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: 811-9993
Cohen & Steers Advantage Income Realty Fund, Inc.
(Exact name of registrant as specified in charter)
757 Third Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
Adam M. Derechin
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, 2005
Item 1. Reports to Stockholders.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
July 28, 2005
To Our Shareholders:
We are pleased to submit to you our report for the quarter and six months
ended June 30, 2005. The net asset value at that date was $23.64 per common
share. The fund's common stock is traded on the New York Stock Exchange and its
share price can differ from its net asset value; at quarter end, the fund's
closing price on the NYSE was $22.20 The total return, including income, for the
Cohen & Steers Advantage Income Realty and the comparative benchmarks were:
<Table>
<Caption>
TOTAL RETURN,
QUARTER ENDED 6/30/05
--------------------------------------
MARKET PRICE(a) NET ASSET VALUE(a)
-------------- ------------------
YEAR YEAR
QUARTER TO DATE QUARTER TO DATE
------- ------- ------- -------
Cohen & Steers Advantage Income Realty
Fund.................................... 16.3% 4.2% 17.8% 7.6%
NAREIT Equity REIT Index(b)............... 14.5% 6.4% 14.5% 6.4%
Morgan Stanley REIT Preferred Indexc...... 3.5% 2.8% 3.5% 2.8%
</Table>
The fund's asset mix at quarter end consisted of 79% REIT common stocks and
21% preferred and other fixed income investments.
During the quarter, three monthly distributions of $0.15 per share were paid
to common shareholders on April 29, May 31, and June 30. In addition, three
monthly dividends of $0.15 per share were declared and will be paid to
shareholders on July 29, August 31, and September 30.d
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(a) As a closed-end investment company, the price of the fund's New York Stock
Exchange-traded shares will be set by market forces and at times may deviate
from the net asset value per share of the fund.
(b) The NAREIT Equity REIT Index ('Equity REITs') 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.
(c) The Morgan Stanley REIT Preferred Index is an unmanaged index of all
exchange-traded perpetual preferred securities of equity REITs, weighted by
capitalization and considered representative of real estate preferred stock
performance.
(d) Please note that distributions paid by the fund to shareholders are subject
to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders after the close of each fiscal
year on form 1099-DIV. To the extent the fund pays distributions in excess
of its net investment company taxable income, this excess would be a
tax-free return of capital distributed from the fund's assets. To the
extent this occurs, the fund's shareholders of record would be notified of
the approximate amount of capital returned for each such distribution.
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.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
INVESTMENT REVIEW
In our last quarterly report, we suggested that negative sentiment in the
market for REIT shares, as manifested in the peaking of short interest in the
REIT index trading vehicles, was a bullish contrarian indicator and that REIT
shares were trading at or below the value of their underlying real estate
assets -- not above, as Wall Street analysts had almost unanimously suggested.
Additionally, for quite some time, we have discussed our view that the
risk-adjusted returns of real estate would continue to be relatively attractive
in a low return environment. Recent events have validated all of these beliefs.
During the quarter, continued momentum in the recovery of real estate
fundamentals and REIT earnings, and a flurry of merger and buyout activity,
drove REIT share prices to new highs. Buyout activity reached a crescendo in
June as Catellus, Gables Residential and CRT Properties all announced that they
were being acquired.
The table below illustrates major REIT buyout activity over the last year:
<Table>
<Caption>
REIT M&A PRICES EXCEED NAVS
Target Target
Total Pre-announce Pre-announce
Property Transaction NAV per Price per Offer Price
Announced Acquirer/Target Type Value (billion) Share Share per Share
- --------- --------------------------- --------------- --------------- ----------------- ------------ -----------
08/20/04 General Growth/Rouse Mall $ 12.6 $ 39.00 - $45.25 $50.61 $67.50
10/04/04 Camden/Summit Apartment $ 1.9 $ 19.81 - $26.75 $27.84 $31.37
10/25/04 Colonia/Cornerstone Apartment $ 1.5 $ 7.75 - $ 9.00 $10.07 $10.80
12/19/04 Centro/Kramont Shopping Center $ 1.2 $ 18.00 - $20.00 $20.80 $23.50
06/06/05 ProLogis/Catellus Industrial $ 4.9 $ 26.00 - $30.24 $29.24 $33.80
06/07/05 ING Clarion/Gables Apartment $ 2.8 $ 31.39 - $43.00 $38.12 $43.50
06/17/05 DRA Advisors/CRT Properties Office $ 1.7 $ 19.50 - $20.60 $24.09 $27.80
- --------- ------
AVERAGE/TOTAL $ 26.6
------
------
<Caption>
REIT M&A PRICES EXCEED NAVS
Offer Price
Premium to PERCENT DIFFERENCE
Pre-announce BETWEEN OFFER
Price Per PRICE & MIDPOINT Implied
Announced Share NAV ESTIMATE Cap Rate
- --------- --------------- ------------------ --------
08/20/04 33.4% 62.2% 5.7%
10/04/04 12.7% 34.8% 5.8%
10/25/04 7.2% 29.0% 6.5%
12/19/04 13.0% 23.7% 6.9%
06/06/05 15.6% 20.2% 6.1%
06/07/05 14.1% 17.0% 5.8%
06/17/05 15.4% 38.7% 7.1%
- --------- ------ ------ -----
AVERAGE/T 15.9% 32.2% 6.3%
------ ------ -----
------ ------ -----
</Table>
Several observations are worth noting. These seven buyouts were sizeable,
totaling approximately $27 billion in value across all four 'core' property
types: retail, apartment, industrial and office. Several of these deals were
public-to-public mergers while others were leveraged buyouts by private sponsors
backed by major institutional sources -- in other words, the acquirers were all
highly credible and sophisticated. In our view, the debt providers for these
transactions have also validated the real estate asset pricing implied by these
deals. On average, the implied capitalization rate (the current income generated
by these properties compared to the price paid for the investment) for these
sales was 6.3%, consistent with the high quality single property transactions
that we observe in the private marketplace but certainly lower than the
capitalization rate regime that existed for many years. Finally, these deals
were all struck at significant premiums to the pre-announcement target stock
prices -- ranging from 7.2% to 33.4%.
