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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: 811-21437
Cohen & Steers REIT and Utility Income Fund, Inc.
(Exact name of registrant as specified in charter)
757 Third Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
Robert H. Steers
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 832-3232
Date of fiscal year end: December 31
Date of reporting period: June 30, 2004
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Item 1. Reports to Stockholders.
The registrant's semi-annual report to shareholders, for the period ended June
30, 2004 is included herein.
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the registrant
in this Form N-CSR was recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange
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Commission's rules and forms, based upon such officers' evaluation of these
controls and procedures as of a date within 90 days of the filing date of this
report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits.
(a) (2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of chief executive officer and chief financial officer as
required by Rule 30a-2(b) under the Investment Company Act of 1940.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
By: /s/ Robert H. Steers
-------------------------------
Name: Robert H. Steers
Title: Chairman
Date: August 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert H. Steers By: /s/ Martin Cohen
------------------------------- ---------------------------------------
Name: Robert H. Steers Name: Martin Cohen
Title: Chairman, Secretary Title: President, Treasurer
and principal executive officer and principal financial officer
Date: August 19, 2004
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
July 26, 2004
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers REIT and
Utility Income Fund for the quarter and period ended June 30, 2004. The net
asset value at that date was $18.24 per share. During the quarter, three $0.105
per share monthly dividends were paid to common shareholders.
INVESTMENT REVIEW
For the quarter, Cohen & Steers REIT and Utility Income Fund had a total
return, based on income and change in net asset value, of -5.1%, compared to
the NAREIT Equity REIT Index's(a) total return of -5.8% and the S&P Utilities
Index'sa total return of -1.3%. For the period January 30, 2004 (commencement
of operations) through June 30, 2004, the fund's total return was -2.2%,
compared to NAREIT's total return of 1.8% and the S&P Utilities Index's total
return of 1.5%.
The second quarter began with a dramatic decline in REIT stock prices and a
lesser decline in utility stocks, followed by a dramatic rebound. By way of
review, the March jobs report took the capital markets by surprise on April 2
and sent the bond market reeling, resulting in the worst quarter for the bond
market since the first quarter of 1994. REITs and utilities dropped 18% and 8%,
respectively, from their highs at the end of March, before bottoming in mid May.
We characterized this decline as technical in nature, driven by the valuation
concerns of some investors, and one that we believed presented an attractive
investment opportunity. We are pleased to report that since the middle of May,
REITs and utilities have rebounded significantly. REITs recorded a 14% total
return from May 10 through the end of June, and were one of the best performing
asset classes over this time period, while utilities posted a 6% total return
over the same time period.
While both asset classes offer the potential for attractive current income,
REITs and utilities are not highly correlated to each other, and in our view
utilities had a steadying effect during the dramatic decline in REIT share
prices. At the beginning of the quarter we initially emphasized utilities, as we
believed that they offered better relative value than REITs. The asset mix of
the fund as of March 31, 2004 consisted of 44% utility common stocks, 26% REIT
common stocks and 10% preferred and other fixed income investments (with the
remaining 20% in cash, proceeds from the fund's issuance of auction market
preferred securities). Our patience served us well and as REIT share prices
declined early in the quarter we increased our REIT holdings. We also began to
find more attractive preferred investment opportunities, particularly in REIT
preferreds, due to the concern about rising interest rates. Therefore, since our
last report we have positioned the portfolio to have a greater allocation to
REIT
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(a) The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly traded REITs that invest predominantly in the equity
ownership of real estate. The index is designed to reflect the performance
of all publicly traded equity REITs as a whole. The S&P Utilities Index is
an unmanaged, market capitalization weighted index of 33 companies whose
primary business involves the generation, transmission, and/or distribution
of electricity and/or natural gas.
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
common stocks and preferreds as reflected in the fund's asset mix as of
June 30, 2004: 41% REIT common stocks, 40% utility common stocks, and 18%
preferred and other fixed income investments (with the remaining 1% in cash).
While many observers have focused intently on the recent volatility in REIT
share prices, the more interesting story, in our view, is a rotation of sector
leadership. The defensive issues, which had led the REIT group since 2001, have
ceded their market leadership to the more cyclically inclined companies that
will respond to the economic recovery most quickly and most dramatically. The
broad distribution of returns across sectors during the quarter highlights in
greater detail this leadership change, as well as the above-average volatility
experienced during the quarter. The best performing sectors were apartment and
hotel, which generated total returns of 2.2% and -2.6% respectively.
Conversely, the worst performing sectors during the quarter were health care
(-13.4% total return) and regional mall (-11.5%). The obvious difference
between the two groups is the short lease duration and more variable demand
patterns of the strong performing cyclical sectors versus the long lease terms
and relatively consistent demand profiles of the laggards, which tend not to
respond quickly to accelerating economic growth.
The fund's best performing REIT investments during the quarter were in the
apartment and office/industrial sectors, which produced total returns of -0.8%
and -2.5% respectively, while the worst performing sector for the fund was the
regional mall sector, which had a -16.6% total return. Apartment companies
Amli Residential Properties Trust and Mid-America Apartment Communities were the
fund's best performing REIT holdings, contributing total returns of 5.7% and
3.9% respectively. Laggards during the quarter included HealthCare REIT, with a
total return of -18.5% and Glimcher Realty Trust, which generated a total
return of -16.6%.
Within the utility sector, the integrated natural gas sector performed best
during the quarter with a 3.2% total return. Integrated natural gas companies
continue to benefit from strong natural gas and crude oil pricing which leads to
higher profits in the exploration and production business. Natural gas
distribution utilities, which are primarily engaged in the state regulated
distribution of natural gas, were helped by their modest exposure to exploration
and production and produced a 0.7% total return. Integrated electric utilities,
which generate, transmit and distribute electricity through regulated and
unregulated companies, had a total return of -0.8% during the quarter. As a
more interest-rate-sensitive sector, electric distribution utility share prices
were hurt by concern over rising rates, resulting in a total return of - 4.1%.
The fund's best performing utility investments during the quarter were in
the natural gas distribution and integrated natural gas sectors, which produced
total returns of 1.4% and -2.8% respectively, while the worst performing
utility sector for the fund was the electric distribution sector, which had a
- -7.8% total return. Pinnacle West Capital Corporation and PPL Corp. were the
fund's best performing utility holdings, contributing total returns of 3.8% and
1.6% respectively. Laggards during the quarter included Public Service
Enterprise Group, with a total return of -13.6% and Pepco Holdings, which
generated a total return of -9.3%.
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
REIT OUTLOOK
In the wake of the REIT stock price decline in the second quarter, many
investors have asked us whether REITs can continue to perform well in what many
are concerned (overly so, in our view) may be a period of rising interest rates.
Our view continues to be that real estate fundamentals are the primary
driver of REIT returns over the long run. Still, we regularly examine the extent
to which REITs are correlated with other asset classes. We have found that over
the long term REIT share price behavior has not been statistically related in
any material way to the performance of bonds or interest rates. In other words,
over time, the performance of the bond market has explained virtually none of
the performance of REITs.
Over the short term, REITs may appear to correlate with interest rates, as
we have seen recently. However, although we can say with certainty that rising
rates result in poor returns for bonds, the REIT return equation cannot be
solved using interest rates as the only input variable. Importantly, we have
also found that in the 12 months following periods of rising interest rates, as
the dampening effect of higher interest rates on security returns has subsided
and the acceleration of real estate fundamentals has kicked in, REIT performance
historically has been consistently very strong.
