics is available on the Registrants website at https://www.cohenandsteers.com/assets/content/uploads/Code_of_Ethics_for_Principal_Executive_and_Principal_Financial_Officers _of_the_Funds.pdf. Upon request, a copy of the Code of Ethics can be obtained free of charge by calling 800-330-7348 or writing to the Secretary of the Registrant, 280 Park Avenue, 10th floor, New York, NY 10017.
Item 3. Audit Committee Financial Expert.
The registrants board has determined that Michael G. Clark and Frank K. Ross, each a member of the boards Audit Committee, are each an audit committee financial expert. Mr. Clark and Mr. Ross are each independent, as such term is defined in Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrants principal accountant were as follows:
|
|
2015 |
|
2014 |
| ||
Audit Fees |
|
$ |
54,300 |
|
$ |
54,300 |
|
Audit-Related Fees |
|
$ |
0 |
|
$ |
0 |
|
Tax Fees |
|
$ |
6,600 |
|
$ |
6,600 |
|
All Other Fees |
|
$ |
0 |
|
$ |
0 |
|
Tax fees were billed in connection with tax compliance services, including the preparation and review of federal and state tax returns and the computation of corporate and franchise tax amounts.
(e)(1) The registrants audit committee is required to pre-approve audit and non-audit services performed for the registrant by the principal accountant. The audit committee also is required to pre-approve non-audit services performed by the registrants principal accountant for the registrants investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor) and/or to any entity controlling, controlled by or under common control with the registrants investment advisor that provides ongoing services to the registrant, if the engagement for services relates directly to the operations and financial reporting of the registrant.
The audit committee may delegate pre-approval authority to one or more of its members who are independent members of the board of directors of the registrant. The member or members to
whom such authority is delegated shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee may not delegate its responsibility to pre-approve services to be performed by the registrants principal accountant to the investment advisor.
(e)(2) No services included in (b) (d) above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal years ended December 31, 2015 and December 31, 2014, the aggregate fees billed by the registrants principal accountant for non-audit services rendered to the registrant and for non-audit services rendered to the registrants investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor) and/or to any entity controlling, controlled by or under common control with the registrants investment advisor that provides ongoing services to the registrant were:
|
|
2015 |
|
2014 |
| ||
Registrant |
|
$ |
6,600 |
|
$ |
6,600 |
|
Investment Advisor |
|
$ |
0 |
|
$ |
15,000 |
|
(h) The registrants audit committee considered whether the provision of non-audit services that were rendered to the registrants investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor) and/or to any entity controlling, controlled by or under common control with the registrants investment advisor that provides ongoing services to the registrant that were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X was compatible with maintaining the principal accountants independence.
Item 5. Audit Committee of Listed Registrants.
The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the committee are Frank K. Ross (chairman), Michael G. Clark, Bonnie Cohen, George Grossman and Richard E. Kroon.
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.
The registrant has delegated voting of proxies in respect of portfolio holdings to Cohen & Steers Capital Management, Inc., in accordance with the policies and procedures set forth below.
COHEN & STEERS CAPITAL MANAGEMENT, INC.
STATEMENT OF POLICIES AND PROCEDURES REGARDING THE VOTING OF SECURITIES
This statement sets forth the policies and procedures that Cohen & Steers, Inc. and its affiliated advisors (Cohen & Steers, we or us) follow in exercising voting rights with respect to securities held in its client portfolios. All proxy-voting rights that are exercised by Cohen & Steers shall be subject to this Statement of Policy and Procedures
A. General Proxy Voting Guidelines
Objectives
Voting rights are an important component of corporate governance. Cohen & Steers has three overall objectives in exercising voting rights:
· Responsibility. Cohen & Steers shall seek to ensure that there is an effective means in place to hold companies accountable for their actions. While management must be accountable to its board, the board must be accountable to a companys shareholders. Although accountability can be promoted in a variety of ways, protecting shareholder voting rights may be among our most important tools.
· Rationalizing Management and Shareholder Concerns. Cohen & Steers seeks to ensure that the interests of a companys management and board are aligned with those of the companys shareholders. In this respect, compensation must be structured to reward the creation of shareholder value.
· Shareholder Communication. Since companies are owned by their shareholders, Cohen & Steers seeks to ensure that management effectively communicates with its owners about the companys business operations and financial performance. It is only with effective communication that shareholders will be able to assess the performance of management and to make informed decisions on when to buy, sell or hold a companys securities.
General Principles
In exercising voting rights, Cohen & Steers shall conduct itself in accordance with the general principles set forth below.
· The ability to exercise a voting right with respect to a security is a valuable right and, therefore, must be viewed as part of the asset itself.
· In exercising voting rights, Cohen & Steers shall engage in a careful evaluation of issues that may materially affect the rights of shareholders and the value of the security.
· Consistent with general fiduciary principles, the exercise of voting rights shall always be conducted with reasonable care, prudence and diligence.
· In exercising voting rights on behalf of clients, Cohen & Steers shall conduct itself in the same manner as if Cohen & Steers were the constructive owner of the securities.