Perhaps even more interesting for the rest of the REIT market, all of these
deals were struck at prices above the commonly perceived value of the target
company's real estate net asset value (NAV). In every instance, the deal price
was greater than most, if not all the published analyst estimates of NAV. These
deals implied lower capitalization rates for major real estate assets than any
of the Wall Street analysts had heretofore been willing to
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
use, even though similar implied capitalization rates had been observed in the
private market for some time. As a result, many Wall Street analysts who had
been negative on the REIT sector for most of the previous three years, and who
fostered a sense of disbelief among many investors, turned more positive on the
REIT group, lowering their assumed capitalization rates and boosting their NAV
estimates. In short, although there was near unanimity among REIT pundits that
the stocks had been expensive, the evidence above suggests that they certainly
were not.
Although economic data points indicating a moderating pace of growth have
become more common, we continue to believe that the economy is fundamentally
healthy and that any short-term moderation in economic growth will not
meaningfully disturb the forward momentum in occupancies and rents for most
property types in most areas of the country. Accordingly, two of the best
performing property sectors in the quarter were the regional mall and apartment
sectors, delivering 21% and 17% total returns, respectively. Driven by continued
strong economic growth, these two sectors led the REIT group as rent and
occupancy gains continued to gather momentum. Our stock selection in the
apartment sector and our overweight and stock selection in the health care
sector were the most significant contributors to our relative performance during
the quarter. Our overweight in Gables Residential, one of the companies that
announced buyouts in June, and Ventas Inc., were two of the largest contributors
in the portfolio at the security level.
Manufactured housing was the worst performing property sector. It continues
to lag the others as a fundamental recovery has not yet become visible enough to
excite investors. While the for-sale housing boom is indirectly benefiting the
apartment sector by constraining supply of new rental apartments via condo
conversions, there has been no such ancillary impact on the manufactured home
sector. Our underweight in the regional mall sector, and our overweight and
stock selection in the office sector were the largest detractors from our
relative performance. In general, the fund's focus on income caused it to trail
the REIT market as more growth-oriented companies led the second quarter rally.
Gables Residential and Macerich Company were two of the best performing
holdings during the quarter, with returns of 31.9% and 27.2%, respectively.
Laggards during the quarter were iStar Financial and Newscastle Investment
Corp., with returns of 2.8% and 4.0%, respectively.
Our allocation to REIT preferred stocks, which is used to increase the yield
of the income-oriented portfolio and lower its volatility, was the largest
detractor from the fund's performance. REIT preferreds, while generating a 7.7%
current yield at the end of June, as measured by the index, produced a 3.5%
total return in the second quarter and trailed REIT common stock performance
during this period. The REIT preferreds in the portfolios were slightly behind
the Morgan Stanley REIT Preferred Index in the quarter. Relatively sparse new
issuance and very strong demand continued to push yields on REIT preferreds
lower and highlight the need for call protection management. Meanwhile, credit
ratings agencies continued to express more favorable views of the REIT sector,
which garnered still more interest in REIT debt and preferred issues.
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3
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
INVESTMENT OUTLOOK
In the mid to late 1990s, real estate company share prices as a group
consistently traded at large premiums to NAV -- up to 30% for the REIT group as
a whole. The public market's perception of the value and growth prospects of
real estate assets was clearly ahead of that of the private market, and this
enabled massive amounts of assets to flow from private to public ownership.
REITs were, in fact, the marginal buyers of most large real estate assets during
this time period, and REIT market capitalization expanded dramatically through
IPOs and secondary offerings of existing companies.
Today, the public market and private market views of real estate value are
much more closely aligned, as evidenced by the fact that most commentators see
REIT valuations as closer than many had realized to private market NAV. This has
profound implications for the way the real estate stock cycle will evolve, in
our opinion.
We believe that assets will continue to flow from private to public hands as
skilled public players seek out selective, strategic acquisition and development
opportunities and as the moderate but steady and disciplined pace of IPO
activity continues. Additionally, we think that current strong investor interest
in REITs' investment attributes, as well as the improved outlook on the sector
by analysts offer an attractive environment for companies to utilize secondary
stock offerings in order to finance these activities. However, if private market
values continue to be strong as well, as we expect, REIT equity issuance should
not get out of hand as it did during the latter stages of the REIT stock cycle
in the late 1990s. The large premiums to asset value that resulted in many
instances in undisciplined equity issuance contributed significantly to the
severity of the downturn in REIT share prices in 1998 and 1999.
We also believe that assets will continue to flow from public to private and
from public to public -- as public companies that can neither create value for
shareholders nor achieve an attractive valuation are taken private or merged
into other public companies. Again, the converging views of real estate asset
value by both private and public capital markets, in conjunction with continued
strong private market demand for real estate assets can potentially serve as a
governor on REIT stock prices -- helping to guard against the massive discounts
to asset value that persisted in late 1999 and 2000 in the aftermath of the REIT
bear market.
Our investment outlook and strategy continues to be predicated on the
beliefs that the U.S. economy will continue to expand, the Federal Reserve is
nearing the end of the monetary tightening cycle, and that most property sectors
will continue to realize improving occupancies and rental rates. We have focused
the portfolio on those sectors that we believe are benefiting most from the
cyclical recovery in occupancies and rents: office, self storage, hotel and
certain segments of the apartment market (including student housing). We have
trimmed some retail holdings based on less attractive relative valuation,
according to our proprietary valuation model, as this sector's fundamentals stay
steady while others' improve. The rally in the second quarter, combined with the
dynamics of the merger environment, has created many shifts in relative
valuation for individual companies, and we continually rebalance the portfolio
to capture those shifts.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
In closing, while REIT share prices continue to perform well, and valuations
inch higher, we believe that in a low return environment, with fundamentals
improving and the interaction between private and public real estate increasing,
REITs can continue to provide attractive investment returns.