Nonetheless, we cannot ignore the fact that interest rates can have an
impact on REIT earnings and asset values. Higher interest rates can increase the
cost of REITs' debt capital over time, although the impact should be
substantially mitigated by most REITs' use of primarily long-term, fixed-rate
debt. Higher interest rates may also result in higher real estate capitalization
rates, which would tend to lower estimates of property values. If interest rates
are rising due to a stronger economy and attendant higher inflationary
expectations, this in our view makes real estate investments less risky, most
likely offsetting some or all of the impact that higher interest rates would
otherwise have on capitalization rates.
Our conclusion is that, although changes in interest rates have a varied
impact on REITs, the positive and negative impacts have historically tended to
offset one another, such that the overall impact on REIT returns has not
generally been material, thus, the historical lack of correlation. What remains
material is the supply and demand for real estate and how that impacts building
occupancies and rents. The most important thing to recognize about the prospects
for REIT returns is that the job growth that occurred in March of this year was
followed up with continued strong job growth in both April and May, establishing
that the economic recovery in the United States is strong and sustainable. With
this key economic driver in place, we believe the prospects for higher building
occupancies and rents, and thus for higher cash flows for REITs, are excellent.
At this point, with the first dose of Fed tightening already under our belts
and a further rise in interest rates widely anticipated among economists and
investors alike, it is safe to say that whatever impact investors believe rising
interest rates may have on REITs has been well digested by the stock market. The
net effect has been to bring REIT valuations in line with historical averages.
In our view, the favorable prospects for accelerating cash flow growth over the
next couple of years in combination with these valuations give us confidence
that REITs can continue to generate attractive total returns.
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3
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
UTILITY OUTLOOK
We believe the utility sector is poised for a period of sustained recovery
after several challenging years. Beginning in the late 1990s, many utilities
made significant investments in unregulated businesses, mainly merchant power
plants. An aggressive industry-wide construction trend led to a severe
oversupply of the power plants. Unlike the regulated utility business, where
power prices are set by state regulation, the supply/demand imbalance in the
wholesale market led to a collapse in wholesale power prices and financial
troubles for utilities that were unable to service the debt used to fund their
construction programs.
Many utilities have moved aggressively to exit poorly performing unregulated
investments and refocus on improving the operating efficiencies of their core
regulated utility franchises. At the same time, many companies have made
substantial progress in strengthening balance sheets and free cash flow. Balance
sheets are stronger after the issuance of over $50 billion in equity over the
last three years. We also believe the cash flow profile of most utilities is
improving dramatically with the decline in unregulated capital expenditures. For
the first time in many years we expect the utility sector to turn free cash flow
positive in 2004.
With an improving cash flow profile, declining business risk and relatively
low dividend payout ratios, we believe that managements now have the flexibility
to continue dividend growth after several years of declining dividend payments.
Several utilities raised their dividends substantially over the last year, and
we believe this trend will continue. For the year ended March 31, 2004, 40
companies raised their dividends by an average of 8.6%. We expect continued
strong dividend growth in the sector. The average utility dividend payout ratio,
59% currently, is low relative to the long-term historical average of 70%.
We have concentrated our portfolio in companies that have above-average
dividend yields and the potential for growth in earnings and dividends. We are
focusing on the more highly regulated utilities that have above average credit
quality (all of the companies in our portfolio have investment grade senior debt
ratings). Companies with these characteristics offer the potential for greater
stability of earnings and dividends, in our view.
Industry participants have debated how utilities will perform if the
improvement in the economy is accompanied by rising interest rates. In our view,
there is a misconception that utility stocks will lag the market if interest
rates move higher. The historical data show that utilities have exhibited a very
low correlation to 10-year Treasury bonds. For the ten years ended May 31, this
correlation was just 0.16. We believe that in periods when utilities have
reacted poorly to rising rates, the performance was largely driven by very
negative sector-specific factors. Some examples include: the energy crisis of
the early 1970s, when most utilities suffered from the lack of a fuel cost
pass-through mechanism that most companies now enjoy; the early 1990s onset of
deregulation, when there was widespread fear that the industry would experience
profit erosion under competition; the stock market bubble of the late 1990s when
utilities performed poorly along with other value and income oriented sectors.
Excluding these periods, the utility sector has generally performed in line with
the stock market during periods of rising interest rates.
While both REITs and utilities exhibited uncharacteristic volatility during
the second quarter, we are encouraged by the prospects for the fund to continue
to meet its primary income objective while offering the
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4
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
potential for capital appreciation. In fact, both REITs and utilities are in the
beginning phase of what we believe could be a multi-year trend of improving
fundamentals. For the first time in several years an expanding employment
picture is beginning to drive increased demand for many types of real estate.
The utility sector is also in the early stages of what could be a sustained
period of improving fundamentals, in our opinion, as excesses and missteps of
the prior cycle give way to a return to a renewed focus on core utility
businesses, conservative balance sheets and increasing dividend payouts. We
believe the improved fundamental outlook for each sector should enable us to
deliver our investment objectives of attractive current income, capital
appreciation, and diversification.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
GREG E. BROOKS WILLIAM F. SCAPELL
GREG E. BROOKS WILLIAM F. SCAPELL
Portfolio Manager Portfolio Manager
ROBERT BECKER
ROBERT BECKER
Portfolio Manager
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Cohen & Steers is online at cohenandsteers.com
We have enhanced both the look and features of our Web site
to give you more information about our company and our
funds. Try the Fund Performance Calculator and see how our
funds have performed versus the S&P 500 Index or Nasdaq
Composite. As always, you can also get daily net asset
values, fund fact sheets, portfolio highlights and recent
news articles.
So visit us today at cohenandsteers.com
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
OUR LEVERAGE STRATEGY
(UNAUDITED)
While we do not attempt to predict what future interest
rates will be, it has been our philosophy to utilize
interest rate swap transactions to seek to reduce the
interest rate risk inherent in our utilization of leverage.
Our leverage strategy involves issuing auction market
preferred shares (AMPS) to raise additional capital for the
fund, with an objective of increasing the net income
available for shareholders. As of June 30, 2004, AMPS
represented 35% of the fund's managed net assets.
Considering that AMPS have variable dividend rates, we seek
to lock in the rate on a majority of this additional capital
through interest rate swap agreements (where we effectively
convert our variable rate obligation to a fixed rate
obligation for the term of the swap agreements).
Specifically, we have fixed the rate on 65% of our leverage
at an average interest rate of 3.5%, for an average
remaining period of 4.6 years. By locking in a large portion
of our leveraging costs, we have endeavored to adequately
protect the dividend-paying ability of the fund. The use of
leverage increases the volatility of the fund's net asset
value in both up and down markets. However, we believe that
locking in a portion of the fund's leveraging costs for the
term of the swap agreements partially protects the fund from
any impact that an increase in short-term interest rates may
have as a result of the use of leverage. Subsequent to
quarter-end, we entered into additional interest rate swap
agreements, and we are currently contemplating whether or
not to enter into further interest rate swap agreements.