· To the extent reasonably possible, Cohen & Steers shall participate in each shareholder voting opportunity.
· Voting rights shall not automatically be exercised in favor of management-supported proposals.
· Cohen & Steers, and its officers and employees, shall never accept any item of value in consideration of a favorable proxy voting decision.
General Guidelines
Set forth below are general guidelines that Cohen & Steers shall follow in exercising proxy voting rights:
· Prudence. In making a proxy voting decision, Cohen & Steers shall give appropriate consideration to all relevant facts and circumstances, including the value of the securities to be voted and the likely effect any vote may have on that value. Since voting rights must be exercised on the basis of an informed judgment, investigation shall be a critical initial step.
· Third Party Views. While Cohen & Steers may consider the views of third parties, Cohen & Steers shall never base a proxy voting decision solely on the opinion of a third party. Rather, decisions shall be based on a reasonable and good faith determination as to how best to maximize shareholder value.
· Shareholder Value. Just as the decision whether to purchase or sell a security is a matter of judgment, determining whether a specific proxy resolution will increase the market value of a security is a matter of judgment as to which informed parties may differ. In determining how a proxy vote may affect the economic value of a security, Cohen & Steers shall consider both short-term and long-term views about a companys business and prospects, especially in light of our projected holding period on the stock (e.g., Cohen & Steers may discount long-term views on a short-term holding).
Specific Guidelines
Uncontested Director Elections
Votes on director nominees should be made on a case-by-case basis using a mosaic approach, where all factors are considered in director elections and where no single issue is deemed to be determinative. For example, a nominees experience and business judgment may be critical to the long-term success of the portfolio company, notwithstanding the fact that he or she may serve on the board of more than four public companies. In evaluating nominees, we consider the following factors:
· Whether the nominee attended less than 75 percent of the board and committee meetings without a valid excuse for the absences;
· Whether the nominee is an inside or affiliated outside director and sits on the audit, compensation, or nominating committees;
· Whether the board ignored a significant shareholder proposal that was approved by a majority of the votes cast in the previous year;
· Whether the board, without shareholder approval, to our knowledge instituted a new poison pill plan, extended an existing plan, or adopted a new plan upon the expiration of an existing plan during the past year;
· Whether the nominee is an inside or affiliated outside director and the full board serves as the audit, compensation, or nominating committee or the company does not have one of these committees;
· Whether the nominee is an insider or affiliated outsider on boards that are not at least majority independent;
· Whether the nominee is the CEO of a publicly-traded company who serves on more than two public boards;
· Whether the nominee is the chairperson of a publicly-traded company who serves on more than two public boards;
· Whether the nominee serves on more than four public company boards;
· Whether the nominee serves on the audit committee where there is evidence (such as audit reports or reports mandated under the Sarbanes Oxley Act) that there exists material weaknesses in the companys internal controls;
· Whether the nominee serves on the compensation committee if that director was present at the time of the grant of backdated options or options the pricing or the timing of which we believe may have been manipulated to provide additional benefits to executives;
· Whether the nominee has a material related party transaction or is believed by us to have a material conflict of interest with the portfolio company;
· Whether the nominee (or the overall board) in our view has a record of making poor corporate or strategic decisions or has demonstrated an overall lack of good business judgment, including, among other things, whether the companys total shareholder return is in the bottom 25% of its peer group over the prior five years;
· Material failures of governance, stewardship, risk oversight(1), or fiduciary responsibilities at the company;
(1) Examples of failure of risk oversight include, but are not limited to: bribery; large or serial fines from regulatory bodies; significant adverse legal judgments or settlements; hedging of company stock by the employees or directors of a company; or significant pledging of company stock in the aggregate by the officers and directors of a company.
· Failure to replace management as appropriate; and
· Egregious actions related to a directors service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company.
Proxy Access
We recognize the importance of shareholder access to the ballot process as a means to ensure that boards do not become self-perpetuating and self-serving. However, we are also aware that some proposals may promote certain interest groups and could be disruptive to the nomination process. We vote on a case-by-case basis considering the proxy access terms in light of a companys specific circumstances and we may support proxy access proposals when management and boards have displayed a lack of shareholder accountability.
Proxy Contests
Director Nominees in a Contested Election
By definition, this type of board candidate or slate runs for the purpose of seeking a significant change in corporate policy or control. Therefore, the economic impact of the vote in favor of or in opposition to that director or slate must be analyzed using a higher standard such as is normally applied to changes in control. Criteria for evaluating director nominees as a group or individually should also include: the underlying reason why the new slate (or individual director) is being proposed; performance; compensation; corporate governance provisions and takeover activity; criminal activity; attendance at meetings; investment in the company; interlocking directorships; inside, outside and independent directors; number of other board seats; and other experience. It is impossible to have a general policy regarding director nominees in a contested election.
Reimbursement of Proxy Solicitation Expenses
Decisions to provide full reimbursement for dissidents waging a proxy contest should be made on a case-by-case basis. In the absence of compelling reasons, Cohen & Steers will generally not support such proposals.