Sincerely,
<Table>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
Co-chairman Co-chairman
JOSEPH M. HARVEY JAMES S. CORL
JOSEPH M. HARVEY JAMES S. CORL
Portfolio Manager Portfolio Manager
</Table>
VISIT COHEN & STEERS ONLINE AT COHENANDSTEERS.COM
For more information about any of our funds, visit
cohenandsteers.com, where you'll find daily net asset
values, fund fact sheets and portfolio highlights. You can
also access newsletters, education tools and market updates
covering the REIT, utility and preferred securities sectors.
In addition, our Web site contains comprehensive information
about our firm, including our most recent press releases,
profiles of our senior investment professionals, and an
overview of our investment approach.
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COHEN & STEERS ADVANTAGE INCOME REALTY 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, 2005, AMPS
represented 33% of the fund's managed 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 55% of our borrowings at an average
interest rate of 4.75%, for an average remaining period of
3.4 years (when we first entered into the swaps, the average
term was 6.6 years). By locking in a large portion of our
leveraging costs, we have endeavored to adequately protect
the dividend-paying ability of the fund, which is one of the
reasons the fund has been able to increase its monthly
dividend on several occasions. 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.
LEVERAGE FACTS(a)
<Table>
Leverage (as % of managed assets)................... 33%
% Fixed Rate........................................ 55%
% Variable Rate..................................... 45%
Weighted Average Rate on Swaps...................... 4.75%
Weighted Average Term on Swaps...................... 3.4 years
Current Rate on AMPS................................ 3.4%
</Table>
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(a) Data as of June 30, 2005. Information subject to change.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
JUNE 30, 2005
TOP TEN HOLDINGS
(UNAUDITED)
<Table>
<Caption>
% OF
MARKET MANAGED
SECURITY(a) VALUE ASSETS
----------- ----------- ----------
1. Ventas.................................................. $41,748,480 4.61%
2. Vornado Realty Trust.................................... 34,869,480 3.85
3. Mack-Cali Realty Corp. ................................. 32,896,860 3.63
4. Liberty Property Trust.................................. 28,845,810 3.19
5. Reckson Associates Realty Corp. ........................ 28,185,355 3.11
6. Equity Office Properties Trust.......................... 25,745,180 2.84
7. Health Care Property Investors.......................... 25,623,104 2.83
8. Archstone-Smith Trust................................... 25,153,206 2.78
9. Macerich Co. ........................................... 24,010,605 2.65
10. Public Storage -- Series A.............................. 22,748,040 2.51
</Table>
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(a) All holdings listed are common stocks.
SECTOR BREAKDOWN
(BASED ON MANAGED ASSETS)
(UNAUDITED)
Office/Industrial.............................35.82%
Health Care...................................15.12%
Residential...................................14.24%
Shopping Center...............................13.02%
Diversified...................................10.16%
Other..........................................7.06%
Hotel..........................................4.21%
Other Assets in Excess of Liabilitites.........0.37%
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- ------------- ------------
EQUITIES 147.63%
COMMON STOCK 117.32%
DIVERSIFIED 12.13%
Capital Trust -- Class A.............. 400 $ 13,364 6.58%
Colonial Properties Trust............. 392,900 17,287,600 6.14
Crescent Real Estate Equities Co. .... 307,500 5,765,625 8.00
iStar Financial....................... 265,900 11,058,781 7.04
Spirit Finance Corp. ................. 429,000 5,040,750 6.47
Vornado Realty Trust.................. 433,700 34,869,480 3.78
-------------
74,035,600
-------------
HEALTH CARE 17.79%
Health Care Property Investors........ 947,600 25,623,104 6.21
Health Care REIT...................... 379,500 14,303,355 6.58
Healthcare Realty Trust............... 207,700 8,019,297 6.79
Nationwide Health Properties.......... 799,400 18,873,834 6.27
Ventas................................ 1,382,400 41,748,480 4.77
-------------
108,568,070
-------------
HOTEL 3.19%
DiamondRock Hospitality Co. .......... 233,500 2,638,550 6.11
Hospitality Properties Trust.......... 269,400 11,872,458 6.54
Strategic Hotel Capital............... 273,500 4,923,000 4.89
-------------
19,434,008
-------------
INDUSTRIAL 2.86%
First Industrial Realty Trust......... 437,700 17,464,230 6.97
-------------
MORTGAGE 4.54%
Gramercy Capital Corp.(b,c)........... 535,000 11,777,490 3.60
Newcastle Investment Corp. ........... 527,337 15,899,211 8.29
-------------
27,676,701
-------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- ------------ ------------
OFFICE 34.85%
American Financial Realty Trust........ 577,600 $ 8,883,488 7.02%
Arden Realty........................... 529,100 19,037,018 5.61
BioMed Realty Trust.................... 36,800 877,680 4.53
Brandywine Realty Trust................ 633,100 19,404,515 5.74
CarrAmerica Realty Corp. .............. 624,900 22,608,882 5.53
Equity Office Properties Trust......... 777,800 25,745,180 6.04
Highwoods Properties................... 393,300 11,704,608 5.71
HRPT Properties Trust.................. 777,900 9,669,297 6.76
Mack-Cali Realty Corp. ................ 726,200 32,896,860 5.56
Maguire Properties..................... 398,800 11,301,992 5.65
Prentiss Properties Trust.............. 612,400 22,315,856 6.15
Reckson Associates Realty Corp. ....... 840,100 28,185,355 5.07
------------
212,630,731
------------
OFFICE/INDUSTRIAL 6.22%
Duke Realty Corp. ..................... 287,900 9,114,914 5.87
Liberty Property Trust................. 651,000 28,845,810 5.51
------------
37,960,724
------------
RESIDENTIAL 17.39%
APARTMENT 16.72%
AMLI Residential Properties Trust...... 166,200 5,195,412 6.14
American Campus Communities............ 186,600 4,232,088 5.95
Apartment Investment & Management Co... 56,300 2,303,796 5.87
Archstone-Smith Trust.................. 651,300 25,153,206 4.45
AvalonBay Communities.................. 179,400 14,495,520 3.51
Camden Property Trust.................. 228,600 12,287,250 4.73
Education Realty Trust................. 337,800 6,181,740 6.50
GMH Communities Trust.................. 324,000 4,487,400 6.57
Gables Residential Trust............... 100,600 4,348,938 5.57
Home Properties........................ 222,100 9,554,742 5.86
Mid-America Apartment Communities...... 209,600 9,520,032 5.15