LEVERAGE FACTS
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Leverage (as % of managed net assets)............... 35%
% Fixed Rate........................................ 65%
% Variable Rate..................................... 35%
Average Rate on Swaps............................... 3.5%
Average Term on Swaps............................... 4.8 years
Current Rate on AMPS................................ 1.5%
</Table>
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- -------------- ------------
COMMON STOCK 123.98%(b)
DIVERSIFIED 5.82%
Colonial Properties Trust............. 78,500 $ 3,024,605 6.96%
iStar Financial....................... 1,002,700 40,108,000 6.98
Lexington Corporate Properties
Trust.............................. 969,600 19,304,736 7.03
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62,437,341
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HEALTH CARE 7.71%
Health Care Property Investors........ 758,600 18,236,744 6.95
Health Care REIT...................... 467,500 15,193,750 7.38
Nationwide Health Properties.......... 2,113,900 39,952,710 7.83
Ventas................................ 400,000 9,340,000 5.57
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82,723,204
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HOTEL 5.71%
Hospitality Properties Trust.......... 1,449,300 61,305,390 6.81
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INDUSTRIAL 3.23%
First Industrial Realty Trust......... 941,400 34,718,832 7.43
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MORTGAGE 3.25%
Newcastle Investment Corp............. 1,164,400 34,873,780 8.01
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OFFICE 15.98%
Arden Realty.......................... 975,300 28,683,573 6.87
Brandywine Realty Trust............... 356,200 9,685,078 6.47
CarrAmerica Realty Corp............... 150,000 4,534,500 6.62
Equity Office Properties Trust........ 2,654,600 72,205,120 7.35
HRPT Properties Trust................. 3,089,700 30,927,897 7.99
Kilroy Realty Corp.................... 45,600 1,554,960 5.81
Mack-Cali Realty Corp................. 170,500 7,055,290 6.09
Prentiss Properties Trust............. 504,600 16,914,192 6.68
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171,560,610
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</Table>
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(a) Dividend yield is computed by dividing the security's current annual
dividend rate by the last sale price on the principal exchange, or
market, on which such security trades.
(b) Percentages indicated are based on net assets of the fund.
See accompanying notes to financial statements.
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
OFFICE/INDUSTRIAL 3.16%
Liberty Property Trust................ 9,300 $ 373,953 6.02%
Mission West Properties............... 42,700 517,097 7.93
Reckson Associates Realty Corp........ 1,204,600 33,078,316 6.18
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33,969,366
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RESIDENTIAL 11.92%
APARTMENT 11.10%
AMLI Residential Properties Trust..... 1,002,100 29,401,614 6.54
Apartment Investment & Management
Co................................. 216,100 6,727,193 7.71
Archstone-Smith Trust................. 350,000 10,265,500 5.86
Gables Residential Trust.............. 780,700 26,528,186 7.09
Home Properties....................... 615,400 23,988,292 6.36
Mid-America Apartment Communities..... 188,700 7,149,843 6.18
Town & Country Trust.................. 600,000 15,144,000 6.81
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119,204,628
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MANUFACTURED HOME 0.82%
Affordable Residential Communities.... 362,900 6,024,140 7.53
Sun Communities....................... 75,000 2,823,750 6.48
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8,847,890
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TOTAL RESIDENTIAL..................... 128,052,518
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SELF STORAGE 0.55%
Sovran Self Storage................... 154,900 5,914,082 6.31
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SHOPPING CENTER 5.57%
COMMUNITY CENTER 2.54%
Heritage Property Investment Trust.... 250,000 6,765,000 7.76
Kramont Realty Trust.................. 52,200 835,200 8.13
New Plan Excel Realty Trust........... 841,900 19,666,784 7.06
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27,266,984
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FREE STANDING 2.40%
Commercial Net Lease Realty........... 1,500,300 25,805,160 7.44
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</Table>
See accompanying notes to financial statements.
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
REGIONAL MALL 0.63%
Glimcher Realty Trust................. 305,500 $ 6,757,660 8.69%
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TOTAL SHOPPING CENTER................. 59,829,804
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UTILITY 61.08%
ELECTRIC -- DISTRIBUTION 8.62%
Consolidated Edison................... 1,261,900 50,173,144 5.68
Energy East Corp...................... 602,100 14,600,925 4.29
NSTAR................................. 93,000 4,452,840 4.64
Pepco Holdings........................ 1,275,800 23,321,624 5.47
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92,548,533
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ELECTRIC -- INTEGRATED 47.16%
Ameren Corp........................... 1,431,400 61,492,944 5.91
American Electric Power Co............ 628,100 20,099,200 4.38
Cinergy Corp.......................... 1,711,000 65,018,000 4.95
DTE Energy Co......................... 1,193,100 48,368,274 5.08
Dominion Resources.................... 369,800 23,326,984 4.09
Entergy Corp.......................... 506,600 28,374,666 3.21
Exelon Corp........................... 802,400 26,711,896 3.30
FirstEnergy Corp...................... 412,300 15,424,143 4.01
Hawaiian Electric Industries.......... 550,200 14,360,220 4.75
PPL Corp.............................. 329,500 15,124,050 3.57
Pinnacle West Capital Corp............ 497,500 20,094,025 4.46
Progress Energy....................... 1,269,500 55,921,475 5.22
Public Service Enterprise Group....... 1,179,500 47,215,385 5.50
Southern Co........................... 2,227,000 64,917,050 4.80
--------------
506,448,312
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GAS -- DISTRIBUTION 0.52%
Atmos Energy Corp..................... 217,700 5,573,120 4.77
--------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
GAS -- INTEGRATED 4.78%
KeySpan Corp.......................... 931,600 $ 34,189,720 4.85%
Puget Energy.......................... 782,300 17,140,193 4.56
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51,329,913
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TOTAL UTILITY......................... 655,899,878
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TOTAL COMMON STOCK
(Identified cost --
$1,367,311,657)................ 1,331,284,805
--------------
PREFERRED SECURITIES -- $25 PAR VALUE 20.25%
BANK 0.16%
Colonial Capital Trust IV, 7.875%..... 56,300 1,458,170 7.60
Zions Capital Trust, 8.00%,
Series B........................... 10,000 260,500 7.68
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1,718,670
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FINANCE 0.51%
AUTO LOAN 0.08%
Ford Motor Credit Co., 7.60%.......... 38,000 950,380 7.60
--------------
CREDIT CARD 0.41%
MBNA Capital, 8.125%, Series D
(TruPS)............................ 105,142 2,702,149 7.90
MBNA Capital, 8.10%, Series E
(TOPrS)............................ 64,000 1,664,000 7.78
--------------
4,366,149
--------------
DIVERSIFIED FINANCIAL SERVICES 0.02%
USB Capital IV, 7.35%................. 7,200 183,600 7.21
--------------
TOTAL FINANCE......................... 5,500,129
--------------
INSURANCE 0.10%
PROPERTY/CASUALTY 0.06%
St. Paul Capital Trust I, 7.60%
(TruPS)............................ 24,300 625,725 7.38
--------------
REINSURANCE -- FOREIGN 0.04%
PartnerRE Capital Trust I, 7.90%...... 9,600 248,160 7.64
RenaissanceRE Holdings Ltd., 8.10%,
Series A........................... 5,800 150,800 7.79
--------------
398,960
--------------
TOTAL INSURANCE....................... 1,024,685
--------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
MEDIA 0.75%
CABLE TELEVISION 0.54%
Shaw Communications, 8.45%, Series A
(COPrS)............................ 109,200 $ 2,740,920 8.42%
Shaw Communications, 8.50%, Series B
(COPrS)............................ 122,500 3,072,300 8.47
--------------
5,813,220