Ratification of Auditors
We vote for proposals to ratify auditors, auditor remuneration and/or proposals authorizing the board to fix audit fees, unless:
· an auditor has a financial interest in or association with the company, and is therefore not independent;
· there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the companys financial position;
· the name of the proposed auditor and/or fees paid to the audit firm are not disclosed by the company in a timely manner prior to the meeting;
· the auditors are being changed without explanation; or
· fees paid for non-audit related services are excessive and/or exceed limits set in local best practice recommendations or law.
In circumstances where fees for non-audit services include fees related to significant one-time capital structure events; initial public offerings; bankruptcy emergence, and spinoffs; and the company makes public disclosure of the amount and nature of those fees, then such fees may be excluded from the non-audit fees considered in determining whether non-audit related fees are excessive.
We vote on a case-by-case basis on auditor rotation proposals. Criteria for evaluating the rotation proposal include, but are not limited to: tenure of the audit firm; establishment and disclosure of a renewal process whereby the auditor is regularly evaluated for both audit quality and competitive price; length of the rotation period advocated in the proposal; and any significant audit related issues.
Generally, we vote against auditor indemnification and limitation of liability; however we recognize there may be situations where indemnification and limitations on liability may be appropriate.
Takeover Defenses
While we recognize that a takeover attempt can be a significant distraction for the board and management to deal with, the simple fact is that the possibility of a corporate takeover keeps management focused on maximizing shareholder value. As a result, Cohen & Steers opposes measures that are designed to prevent or obstruct corporate takeovers because they can entrench current management. The following are our guidelines on change of control issues:
Shareholder Rights Plans
We acknowledge that there are arguments for and against shareholder rights plans, also known as poison pills. Companies should put their case for rights plans to shareholders.
We review on a case-by-case basis management proposals to ratify a poison pill. We generally look for shareholder friendly features including a two- to three-year sunset provision, a permitted bid provision and a 20 percent or higher flip-in provision.
Greenmail
We vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a companys ability to make greenmail payments.
Unequal Voting Rights
Generally, we vote against dual-class recapitalizations as they offer an effective way for a firm to thwart hostile takeovers by concentrating voting power in the hands of management or other insiders. We support the one-share, one-vote principle for voting.
Classified Boards
We generally vote in favor of shareholder proposals to declassify a board of directors, although we acknowledge that a classified board may be in the long-term best interests of the shareholders of a company in certain situations, such as continuity of a strong board and management team or for certain types of companies. In voting on shareholder proposals to declassify a board of directors, we evaluate all
facts and circumstances surrounding such proposal, including whether: (i) the current management and board have a track record of making good corporate or strategic decisions, (ii) the shareholder proposing the de-classification has an agenda in making such proposal that may be at odds with the long-term best interests of the shareholders of the company, or (iii) it would be in the best interests of the company to thwart a shareholders attempt to control the board of directors.
Cumulative Voting
Having the ability to cumulate our votes for the election of directors that is, cast more than one vote for a director about whom they feel strongly generally increases shareholders rights to effect change in the management of a corporation. However, we acknowledge that cumulative voting promotes special candidates who may not represent the interests of all, or even a majority, of shareholders. In voting on proposals to institute cumulative voting, we therefore evaluate all facts and circumstances surrounding such proposal and we generally vote against cumulative voting where the company has good corporate governance practices in place, including majority voting for board elections and de-classified boards.
Shareholder Ability to Call Special Meeting
Cohen & Steers votes on a case-by-case basis for shareholder proposals requesting companies to amend their governance documents (bylaws and/or charter) in order to allow shareholders to call special meetings. We recognize the importance on shareholder ability to call a special meeting and generally will vote for such shareholder proposals where the shareholder(s) making such proposal hold at least 20% of the companys outstanding shares. However, we are also aware that some proposals are put forth in order to promote the agenda(s) of certain special interest groups and could be disruptive to the management of the company, and in those cases we will vote against such shareholder proposals.
Shareholder Ability to Act by Written Consent
We generally vote against proposals to allow or facilitate shareholder action by written consent. The requirement that all shareholders be given notice of a shareholders meeting and matters to be discussed therein seems to provide a reasonable protection of minority shareholder rights.
Shareholder Ability to Alter the Size of the Board
We generally vote for proposals that seek to fix the size of the board and vote against proposals that give management the ability to alter the size of the board without shareholder approval. While we recognize the importance of such proposals, we are however also aware that these proposals are sometimes put forth in order to promote the agenda(s) of certain special interest groups and could be disruptive to the management of the company.
Miscellaneous Board Provisions
Board Committees
Boards should delegate key oversight functions, such as responsibility for audit, nominating and compensation issues, to independent committees. The chairman and members of any committee should be clearly identified in the annual report. Any committee should have the authority to engage independent advisors where appropriate at the companys expense.
Audit, nominating and compensation committees should consist solely of non-employee directors, who are independent of management.
Independent Chairman
We review on a case-by-case basis proposals requiring that the chairmans position be filled by an independent director, taking into consideration the companys current board leadership and governance structure; company performance, and any other factors that may be applicable.
Separate Chairman and CEO Role
We will generally