Town & Country Trust................... 150,000 4,276,500 6.03
------------
102,036,624
------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- ------------ ------------
MANUFACTURED HOME 0.67%
Affordable Residential Communities..... 304,700 $ 4,067,745 5.62%
------------
TOTAL RESIDENTIAL...................... 106,104,369
------------
SELF STORAGE 5.63%
Extra Space Storage.................... 264,100 3,784,553 6.35
Extra Space Storage (Restricted)(c,d).. 39,500 537,733 6.69
Public Storage -- Series A............. 802,400 22,748,040 8.64
Sovran Self Storage.................... 57,300 2,604,858 5.32
U-Store-It Trust....................... 245,400 4,674,870 5.88
------------
34,350,054
------------
SHOPPING CENTER 12.72%
COMMUNITY CENTER 3.51%
Cedar Shopping Centers................. 237,300 3,500,175 6.10
Heritage Property Investment Trust..... 307,000 10,751,140 6.00
Inland Real Estate Corp. .............. 162,900 2,619,432 5.97
New Plan Excel Realty Trust............ 151,700 4,121,689 6.07
Urstadt Biddle
Properties -- Class A............... 26,100 452,052 5.08
------------
21,444,488
------------
REGIONAL MALL 9.21%
Glimcher Realty Trust.................. 402,100 11,158,275 6.92
Macerich Co. .......................... 358,100 24,010,605 3.88
Mills Corp. ........................... 345,600 21,009,024 4.13
------------
56,177,904
------------
TOTAL SHOPPING CENTER.................. 77,622,392
------------
TOTAL COMMON STOCK
(Identified cost -- $466,022,345) 715,846,879
------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELDA(a)
--------- ------------ ------------
PREFERRED STOCK 30.31%
DIVERSIFIED 2.94%
Colonial Properties Trust, 9.25%,
Series C............................ 8,300 $ 215,219 8.91%
Crescent Real Estate Equities Co.,
6.75%, Series A (Convertible)....... 339,300 7,230,483 7.93
Digital Realty Trust, 8.50%,
Series A............................ 65,900 1,707,798 8.22
Entertainment Properties Trust, 7.75%,
Series B............................ 84,900 2,153,064 7.65
iStar Financial, 8.00%, Series D....... 111,000 2,809,410 7.90
iStar Financial, 7.80%, Series F....... 36,800 942,080 7.62
iStar Financial, 7.65%, Series G....... 75,300 1,920,150 7.49
iStar Financial, 7.50%, Series I....... 38,000 954,560 7.48
------------
17,932,764
------------
HEALTH CARE 4.47%
Health Care REIT, 7.625%, Series F..... 114,900 2,903,523 7.56
Nationwide Health Properties, 7.677%,
Series A............................ 221,000 22,597,250 7.51
Windrose Medical Properties Trust,
7.50%, Series A..................... 70,000 1,750,000 7.52
------------
27,250,773
------------
HOTEL 3.07%
Eagle Hospitality Properties Trust,
8.25%, Series A..................... 65,000 1,670,500 8.02
FelCor Lodging Trust, $1.95, Series A
(Convertible)....................... 114,500 2,797,235 7.98
FelCor Lodging Trust, 9.00%,
Series B............................ 7,310 186,917 8.80
FelCor Lodging Trust, 8.00%,
Series C............................ 71,212 1,746,830 8.15
Host Marriott Corp., 10.00%,
Series C............................ 39,100 1,032,631 9.47
Host Marriott Corp., 8.875%,
Series E............................ 10,000 275,000 8.07
Innkeepers USA, 8.00%, Series C........ 56,000 1,431,920 7.82
LaSalle Hotel Properties, 10.25%,
Series A............................ 200,000 5,344,000 9.58
Strategic Hotel Capital, 8.50%,
Series A, 144A...................... 87,900 2,274,413 8.23
Sunstone Hotel Investors, 8.00%,
Series A............................ 75,900 1,954,425 7.77
------------
18,713,871
------------
INDUSTRIAL 0.15%
EastGroup Properties, 7.95%,
Series D............................ 35,000 934,500 7.45
------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- ------------ ------------
OFFICE 5.55%
Alexandria Real Estate Equities,
9.10%, Series B..................... 53,900 $ 1,420,804 8.65%
Brandywine Realty Trust, 7.50%
Series C............................ 30,000 751,500 7.50
Cousins Properties, 7.50%, Series B.... 140,000 3,565,800 7.38
HRPT Properties Trust, 8.75%,
Series B............................ 128,000 3,466,240 8.09
Highwoods Properties, 8.625%,
Series A............................ 18,550 19,848,500 8.06
Kilroy Realty Corp., 7.50%,
Series F............................ 16,000 406,400 7.40
Maguire Properties, 7.625%,
Series A............................ 72,200 1,825,216 7.56
SL Green Realty Corp., 7.625%,
Series C............................ 40,000 1,024,000 7.46
SL Green Realty Corp., 7.875%,
Series D............................ 59,700 1,531,305 7.68
------------
33,839,765
------------
OFFICE/INDUSTRIAL 3.51%
PS Business Parks, 9.50%, Series D..... 800,000 20,904,000 9.11
PS Business Parks, 7.00%, Series H..... 20,000 492,000 7.11
------------
21,396,000
------------
RESIDENTIAL 3.74%
APARTMENT 3.68%
Apartment Investment & Management Co.,
9.375%, Series G.................... 52,800 1,404,480 8.80
Apartment Investment & Management Co.,
10.10%, Series Q.................... 18,600 483,228 9.74
Apartment Investment & Management Co.,
10.00%, Series Re................... 611,800 15,998,570 9.56
Associated Estates Realty Corp.,
8.70%, Series B..................... 70,000 1,835,750 8.31
Mid-America Apartment Communities,
8.30%, Series H..................... 103,600 2,693,600 8.00
------------
22,415,628
------------
MANUFACTURED HOME 0.06%
American Land Lease, 7.75%, Series A... 15,000 379,500 7.67
------------
TOTAL RESIDENTIAL...................... 22,795,128
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- ------------ ------------
SHOPPING CENTER 6.58%
COMMUNITY CENTER 1.53%
Cedar Shopping Centers, 8.875%,
Series A............................ 32,000 $ 854,400 8.31%
Developers Diversified Realty Corp.,
8.60%, Series F..................... 100,000 2,647,000 8.12
Federal Realty Investment Trust, 8.50%,
Series B............................ 20,100 533,454 8.03
New Plan Excel Realty Trust, 7.80%,
Series D............................ 20,000 1,041,876 7.49
Urstadt Biddle Properties, 8.50%,
Series C............................ 16,000 1,736,000 7.83
Urstadt Biddle Properties, 7.50%,
Series D............................ 99,000 2,554,200 7.29
------------
9,366,930
------------
REGIONAL MALL 5.05%
CBL & Associates Properties, 7.75%,
Series C............................ 50,000 1,372,500 7.07
CBL & Associates Properties, 7.375%,
Series D............................ 241,098 6,107,012 7.26
Glimcher Realty Trust, 8.75%,
Series F............................ 40,000 1,071,600 8.17
Mills Corp., 9.00%, Series B........... 83,800 2,257,153 8.35
Mills Corp., 9.00%, Series C........... 85,000 2,292,025 8.34
Mills Corp., 7.875%, Series G.......... 225,000 5,782,500 7.67
Pennsylvania Real Estate Investment
Trust, 11.00%, Series A............. 125,600 7,410,400 9.32
Simon Property Group, 8.375%,