--------------
DIVERSIFIED SERVICES 0.21%
Liberty Media Corp., 8.75% (CBTCS).... 30,100 799,456 8.24
Liberty Media Corp., 8.75% (PPLUS).... 55,700 1,492,760 8.19
--------------
2,292,216
--------------
TOTAL MEDIA........................... 8,105,436
--------------
REAL ESTATE 16.77%
DIVERSIFIED 3.05%
Bedford Property Investors, 7.625%,
Series B........................... 277,500 6,660,000 7.94
Forest City Enterprises, 7.375%,
Class A............................... 496,000 11,556,800 7.91
iStar Financial, 7.875%, Series E..... 227,500 5,630,625 7.95
iStar Financial, 7.65%, Series G...... 77,000 1,865,325 7.90
iStar Financial, 7.50%, Series I...... 250,000 5,810,000 8.07
Lexington Corporate Properties Trust,
8.05%, Series B.................... 50,000 1,256,500 8.01
--------------
32,779,250
--------------
HEALTH CARE 2.70%
Health Care Property Investors, 7.25%,
Series E........................... 7,000 173,180 7.33
Health Care Property Investors, 7.10%,
Series F........................... 10,000 242,400 7.32
Health Care REIT, 7.875%, Series D.... 52,000 1,302,600 7.86
LTC Properties, 8.00%, Series F....... 600,000 14,700,000 8.16
Omega Healthcare Investors, 8.375%,
Series D........................... 500,000 12,550,000 8.34
--------------
28,968,180
--------------
HOTEL 0.79%
Host Marriott Corp., 8.875%,
Series E........................... 80,000 2,036,000 8.72
Innkeepers USA, 8.00%, Series C....... 211,300 5,092,330 8.30
LaSalle Hotel Properties, 10.25%,
Series A........................... 50,000 1,338,750 9.57
--------------
8,467,080
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
OFFICE 4.69%
Alexandria Real Estate Equities,
8.375%, Series C................... 360,200 $ 9,185,100 8.21%
Brandywine Realty Trust, 7.375%,
Series D........................... 27,500 679,250 7.72
Brandywine Realty Trust, 7.50%,
Series C........................... 123,600 3,003,480 7.46
Corporate Office Properties Trust,
8.00%, Series G.................... 8,300 207,500 8.00
CRT Properties, 8.50%, Series A....... 102,300 2,629,110 8.27
Equity Office Properties Trust, 7.75%,
Series G........................... 24,600 627,300 7.60
Highwoods Properties, 8.00%,
Series B........................... 98,550 2,412,504 8.17
Highwoods Properties, 8.00%,
Series D........................... 26,300 637,775 8.25
Kilroy Realty Corp., 7.80%,
Series E........................... 96,800 2,381,280 7.93
Maguire Properties, 7.625%,
Series A........................... 590,400 14,258,160 7.89
SL Green Realty Corp., 7.625%,
Series C........................... 424,500 10,612,500 7.63
SL Green Realty Corp., 7.875%,
Series D........................... 150,100 3,752,500 7.88
--------------
50,386,459
--------------
OFFICE/INDUSTRIAL 0.82%
PS Business Parks, 7.00%, Series H.... 44,100 994,455 7.76
PS Business Parks, 6.875%, Series I... 246,900 5,429,331 7.82
PS Business Parks, 7.95%, Series K.... 60,000 1,497,000 7.97
Reckson Associates Realty Corp.,
7.625%, Series A................... 31,400 819,540 7.32
--------------
8,740,326
--------------
RESIDENTIAL 1.63%
APARTMENT 0.19%
Gables Residential Trust, 7.50%,
Series D........................... 45,200 1,120,960 7.56
Mid-America Apartment Communities,
8.30%, Series H.................... 38,100 958,215 8.25
--------------
2,079,175
--------------
MANUFACTURED HOME 1.44%
Affordable Residential Communities,
8.25%, Series A.................... 600,000 15,450,000 8.25
--------------
TOTAL RESIDENTIAL..................... 17,529,175
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
SHOPPING CENTER 2.17%
COMMUNITY CENTER 1.64%
Developers Diversified Realty Corp.,
8.00%, Series G.................... 26,300 $ 668,020 7.87%
Developers Diversified Realty Corp.,
7.375%, Series H................... 2,500 60,550 7.61
Developers Diversified Realty Corp.,
7.50%, Series I.................... 300,000 7,197,000 8.06
Kramont Realty Trust, 8.25%,
Series E........................... 260,000 6,552,000 8.18
Realty Income Corp., 7.375%,
Series D........................... 26,700 678,180 7.26
Saul Centers, 8.00%, Series A......... 96,300 2,455,650 7.84
--------------
17,611,400
--------------
REGIONAL MALL 0.53%
CBL & Associates Properties, 7.75%,
Series C........................... 98,800 2,498,652 7.66
Mills Corp., 9.00%, Series C.......... 109,400 2,901,835 8.52
Mills Corp., 8.75%, Series E.......... 12,400 325,004 8.35
--------------
5,725,491
--------------
TOTAL SHOPPING CENTER................. 23,336,891
--------------
SELF STORAGE 0.03%
Public Storage, 8.00%, Series R....... 8,600 220,590 7.80
Public Storage, 7.875%, Series S...... 2,100 53,844 7.68
--------------
274,434
--------------
SPECIALTY 0.89%
Capital Automotive REIT, 7.50%,
Series A........................... 50,000 1,192,500 7.95
Capital Automotive REIT, 6.75%,
Series A........................... 150,000 3,328,500 7.60
Capital Automotive REIT, 8.00%,
Series B........................... 200,000 5,038,000 8.25
--------------
9,559,000
--------------
TOTAL REAL ESTATE................ 180,040,795
--------------
TELECOMMUNICATION SERVICES 0.01%
Telephone & Data Systems, 7.60%,
Series A........................... 5,300 132,871 7.58
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- -------------- ------------
UTILITY 1.95%
ELECTRIC -- INTEGRATED 1.90%
Consolidated Edison, 7.25% (PINES).... 12,700 $ 328,168 7.01%
Dominion Resources Capital Trust II,
8.40%, Series...................... 6,800 179,724 7.95
Energy East Capital Trust I, 8.25%.... 48,200 1,258,020 7.90
EIX Trust I, 7.875%, Series A......... 590,000 14,797,200 7.85
EIX Trust II, 8.60%, Series B,
(QUIPS)............................ 93,800 2,365,636 8.52
Northern States Power Company, 8.00%
(PINES)............................ 9,500 248,425 7.65
PSEG Funding Trust II, 8.75%,
Series............................. 8,500 229,840 8.06
Puget Sound Energy Capital Trust II,
8.40% (TOPrS)...................... 39,100 1,007,998 8.15
--------------
20,415,011
--------------
GAS -- DISTRIBUTION 0.05%
AGL Capital Trust II, 8.00%........... 9,900 258,786 7.65
Laclede Capital Trust I, 7.70%
(TOPrS)............................ 10,000 262,500 7.33
--------------
521,286
--------------
TOTAL UTILITY......................... 20,936,297
--------------
TOTAL PREFERRED SECURITIES -- $25
PAR VALUE
(Identified cost --
$220,301,304).................. 217,458,883
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DIVIDEND
VALUE (NOTE 1) YIELD
----------- -------------- ------------
PREFERRED SECURITIES -- CAPITAL TRUST 4.06%
BANK 0.33%
Astoria Capital Trust I, 9.75%, due
11/1/29, Series B...................... 3,000,000 $ 3,525,000 8.30%
--------------
DIVERSIFIED FINANCIAL SERVICES 1.38%
Old Mutual Capital Funding, 8.00%,
due 5/29/49 (Eurobond)................. 15,000,000 14,848,515 8.08
--------------
ELECTRIC -- INTEGRATED 0.36%
DPL Capital Trust II, 8.125%, due
9/1/31................................. 4,000,000 3,875,000 8.39
--------------
FOOD -- DAIRY PRODUCTS 0.46%
Dairy Farmers of America, 7.875%, Series
144A(a)................................ 50,000 4,922,750 8.00
--------------
INSURANCE 1.07%
BROKERS 0.20%
Aon Capital Trust A, 8.205%, due
1/1/27................................. 2,000,000 2,196,334 7.47
--------------
MULTI-LINE 0.87%
AFC Capital Trust I, 8.207%, due 2/3/27,
Series B............................... 10,000,000 9,300,000 8.82
--------------
TOTAL INSURANCE........................ 11,496,334
--------------
REAL ESTATE 0.46%
BF Saul Real Estate Investment Trust,
7.50%, due 3/1/14, 144A................ 5,000,000 4,975,000 7.54
--------------
TOTAL PREFERRED SECURITIES -- CAPITAL
TRUST
(Identified cost -- $45,864,315).... 43,642,599
--------------
</Table>
- -------------------
(a) The fund prices this security at fair value using procedures approved by
the fund's board of directors.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- --------------
CORPORATE BOND 3.07%
AUTOMOTIVE 1.41%
General Motors Corp., 7.375%, due
5/23/48............................. $ 4,900,000 $ 4,587,081
General Motors Corp., 8.25%, due
7/15/23............................. 10,000,000 10,498,050
--------------
15,085,131
--------------
CABLE TELEVISION 1.11%
Cablevision Systems New York Group,
8.00%, due 4/15/12, 144A............ 8,000,000 7,920,000
Rogers Cable, 8.75%, due 5/01/32....... 3,740,000 3,980,265
--------------
11,900,265
--------------
INSURANCE 0.55%
Liberty Mutual Insurance, 7.697%,
due 10/15/97, 144A.................. 6,000,000 5,954,076
--------------
TOTAL CORPORATE BOND
(Identified cost -- $33,098,115) 32,939,472
--------------
COMMERCIAL PAPER 0.49%
State Street Corp., 1.10%, due 7/1/04
(Identified cost -- $5,291,000)..... 5,291,000 5,291,000
--------------
TOTAL INVESTMENTS (Identified
cost -- $1,671,866,391)............ 151.85% 1,630,616,759
OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 1.23% 13,205,915
LIQUIDATION VALUE OF TAXABLE AUCTION
MARKET PREFERRED SHARES: SERIES M7,
SERIES T7, SERIES W7, SERIES TH7,
SERIES F7 (Equivalent to $25,000
per share based on 3,360 shares
outstanding per class),
SERIES T28, AND SERIES F28
(Equivalent to $25,000 per share
based on 3,000 shares outstanding
per class)......................... (53.08)% (570,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON
SHARES (Equivalent to $18.24 per
share based on 58,858,135 shares of
capital stock outstanding)......... 100.00% $1,073,822,674
--------------
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
GLOSSARY OF PORTFOLIO ABBREVIATIONS
- ---------------------------------------------------------------------------
CBTCS Corporate Backed Trust Certificates
COPrS Canadian Origin Preferred Securities
PINES Public Income Notes
PPLUS Preferred Plus Trust
QUIPS Quarterly Income Preferred Securities
TOPrS Trust Originated Preferred Securities
TruPS Trust Preferred Securities
- ---------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $1,671,866,391) (Note 1)..................... $1,630,616,759
Cash.................................................... 532
Unrealized appreciation on interest rate swap
transactions (Notes 1 and 6)......................... 9,799,682
Dividends and interest receivable....................... 7,245,162
Receivable for investment securities sold............... 2,889,450
Other assets............................................ 62,075
--------------
Total Assets....................................... 1,650,613,660
--------------
LIABILITIES:
Payable for investment securities purchased............. 3,743,799
Payable for dividends declared on common shares......... 1,299,439
Payable to investment manager........................... 866,778
Payable for dividends declared on preferred shares...... 321,781
Payable for common offering costs....................... 207,197
Payable for preferred offering costs.................... 80,784
Other liabilities....................................... 271,208
--------------
Total Liabilities.................................. 6,790,986
--------------
LIQUIDATION VALUE OF PREFERRED SHARES:
Taxable auction market preferred shares, Series M7,
($25,000 liquidation value, $0.001 par value, 3,360
shares issued and outstanding) (Notes 1 and 5)....... 84,000,000
Taxable auction market preferred shares, Series T7,
($25,000 liquidation value, $0.001 par value, 3,360
shares issued and outstanding) (Notes 1 and 5)....... 84,000,000
Taxable auction market preferred shares, Series W7,
($25,000 liquidation value, $0.001 par value, 3,360
shares issued and outstanding) (Notes 1 and 5)....... 84,000,000
Taxable auction market preferred shares, Series TH7,
($25,000 liquidation value, $0.001 par value, 3,360
shares issued and outstanding) (Notes 1 and 5)....... 84,000,000
Taxable auction market preferred shares, Series F7,
($25,000 liquidation value, $0.001 par value, 3,360
shares issued and outstanding) (Notes 1 and 5)....... 84,000,000
Taxable auction market preferred shares, Series T28,
($25,000 liquidation value, $0.001 par value, 3,000
shares issued and outstanding) (Notes 1 and 5)....... 75,000,000
Taxable auction market preferred shares, Series F28,
($25,000 liquidation value, $0.001 par value, 3,000
shares issued and outstanding) (Notes 1 and 5)....... 75,000,000
--------------
570,000,000
--------------
TOTAL NET ASSETS APPLICABLE TO COMMON SHARES................ $1,073,822,674
--------------
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
TOTAL NET ASSETS APPLICABLE TO COMMON SHARES consist of:
Common stock ($0.001 par value, 58,858,135 shares issued
and outstanding) (Notes 1 and 5)..................... $1,115,350,928
Distributions in excess of net investment income........ (4,514,473)
Accumulated net realized loss on investments and
interest rate swap transactions...................... (5,563,831)
Net unrealized depreciation on investments and interest
rate swap transactions............................... (31,449,950)
--------------
$1,073,822,674
--------------
--------------
NET ASSET VALUE PER COMMON SHARE:
($1,073,822,674[div]58,858,135 shares outstanding)........ $ 18.24
--------------
--------------
MARKET PRICE PER COMMON SHARE............................... $ 16.62
--------------
--------------
MARKET PRICE PREMIUM/(DISCOUNT) TO NET ASSET VALUE PER
COMMON SHARE.............................................. (8.88)%
--------------
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 30, 2004(a) THROUGH JUNE 30, 2004 (UNAUDITED)
<Table>
Investment Income (Note 1):
Dividend income......................................... $ 25,340,858
Interest income......................................... 2,060,414
------------
Total Income....................................... 27,401,272
------------
Expenses:
Investment management fees (Note 2)..................... 5,081,917
Administration fees (Note 2)............................ 431,314
Preferred remarketing fee............................... 363,199
Reports to shareholders................................. 97,660
Custodian fees and expenses............................. 92,893
Professional fees....................................... 65,513
Directors' fees and expenses (Note 2)................... 19,595
Transfer agent fees and expenses........................ 15,208
Miscellaneous........................................... 107,746
------------
Total Expenses..................................... 6,275,045
------------
Reduction of Expenses (Note 2).......................... (1,195,745)
------------
Net Expenses....................................... 5,079,300
------------
Net Investment Income....................................... 22,321,972
------------
Net Realized and Unrealized Gain/(Loss) on Investments
(Note 1):
Net realized loss on investments........................ (3,740,352)
Net realized loss on interest rate swap transactions.... (1,823,479)
Net change in unrealized depreciation on investments.... (41,249,632)
Net change in unrealized appreciation on interest rate
swap transactions.................................... 9,799,682
------------
Net realized and unrealized gain/(loss) on
investments..................................... (37,013,781)
------------
Net Decrease Resulting from Operations...................... (14,691,809)
------------
Less Dividends and Distributions to Preferred Shareholders
from:
Net Investment Income................................... (2,123,156)
------------
Net Decrease in Net Assets from Operations Applicable to
Common Shares............................................. $(16,814,965)
------------
------------
</Table>
- -------------------
(a) Commencement of Operations
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHARES (UNAUDITED)
<Table>
<Caption>
FOR THE PERIOD
JANUARY 30, 2004(b)
THROUGH
JUNE 30, 2004
-----------------
Change in Net Assets Applicable to Common Shares:
From Operations:
Net investment income.............................. $ 22,321,972
Net realized loss on investments and interest rate
swap transactions............................... (5,563,831)
Net change in unrealized (depreciation) on
investments and interest rate swap
transactions.................................... (31,449,950)
--------------
Net decrease resulting from operations........ (14,691,809)
--------------
Less Dividends and Distributions to Preferred
Shareholders from:
Net investment income.............................. (2,123,156)
--------------
Net decrease in net assets from operations
applicable to common shares..................... (16,814,965)
--------------
Less Dividends and Distributions to Common Shareholders
from:
Net investment income.............................. (24,713,289)
--------------
Capital Stock Transactions (Note 5):
Increase in net assets from common share
transactions.................................... 1,120,442,100
Increase in net assets from shares issued to common
shareholders for reinvestment of dividends...... 1,329,853
Decrease in net assets from underwriting
commissions and offering expenses from issuance
of preferred shares............................. (6,521,300)
--------------
Net increase in net assets from capital stock
transactions................................ 1,115,250,653
--------------
Total increase in net assets applicable to