Series J............................ 33,800 2,281,500 6.21
Taubman Centers, 8.30%, Series A....... 88,600 2,236,264 8.24
------------
30,810,954
------------
TOTAL SHOPPING CENTER.................. 40,177,884
------------
SPECIALTY 0.30%
Capital Automotive REIT, 7.50%,
Series A............................ 50,000 1,270,000 7.40
Capital Automotive REIT, 8.00%,
Series B............................ 22,500 590,625 7.62
------------
1,860,625
------------
TOTAL PREFERRED STOCK
(Identified cost -- $166,370,877) 184,901,310
------------
TOTAL EQUITIES
(Identified cost -- $632,393,222) 900,748,189
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2005 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ------------
CORPORATE BOND 0.17%
Ventas Realty LP, 7.125%, due 06/01/15,
144A
(Identified cost -- $1,000,000)....... $1,000,000 $ 1,045,000
------------
COMMERCIAL PAPER 0.51%
New Center Asset Trust, 2.20%, due
07/01/05
(Identified cost -- $3,100,000)....... 3,100,000 3,100,000
------------
TOTAL INVESTMENTS (Identified
cost -- $636,493,222)................ 148.31% 904,893,189
OTHER ASSETS IN EXCESS OF
LIABILITIES.......................... 0.04% 249,910
LIQUIDATION VALUE OF PREFERRED
SHARES............................... (48.35)% (295,000,000)
------- ------------
NET ASSETS APPLICABLE TO COMMON SHARES
(Equivalent to $23.64 per share based
on 25,810,480 shares of capital stock
outstanding)......................... 100.00% $610,143,099
------ ------------
------ ------------
</Table>
- -------------------
Note: Percentages indicated are based on the net assets applicable to common
shares of the fund.
(a) Dividend yield is computed by dividing the security's current annual
dividend rate by its value at June 30, 2005. The current annual dividend
rate does not reflect any potential reclassifications to capital gain or
return of capital.
(b) Resale is restricted. Security acquired 12/3/04 at a cost of $9,239,450;
equals 1.93% of net assets applicable to common shares.
(c) Fair valued security. Aggregate holdings equal 2.02% of net assets
applicable to common shares.
(d) Resale is restricted. Security acquired 6/20/05 at a cost of $532,065;
equals 0.09% of net assets applicable to common shares.
(e) 250,000 shares segregated as collateral for the interest rate swap
transactions.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $636,493,222) (Note 1)....................... $904,893,189
Dividends and interest receivable....................... 4,111,389
Receivable for investment securities sold............... 3,705,742
Unrealized appreciation on interest rate swap
transactions (Notes 1 and 6)......................... 569,935
Other assets............................................ 57,983
------------
Total Assets....................................... 913,338,238
------------
LIABILITIES:
Unrealized depreciation on interest rate swap
transactions (Notes 1 and 6)......................... 4,960,883
Payable for investment securities purchased............. 1,952,273
Payable for dividends declared on common shares......... 488,452
Payable for dividends declared on preferred shares...... 323,284
Payable to investment manager........................... 315,620
Payable to administrator................................ 28,448
Payable for directors fees.............................. 8,191
Other liabilities....................................... 117,988
------------
Total Liabilities.................................. 8,195,139
------------
LIQUIDATION VALUE OF PREFERRED SHARES:
Auction rate cumulative preferred shares, Series M
($25,000 liquidation value, $0.001 par value,
2,500 shares issued and outstanding)
(Notes 1 and 5)...................................... 62,500,000
Auction rate cumulative preferred shares, Series W
($25,000 liquidation value, $0.001 par value,
2,500 shares issued and outstanding)
(Notes 1 and 5)...................................... 62,500,000
Auction rate cumulative preferred shares, Series TH
($25,000 liquidation value, $0.001 par value,
2,040 shares issued and outstanding)
(Notes 1 and 5)...................................... 51,000,000
Auction market preferred shares, Series T7 ($25,000
liquidation value, $0.001 par value, 2,600 shares
issued and outstanding) (Notes 1 and 5).............. 65,000,000
Auction market preferred shares, Series F28 ($25,000
liquidation value, $0.001 par value, 2,160 shares
issued and outstanding) (Notes 1 and 5).............. 54,000,000
------------
295,000,000
------------
TOTAL NET ASSETS APPLICABLE TO COMMON SHARES................ $610,143,099
------------
------------
TOTAL NET ASSETS APPLICABLE TO COMMON SHARES consist of:
Common stock ($0.001 par value, 25,810,480 shares issued
and outstanding)..................................... $337,248,784
Dividends in excess of net investment income............ (15,471,002)
Accumulated undistributed net realized gain on
investments.......................................... 24,356,298
Net unrealized appreciation on investments and interest
rate swap transactions............................... 264,009,019
------------
$610,143,099
------------
------------
NET ASSET VALUE PER COMMON SHARE:
($610,143,099[div]25,810,480 shares outstanding)........ $ 23.64
------------
------------
MARKET PRICE PER COMMON SHARE............................... $ 22.20
------------
------------
MARKET PRICE DISCOUNT TO NET ASSET VALUE PER COMMON SHARE... (6.09)%
------------
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
<Table>
Investment Income (Note 1):
Dividend income......................................... $14,610,055
Interest income......................................... 272,997
-----------
Total Income....................................... 14,883,052
-----------
Expenses:
Investment management fees (Note 2)..................... 3,600,214
Preferred remarketing fee............................... 365,720
Administration fees (Note 2)............................ 145,183
Reports to shareholders................................. 126,575
Professional fees....................................... 74,742
Custodian fees and expenses............................. 38,132
Directors' fees and expenses (Note 2)................... 26,221
Transfer agent fees and expenses........................ 7,594
Miscellaneous........................................... 69,152
-----------
Total Expenses..................................... 4,453,533
Reduction of Expenses (Note 2).......................... (1,778,929)
-----------
Net Expenses....................................... 2,674,604
-----------
Net Investment Income....................................... 12,208,448
-----------
Net Realized and Unrealized Gain (Loss) on Investments
(Note 1):
Net realized gain on investments........................ 25,950,902