common shares............................... 1,073,722,399
--------------
Net Assets Applicable to Common Shares:
Beginning of period................................ 100,275
--------------
End of period(c)................................... $1,073,822,674
--------------
--------------
</Table>
- -------------------
(b) Commencement of Operations
(c) Includes distributions in excess of net investment income of $4,514,473 at
June 30, 2004.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
21
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
The following table includes selected data for a common share outstanding
throughout the period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<Table>
<Caption>
FOR THE PERIOD
JANUARY 30, 2004(a)
THROUGH
PER SHARE OPERATING PERFORMANCE: JUNE 30, 2004
- -------------------------------- -----------------
Net asset value per common share, beginning of period....... $ 19.10
----------
Income from investment operations:
Net investment income................................... 0.38
Net realized and unrealized loss on investments......... (0.52)
----------
Total loss from investment operations............... (0.14)
----------
Less: Dividends and distributions to preferred shareholders
from:
Net investment income................................... (0.04)
----------
Total from investment operations applicable to
common shares..................................... (0.18)
----------
Less: Offering costs charged to paid-in capital -- common
shares.................................................... (0.04)
Offering costs charged to paid-in capital -- preferred
shares................................................ (0.11)
Dilutive effect of common share offering................ (0.11)
----------
Total offering and organization costs............... (0.26)
----------
Less: Dividends and distributions to common shareholders
from:
Net investment income................................... (0.42)
----------
Net decrease in net asset value............................. (0.86)
----------
Net asset value, per common share, end of period............ $ 18.24
----------
----------
Market value, per common share, end of period............... $ 16.62
----------
----------
Net asset value total return(b)............................. - 2.17%(c)
----------
----------
Market value return(b)...................................... - 14.87%(c)
----------
----------
</Table>
- -------------------
(a) Commencement of operations.
(b) Total market value return is computed based upon the New York Stock Exchange
market price of the fund's shares and excludes the effects of brokerage
commissions. Dividends and distributions, if any, are assumed for purposes
of this calculation, to be reinvested at prices obtained under the fund's
dividend reinvestment plan. Total net asset value return measures the
changes in value over the period indicated, taking into account dividends
as reinvested.
(c) Not annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED) -- (CONTINUED)
<Table>
<Caption>
FOR THE PERIOD
JANUARY 30, 2004(d)
THROUGH
RATIOS/SUPPLEMENTAL DATA: JUNE 30, 2004
- ------------------------- -----------------
Net assets applicable to common shares, end of period (in
millions)................................................. $1,073.8
--------
--------
Ratio of expenses to average daily net assets applicable to
common shares
(before expense reduction)(g)........................... 1.42%(f)
--------
--------
Ratio of expenses to average daily net assets applicable to
common shares
(net of expense reduction)(g)........................... 1.15%(f)
--------
--------
Ratio of net investment income to average daily net assets
applicable to common shares
(before expense reduction)(g)........................... 4.78%(f)
--------
--------
Ratio of net investment income to average daily net assets
applicable to common shares
(net of expense reduction)(g)........................... 5.05%(f)
--------
--------
Ratio of expenses to average daily managed assets (before
expense reduction)(g),(h)................................. 1.05%(f)
--------
--------
Ratio of expenses to average daily managed assets (net of
expense reduction)(g),(h)................................. 0.85%(f)
--------
--------
Portfolio turnover rate..................................... 6.97%(e)
--------
--------
PREFERRED SHARES:
- -----------------
Liquidation value, end of period (in 000's). 570,000
--------
--------
Total shares outstanding (in 000's)......................... 23
--------
--------
Asset coverage per share.................................... $ 72,097
--------
--------
Liquidation preference per share............................ $ 25,000
--------
--------
Average market value per share(i)........................... $ 25,000
--------
--------
</Table>
- -------------------
(d) Commencement of operations.
(e) Not annualized.
(f) Annualized.
(g) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(h) Average daily managed assets applicable to common shares and liquidation
preference of preferred shares.
(i) Based on weekly prices.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
23
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers REIT and Utility Income Fund, Inc. (the fund) was
incorporated under the laws of the State of Maryland on October 1, 2003 and is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company. The fund had no
operations until December 10, 2003 when it sold 5,250 shares of common stock for
$100,275 to Cohen & Steers Capital Management, Inc. (the investment manager).
Investment operations commenced on January 30, 2004.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America. The preparation of the financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day. If no bid or asked prices are quoted on such day, then the security
is valued by such method as the board of directors shall determine in good faith
to reflect its fair market value.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. (Nasdaq) national
market system are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sales price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the investment
manager to be over-the-counter, but excluding securities admitted to trading on
the Nasdaq national list, are valued at the official closing prices as reported
by Nasdaq, the National Quotations Bureau or such other comparable sources as
the board of directors deems appropriate to reflect their fair market value.
However, certain fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by the board of
directors to reflect the fair market value of such securities. Where securities
are traded on more than one exchange and also over-the-counter, the securities
will generally be valued using the quotations the board of directors believes
reflect most closely the value of such securities.
Short-term debt securities, which have a maturity of 60 days or less, are
valued at amortized cost which approximates value.
- --------------------------------------------------------------------------------
24
<Page>
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (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 for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date. The fund has adopted a policy of recording distributions
received in excess of income from underlying investments as a reduction of cost
of investments and/or realized gain. Such amounts are based on estimates if
actual amounts are not available, and actual amounts of income, realized gain
and return of capital may differ from the estimated amounts. The fund adjusts
the estimated amounts of the components of distributions (and consequently its
net investment income) as an increase to unrealized to unrealized appreciation/
(depreciation) on investments as necessary once the issuers provide information
about the actual composition of the distributions.
Interest Rate Swaps: The fund uses interest rate swaps in connection with
the sale of taxable auction market preferred shares. The interest rate swaps are
intended to reduce or eliminate the risk that an increase in short-term interest
rates could have on the performance of the fund's common shares as a result of
the floating rate nature of leverage. In an interest rate swap, the fund agrees
to pay the other party to the interest rate swap (which is known as the
counterparty) a fixed rate payment in exchange for the counterparty agreeing to
pay the fund a variable rate payment that is intended to approximate the fund's
variable rate payment obligation on the taxable auction market preferred shares.
The payment obligation is based on the notional amount of the swap. Depending on
the state of interest rates in general, the use of interest rate swaps could
enhance or harm the overall performance of the common shares. The market value
of interest rate swaps is based on pricing models that consider the time value
of money, volatility, the current market and contractual prices of the
underlying financial instrument. Unrealized gains are reported as an asset and
unrealized losses are reported as a liability on the Statement of Assets and
Liabilities. The change in value of swaps, including the periodic amounts of
interest to be paid or received on swaps is reported as unrealized gains or
losses in the Statement of Operations. A realized gain or loss is recorded upon
payment or receipt of a periodic payment or termination of swap agreements. Swap
agreements involve, to varying degrees, elements of market and counterparty
risk, and exposure to loss in excess of the related amounts reflected in the
Statement of Assets and Liabilities.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid to common shareholders monthly. Dividends to
shareholders are recorded on the ex-dividend date. A portion of the fund's
distributions may consist of amounts derived from nontaxable components of the
dividends from the fund's portfolio investments. Net realized capital gains,
unless offset by any available capital loss carryforward, are distributed to
shareholders annually.
Dividends from net investment income and capital gain distributions are
determined in accordance with U.S. federal income tax regulations which may
differ from generally accepted accounting principals.
Series M7, Series T7, Series W7, Series TH7, and Series F7 preferred shares
pay dividends based on a variable interest rate set at auctions, normally held
every seven days. Dividends for Series M7, Series T7, Series W7, Series
- --------------------------------------------------------------------------------
25
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
TH7, and Series F7 preferred shares are accrued for the subsequent seven day
period on the auction date. In most instances, dividends are payable every seven
days, on the first business day following the end of the dividend period.
Series T28 and Series F28 preferred shares pay dividends based on a variable
interest rate set at auctions, normally held every 28 days. Dividends for Series
T28 and Series F28 preferred shares are accrued for the subsequent 28 day period
on the auction date. In most instances, dividends are payable every 28 days, on
the first business day following the end of the dividend period.
Federal Income Taxes: It is the policy of the fund to qualify as a regulated
investment company, if such qualification is in the best interest of the
shareholders, by complying with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders. Accordingly, no
provision for federal income or excise tax is necessary.
NOTE 2. INVESTMENT MANAGEMENT FEES, ADMINISTRATION FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
Investment Management Fees: Cohen & Steers Capital Management, Inc. (the
investment manager) serves as the investment manager to the fund, pursuant to an
investment management agreement (the management agreement). The investment
manager furnishes a continuous investment program for the fund's portfolio,
makes the day-to-day investment decisions for the fund and generally manages the
fund's investments in accordance with the stated polices of the fund, subject to
the general supervision of the board of directors of the fund. The investment
manager also performs certain administrative services for the fund.
For the services under the management agreement, the fund pays the
investment manager a management fee, computed daily and paid monthly at an
annual rate of 0.85% of the fund's average daily managed asset value. Managed
asset value is the net asset value of the common shares plus the liquidation
preference of the preferred shares. For the period January 30, 2004
(commencement of operations) through June 30, 2004, the fund incurred investment
management fees prior to fee waivers of $5,081,917.
The investment manager has contractually agreed to waive its investment
management fee in the amount of 0.20% of average daily managed asset value for
the first five years of the fund's operations, 0.15% of average daily managed
asset value in year six, 0.10% of average daily managed asset value in year
seven and 0.05% of average daily managed asset value in year eight. As long as
this expense cap continues, it may lower the fund's expenses and increase its
total return. For the period ended January 30, 2004 (commencement of operations)
through June 30, 2004, the investment manager waived management fees of
$1,195,745.
Administration Fees: Pursuant to an administration agreement, the investment
manager also performs certain administrative and accounting functions for the
fund and receives a fee equal to, on an annual basis, 0.06% of the fund's
average daily managed assets up to $1 billion, 0.04% of the fund's average daily
managed assets in excess of $1 billion up to $1.5 billion and 0.02% of the
fund's average daily managed assets in excess of
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26
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
$1.5 billion. For the period January 30, 2004 (commencement of operations)
through June 30, 2004, the fund incurred $316,817 in administration fees.
Director's Fees: Certain directors and officers of the fund are also
directors, officers and/or employees of the investment manager. None of the
directors and officers so affiliated received compensation for their services.
For the period January 30, 2004 (commencement of operations) through June 30,
2004, fees and related expenses accrued for nonaffiliated directors totaled
$19,595.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
period January 30, 2004 (commencement of operations) through June 30, 2004,
totaled $1,762,273,657 and $86,470,137, respectively.
NOTE 4. INCOME TAXES
At June 30, 2004 the cost of investments and net unrealized depreciation for
federal income tax purposes were as follows:
<Table>
Aggregate cost................................... $1,671,866,391
--------------
--------------
Gross unrealized appreciation.................... $ 15,327,216
Gross unrealized depreciation.................... (56,576,848)
--------------
Net unrealized depreciation on investments....... (41,249,632)
Net unrealized appreciation on interest rate swap
transactions................................... 9,799,682
--------------
Net unrealized depreciation...................... $ (31,449,950)
--------------
--------------
</Table>
NOTE 5. CAPITAL STOCK
The fund is authorized to issue 100 million shares of common stock at a par
value of $0.001 per share.
On January 30, 2004, the fund completed the initial public offering of
52,500,000 shares of common stock. Proceeds paid to the fund amounted to
$1,000,650,000 after deduction of underwriting commissions and offering expenses
of $49,350,000.
On February 13, 2004, the fund completed a subsequent offering of 3,500,000
shares of common stock. Proceeds paid to the fund amounted to $66,710,000 after
deduction of underwriting commissions and offering expenses of $3,290,000.
On March 9, 2004, the fund completed a subsequent offering of 2,000,000
shares of common stock. Proceeds paid to the fund amounted to $38,120,000 after
deduction of underwriting commissions and offering expenses of $1,880,000.
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27
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
On March 12, 2004, the fund completed a subsequent offering of 785,000
shares of common stock. Proceeds paid to the fund amounted to $14,962,100 after
deduction of underwriting commissions and offering expenses of $737,900.
During the period January 30, 2004 (commencement of operations) through
June 30, 2004, the fund issued 67,885 shares of common stock for the
reinvestment of dividends.
On March 23, 2004, the fund issued 3,360 taxable auction market preferred
shares, Series M7 (par value $0.001), 3,360 taxable auction market preferred
shares, Series T7 (par value $0.001), 3,360 taxable auction market preferred
shares, Series W7 (par value $0.001), 3,360 taxable auction market preferred
shares, Series TH7 (par value $0.001), 3,360 taxable auction market preferred
shares, Series F7 (par value $0.001), 3,000 taxable auction market preferred
shares, Series T28 (par value $0.001), and 3,000 taxable auction market
preferred shares, Series F28 (par value $0.001)(together referred to as
preferred shares). Proceeds paid to the fund amounted to $563,478,700 after
deduction of underwriting commissions and offering expenses of $6,521,300. These
issues have received a 'AAA/Aaa' rating from Standard & Poor's and Moody's.
Preferred shares are senior to the fund's common shares and will rank on a
parity with shares of any other series of preferred shares, and with shares of
any other series of preferred stock of the fund, as to the payment of dividends
and the distribution of assets upon liquidation. If the fund does not timely
cure a failure to (1) maintain a discounted value of its portfolio equal to the
preferred shares basic maintenance amount, (2) maintain the 1940 Act preferred
shares asset coverage, or (3) file a required certificate related to asset
coverage on time, all of the forgoing as defined in the article supplementary of
the fund, the preferred shares will be subject to a mandatory redemption at the
redemption price of $25,000 per share plus an amount equal to accumulated but
unpaid dividends thereon to the date fixed for redemption. To the extent
permitted under the 1940 Act and Maryland Law, the fund at its option may
without consent of the holders of preferred shares, redeem preferred shares
having a dividend period of one year or less, in whole, or in part, on the
business day after the last day of such dividend period upon not less than 15
calendar days and not more than 40 calendar days prior to notice. The optional
redemption price is $25,000 per share plus an amount equal to accumulated but
unpaid dividends thereon to the date fixed for redemption.