Net realized loss on interest rate swap transactions.... (1,569,450)
Net change in unrealized appreciation on investments.... 7,039,843
Net change in unrealized depreciation on interest rate
swap transactions.................................... 1,623,961
-----------
Net realized and unrealized gain on investments.... 33,045,256
-----------
Net Increase Resulting from Operations...................... 45,253,704
-----------
Less Dividends to Preferred Shareholders from Net Investment
Income.................................................... (4,158,372)
-----------
Net Increase in Net Assets from Operations Applicable to
Common Shares............................................. $41,095,332
-----------
-----------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHARES (UNAUDITED)
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
---------------- -----------------
Change in Net Assets Applicable to Common Shares:
From Operations:
Net investment income.............................. $ 12,208,448 $ 30,711,173
Net realized gain on investments and interest rate
swap transactions................................ 24,381,452 3,061,423
Net change in unrealized appreciation on
investments and interest rate swap
transactions..................................... 8,663,804 116,783,569
------------ ------------
Net increase in net assets resulting from
operations................................... 45,253,704 150,556,165
------------ ------------
Less Dividends and Distributions to Preferred
Shareholders from:
Net investment income.............................. (4,158,372) (2,926,350)
Net realized gain on investments................... -- (870,794)
------------ ------------
Total dividends and distributions to preferred
shareholders................................. (4,158,372) (3,797,144)
------------ ------------
Net increase in net assets from operations
applicable to common shares.................. 41,095,332 146,759,021
------------ ------------
Less Dividends and Distributions to Common Shareholders
from:
Net investment income.............................. (23,229,431) (22,720,808)
Net realized gain on investments................... -- (7,630,825)
Tax return of capital.............................. -- (8,235,035)
------------ ------------
Total dividends and distributions to common
shareholders................................. (23,229,431) (38,586,668)
------------ ------------
Capital Stock Transactions (Note 5):
Preferred share offering cost adjustment........... 139,817 148,454
Decrease from underwriting commissions and offering
expenses from issuance of preferred shares....... -- (1,030,242)
------------ ------------
Net increase (decrease) in net assets from
capital stock transactions................... 139,817 (881,788)
------------ ------------
Total increase in net assets applicable to
common shares................................ 18,005,718 107,290,565
Net Assets Applicable to Common Shares:
Beginning of period................................ 592,137,381 484,846,816
------------ ------------
End of period(a)................................... $610,143,099 $592,137,381
------------ ------------
------------ ------------
</Table>
- -------------------
(a) Includes dividends in excess of net investment income of $15,471,002 and
$291,647, respectively.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
The following table includes selected data for a common share outstanding
throughout each period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31, MAY 31, 2001(a)
MONTHS ENDED ------------------------------------------ THROUGH
PER SHARE OPERATING PERFORMANCE: JUNE 30, 2005 2004 2003 2002 DECEMBER 31, 2001
- -------------------------------- -------------- ------------ ------------ ------------ ------------------
Net asset value per common share,
beginning of period.................. $22.94 $18.78 $13.71 $14.03 $14.33
------ ------ ------ ------ ------
Income from investment operations:
Net investment income.............. 0,47b 0.98 1.11b 1.02 0.64
Net realized and unrealized gain
(loss) on investments............ 1.28 4.86 5.56 0.07 (0.02)
------ ------ ------ ------ ------
Total income from investment
operations................... 1.75 5.84 6.67 1.09 0.62
------ ------ ------ ------ ------
Less dividends and distributions to
preferred shareholders from:
Net investment income.............. (0.16) (0.11) (0.06) (0.09) (0.07)
Net realized gain on investments... -- (0.04) (0.03) -- --
------ ------ ------ ------ ------
Total dividends and
distributions to preferred
shareholders................. (0.16) (0.15) (0.09) (0.09) (0.07)
------ ------ ------ ------ ------
Total from investment
operations applicable to
common shares................ 1.59 5.69 6.58 1.00 0.55
------ ------ ------ ------ ------
Less: Offering and organization costs
charged to paid-in
capital -- common shares......... -- -- -- -- (0.03)
Preferred share offering cost
adjustment....................... -- 0.01 -- -- --
Offering and organization costs
charged to paid-in
capital -- preferred shares...... 0.01 (0.04) (0.03) (0.03) (0.07)
Dilutive effect of common share
offering......................... -- -- -- -- (0.03)
------ ------ ------ ------ ------
Total offering and organization
costs........................ 0.01 (0.03) (0.03) (0.03) (0.13)
------ ------ ------ ------ ------
Less dividends and distributions to
common shareholders from:
Net investment income.............. (0.90) (0.88) (1.01) (1.29) (0.58)
Net realized gain on investments... -- (0.30) (0.45) -- --
Tax return of capital.............. -- (0.32) (0.02) -- (0.14)
------ ------ ------ ------ ------
Total dividends and
distributions to common
shareholders................. (0.90) (1.50) (1.48) (1.29) (0.72)
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value per common share............... 0.70 4.16 5.07 (0.32) (0.30)
------ ------ ------ ------ ------
Net asset value, per common share, end
of period............................ $23.64 $22.94 $18.78 $13.71 $14.03
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Market value, per common share, end of
period............................... $22.20 $22.25 $18.26 $14.02 $14.70
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------
Net asset value total return(c)....... 7.57%(d) 32.13% 50.29% 6.72% 3.27%(d)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Market value return(c)................ 4.15%(d) 31.80% 42.83% 4.16% 3.15%(d)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED) -- (CONTINUED)
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31, MAY 31, 2001(a)
MONTHS ENDED ------------------------------------------ THROUGH
RATIOS/SUPPLEMENTAL DATA: JUNE 30, 2005 2004 2003 2002 DECEMBER 31, 2001
- ------------------------- -------------- ------------ ------------ ------------ ------------------
Net assets applicable to common
shares, end of period (in millions).. $ 610.1 $ 592.1 $ 485.0 $ 349.9 $ 351.6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average daily net
assets applicable to common shares
(before expense reduction)(f)........ 1.61%(e) 1.52% 1.61% 1.41% 1.39%(e)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average daily net
assets applicable to common shares
(net of expense reduction)(f)........ 0.96%(e) 0.91% 0.99% 0.84% 0.86%(e)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income to
average daily net assets applicable
to common shares
(before expense reduction)(f)........ 3.76%(e) 5.37% 6.59% 6.98% 8.00%(e)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income to
average daily net assets applicable
to common shares
(net of expense reduction)(f)........ 4.40%(e) 5.99% 7.22% 7.55% 8.53%(e)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average daily
managed assets (before expense
reduction)(f,g)...................... 1.05%(e) 1.04% 1.09% 1.04% 1.10%(e)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average daily
managed assets (net of expense
reduction)(f,g)...................... 0.63%(e) 0.62% 0.67% 0.62% 0.68%(e)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Portfolio turnover rate............... 7.42%(d) 3.23% 20.19% 22.27% 23.95%(d)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<Caption>
PREFERRED SHARES:
- -----------------
Liquidation value, end of period
(in 000's).............................. $295,000 $295,000 $230,000 $176,000 $125,000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total shares outstanding (in 000's)...... $ 12 $ 12 $ 9 $ 7 $ 5
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Asset coverage per share................. $ 76,707 $ 75,181 $ 77,701 $ 74,695 $ 95,322
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Liquidation preference per share......... $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average market value per share(h)........ $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</Table>
- -------------------
<Table>
(a) Commencement of operations.
(b) Calculation based on average shares outstanding.
(c) 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.
(d) Not annualized.
(e) Annualized.
(f) Ratios do not reflect dividend payments to preferred
shareholders.
(g) Average daily managed assets represents net assets
applicable to common shares plus liquidation preference of
preferred shares.
(h) Based on weekly prices.
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Advantage Income Realty Fund, Inc. (the fund) was
incorporated under the laws of the State of Maryland on June 21, 2000 and is
registered under the Investment Company Act of 1940, as amended, as a
nondiversified, closed-end management investment company. The fund's investment
objective is high current income.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America (GAAP). The preparation of the financial statements in
accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day or, if no asked price is available, at the bid price.
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 sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by Cohen & Steers
Capital Management, Inc. 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 Quotation Bureau, or such
other comparable sources as the Board of Directors deem appropriate to reflect
their fair market value. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices for the day, or if no
asked price is available, at the bid price. However, certain fixed-income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed by the 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 most closely reflect the
value of such securities.
Securities for which market prices are unavailable will be valued at fair
value pursuant to procedures approved by the fund's Board of Directors.
Circumstances in which market prices may be unavailable include, but are not
limited to, when trading in a security is suspended, the exchange on which the
security is traded is subject
- --------------------------------------------------------------------------------
20
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 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.
To the extent the fund holds securities that are primarily listed on foreign
exchanges that trade on weekends or days when the fund does not price its
shares, the value of the securities held in the fund may change on days when you
will not be able to purchase or redeem fund shares.
Short-term debt securities, which have a maturity date of 60 days or less,
are valued at amortized cost, which approximates value.
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. Dividend income is recorded on the ex-dividend date. The fund
records distributions received in excess of income from underlying investments
as a reduction of cost of investments and/or realized gain. Such amounts are
based on estimates if actual amounts are not available, and actual amounts of
income, realized gain and return of capital may differ from the estimated
amounts. The fund adjusts the estimated amounts of the components of
distributions (and consequently its net investment income) as an increase to
unrealized appreciation/(depreciation) and realized gain/(loss) on investments
as necessary once the issuers provide information about the actual composition
of the distributions.
Interest Rate Swaps: The fund uses interest rate swaps in connection with
the sale of 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
structure of the preferred shares. In these interest rate swaps, the fund agrees
to pay the other party to the interest rate swap (which is known as the
counterparty) a fixed rate payment in exchange for the counterparty agreeing to
pay the fund a variable rate payment that is intended to approximate the fund's
variable rate payment obligation on the 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
- --------------------------------------------------------------------------------
21
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
change in value of swaps, including the accrual of 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 and
distributions to shareholders are recorded on the ex-dividend date.
Distributions paid by the fund are subject to recharacterization for tax
purposes. Based upon the results of operations for the six months ended
June 30, 2005, the advisor considers it likely that a portion of the dividends
will be reclassified to return of capital and distributions of net realized
capital gains upon the final determination of the fund's taxable income for the
year. 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 GAAP.