The fund's common shares and preferred shares have equal voting rights of
one vote per share and vote together as a single class. In addition, the
affirmative vote of the holders a majority, as defined in the 1940 Act, of the
outstanding preferred shares shall be required to (1) approve any plan of
reorganization that would adversely affect the taxable auction market preferred
shares and (2) any matter that materially and adversely affects the rights,
preferences, or powers of that series.
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28
<Page>
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 6. INVESTMENTS IN INTEREST RATE SWAPS
The fund has entered into interest rate swap agreements with Merrill Lynch
Derivative Products AG, Royal Bank of Canada, and UBS AG. Under the agreements
the fund receives a floating rate and pays a respective fixed rate. Details of
the swaps at June 30, 2004 are as follows:
<Table>
<Caption>
NOTIONAL FIXED FLOATING RATE(a) TERMINATION UNREALIZED
COUNTERPARTY AMOUNT RATE (RESET MONTHLY) DATE APPRECIATION
- ------------------------ ----------- ------- ---------------- -------------- --------------
Merrill Lynch Derivative
Products AG $46,000,000 3.2275% 1.330% March 29, 2008 $ 967,516
Merrill Lynch Derivative
Products AG $46,000,000 3.4150% 1.340% March 29, 2009 1,423,038
Merrill Lynch Derivative
Products AG $46,000,000 3.4610% 1.330% March 29, 2010 2,145,073
Merrill Lynch Derivative
Products AG $34,000,000 3.535% 1.285% April 23, 2008 359,198
Royal Bank of Canada $68,000,000 2.990% 1.320% March 26, 2009 3,358,869
UBS AG $30,000,000 3.220% 1.160% May 7, 2007 171,650
UBS AG $34,000,000 3.440% 1.280% April 19, 2008 474,715
UBS AG $34,000,000 4.060% 1.280% April 19, 2010 535,826
UBS AG $34,000,000 4.1725% 1.320% April 28, 2010 363,797
----------
$9,799,682
----------
----------
</Table>
- -------------------
(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
at June 30, 2004.
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29
<Page>
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
TOTAL RETURN(a)
(PERIOD ENDED JUNE 30, 2004) (UNAUDITED)
SINCE INCEPTION (1/30/04)
-------------------------
-2.17%
The performance data quoted represents past performance. Past performance is no
guarantee of future results. The rate of return will vary and the principal
value of an investment will fluctuate and shares, if sold, may be worth more or
less than their original cost. Current performance may be lower or higher than
the performance data quoted.
- -------------------------------------------------------------------------------
REINVESTMENT PLAN
We urge shareholders who want to take advantage of this plan
and whose shares are held in 'Street Name' to consult your
broker as soon as possible to determine if you must change
registration into your own name to participate.
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- -------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of
the Investment Company Act of 1940 that the fund may
purchase, from time to time, shares of its common stock in
the open market.
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- -------------------------------------------------------------------------------
A description of the policies and procedures that the fund
uses to determine how to vote proxies relating to portfolio
securities is available (i) without charge, upon request, by
calling 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com or (iii) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
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- -------------------
(a) Based on net asset value.
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30
<Page>
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
- -------------------------------------------------------------------------------
PRIVACY POLICY
The fund is committed to maintaining the privacy of its
shareholders and to safeguarding their personal information.
The following is provided to help you understand what
personal information the fund collects, how we protect that
information, and why in certain cases we may share this
information with others.
The fund does not receive any personal information relating
to shareholders who purchase shares through an intermediary
that acts as the record owner of the shares. In the case of
shareholders who are record owners of the fund, to conduct
and process your business in an accurate and efficient
manner, we must collect and maintain certain personal
information about you. This is the information we collect on
applications or other forms, and from the transactions you
make with us.
The fund does not disclose any personal information about
its shareholders or former shareholders to anyone, except as
required or permitted by law or as is necessary to service
shareholder accounts. We will share information with
organizations, such as the fund's transfer agent, that
assist the fund in carrying out its daily business
operations. These organizations will use this information
only for purposes of providing the services required or as
otherwise as may be required by law. These organizations are
not permitted to share or use this information for any other
purpose. In addition, the fund restricts access to personal
information about its shareholders to employees of the
adviser who have a legitimate business need for the
information.
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31
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
<Table>
<Caption>
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
EQUITY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH DIVIDEND IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
YIELD AND CAPITAL APPRECIATION, INVESTING RETURN THROUGH BOTH CURRENT INCOME AND
PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY
A, B, C AND I SHARES AVAILABLE IN REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX SYMBOL: CSRSX
ALSO AVAILABLE: COHEN & STEERS INSTITUTIONAL
REALTY SHARES (CSRIX) REQUIRES A HIGHER
MINIMUM PURCHASE, BUT OFFERS A LOWER TOTAL
EXPENSE RATIO
FOR TOTAL RETURN: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
UTILITY FUND SPECIAL EQUITY FUND
IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL IDEAL FOR INVESTORS SEEKING MAXIMUM CAPITAL
RETURN THROUGH BOTH CURRENT INCOME AND APPRECIATION, INVESTING IN A LIMITED NUMBER
CAPITAL APPRECIATION, INVESTING PRIMARILY IN OF REITS AND OTHER REAL ESTATE COMPANIES
UTILITIES CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX SYMBOL: CSSPX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-7348, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE
INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER INFORMATION ABOUT THE FUND MAY BE OBTAINED BY
FOLLOWING THE INSTRUCTIONS ABOVE. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
</Table>
COHEN & STEERS SECURITIES, LLC, DISTRIBUTOR
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32
<Page>
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COHEN & STEERS REIT AND UTILITY INCOME FUND, INC.
<Table>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT MANAGER
Director and chairman Cohen & Steers Capital Management,
Martin Cohen Inc.
Director and president 757 Third Avenue
Bonnie Cohen New York, NY 10017
Director (212) 832-3232
George Grossman FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
Richard J. Norman 225 Franklin Street
Director Boston, MA 02110
Frank K. Ross TRANSFER AGENT -- COMMON SHARES
Director Equiserve Trust Company
Willard H. Smith Jr. 250 Royall Street
Director Canton, MA 02021
Robert Becker (800) 426-5523
Vice president TRANSFER AGENT -- PREFERRED SHARES
Greg E. Brooks The Bank of New York
Vice president 100 Church Street
Adam Derechin New York, NY 10007
Vice president and assistant treasurer LEGAL COUNSEL
Joseph M. Harvey Simpson Thacher & Bartlett LLP
Vice president 425 Lexington Avenue
William F. Scapell New York, NY 10017
Vice president New York Stock Exchange Symbol: RTU
Lawrence B. Stoller Web site: cohenandsteers.com
Assistant secretary This report is for shareholder
information. This is not a prospectus
intended for use in the purchase or
sale of fund shares. Past performance
is of course no guarantee of future
results and your investment may be
worth more or less at the time you
sell.
</Table>
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33
<Page>
COHEN & STEERS
REIT AND UTILITY INCOME FUND
- -----------------------------
SEMIANNUAL REPORT
JUNE 30, 2004
COHEN & STEERS
REIT AND UTILITY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as .................................'SS'
The division sign shall be expressed as ..................................[div]