Series M, Series T7, Series W and Series TH preferred shares pay dividends
based on a variable interest rate set at auctions, normally held every seven
days. The dividends are declared and recorded 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 F28 preferred shares pay dividends based on a variable interest rate
set at auctions, normally held every 28 days. The dividends are declared and
recorded 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 fund's investment manager pursuant to an
investment management agreement (the management agreement). Under the terms of
the management agreement, the investment manager provides the fund with
- --------------------------------------------------------------------------------
22
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
day-to-day investment decisions and generally manages the fund's investments in
accordance with the stated polices of the fund, subject to the supervision of
the Board of Directors.
For the services under the management agreement, the fund pays the
investment manager a management fee, accrued 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.
The investment manager has contractually agreed to waive its investment
management fee in the amount of 0.42% of average daily managed asset value for
the first five fiscal years of the fund's operations, 0.35% of average daily
managed asset value in year six, 0.28% of average daily managed asset value in
year seven, 0.21% of average daily managed asset value in year eight, 0.14% of
average daily managed asset value in year nine and 0.07% of average daily
managed asset value in year 10.
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 0.02% of the fund's average daily managed asset
value. For the six months ended June 30, 2005, the fund incurred $84,711 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 from the fund for
their services.
Other: During the six months ended June 30, 2005, the fund purchased
securities in which an affiliate of the investment manager served as placement
agent for the issuer.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
six months ended June 30, 2005 totaled $95,623,514 and $62,556,865,
respectively.
- --------------------------------------------------------------------------------
23
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4. INCOME TAX INFORMATION
At June 30, 2005, the cost of investments and net unrealized appreciation
for federal income tax purposes were as follows:
<Table>
Aggregate cost.................................... $636,493,222
------------
------------
Gross unrealized appreciation..................... $268,722,086
Gross unrealized depreciation..................... (322,119)
------------
Net unrealized appreciation on investments........ 268,399,967
Net unrealized depreciation on interest rate swap
transactions.................................... (4,390,948)
------------
Net unrealized appreciation....................... $264,009,019
------------
------------
</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.
During the six months ended June 30, 2005, the fund issued no shares of
common stock for the reinvestment of dividends.
The fund's articles of incorporation authorize the issuance of fund
preferred shares, par value $0.001 per share, in one or more classes or series,
with rights as determined by the Board of Directors, by action of the Board of
Directors without the approval of the common shareholders.
During the six months ended June 30, 2005, a $139,817 adjustment was
credited to common stock for preferred offering costs.
On November 19, 2004, the fund issued 2,600 auction market preferred shares,
Series T7 (par value $0.001). Proceeds paid to the fund amounted to $63,969,758
after deduction of underwriting commissions and offering expenses of $1,030,242.
This issue has 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, 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
- --------------------------------------------------------------------------------
24
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 of 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 preferred shares and (2) approve
any matter that materially and adversely affects the rights, preferences, or
powers of that series.
NOTE 6. INVESTMENTS IN INTEREST RATE SWAPS
Interest rate swaps at June 30, 2005:
<Table>
<Caption>
UNREALIZED
NOTIONAL FLOATING RATE(a) APPRECIATION/
COUNTERPARTY AMOUNT FIXED RATE (RESET MONTHLY) TERMINATION DATE (DEPRECIATION)
- -------------------------------- ----------- ---------- --------------- ----------------- --------------
Salomon Swapco Inc.............. $31,250,000 5.3025% 3.33% July 30, 2006 $ (498,986)
Salomon Swapco Inc.............. $19,125,000 3.4065% 3.26% June 18, 2007 197,349
Salomon Swapco Inc.............. $31,250,000 5.5920% 3.33% July 30, 2008 (1,498,942)
Salomon Swapco Inc.............. $19,125,000 4.0800% 3.26% December 18, 2009 461
Salomon Swapco Inc.............. $31,250,000 5.8240% 3.33% July 30, 2011 (2,962,955)
Royal Bank of Canada............ $14,500,000 2.7950% 3.13% October 2, 2007 358,688
Merrill Lynch Derivative
Products AG................... $14,500,000 3.9950% 3.28% October 22, 2009 13,437
-----------
$(4,390,948)
-----------
-----------
</Table>
- -------------------
(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
at June 30, 2005.
- --------------------------------------------------------------------------------
25
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
PROXY RESULTS
During the six months ended June 30, 2005, Cohen & Steers Advantage Income
Realty Fund, Inc. shareholders voted on the following proposals at the annual
meeting held on April 28, 2005. The description of each proposal and number of
shares voted are as follows:
Common Shares
<Table>
- -------------------------------------------------------------------------------------
SHARES VOTED AUTHORITY
FOR WITHHELD
- -------------------------------------------------------------------------------------
To elect Directors
Bonnie Cohen............................................... 24,522,376 335,324
Richard E. Kroon........................................... 24,461,369 396,331
C. Edward Ward, Jr......................................... 24,475,372 382,328
</Table>
Preferred Shares
<Table>
- -------------------------------------------------------------------------------------
SHARES VOTED AUTHORITY
FOR WITHHELD
- -------------------------------------------------------------------------------------
To elect Directors
Bonnie Cohen............................................... 10,024 8
Richard E. Kroon........................................... 10,021 11
Willard H. Smith Jr........................................ 10,022 10
C. Edward Ward, Jr......................................... 10,024 8
</Table>
- --------------------------------------------------------------------------------
26
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS
(PERIODS ENDED JUNE 30, 2005) (UNAUDITED)
<Table>
<Caption>
BASED ON NET ASSET VALUE BASED ON MARKET VALUE
- -------------------------- --------------------------
SINCE INCEPTION SINCE INCEPTION
ONE YEAR (05/31/01) ONE YEAR (05/31/01)
- -------- --------------- -------- ---------------
35.47% 23.31% 38.46% 20.01%
</Table>
The performance data quoted represents 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 redeemed, 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.
OTHER INFORMATION
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the fund may purchase, from time to time, shares of its
common stock in the open market.
A description of the policies and procedures that the fund uses to determine
how to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com or (iii) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. In addition, the fund's proxy voting record for the most
recent 12-month period ended June 30 is available (i) without charge, upon
request, by calling 1-800-330-7348 or (ii) on the SEC's Web site at
http://www.sec.gov.
The fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The fund's
Forms N-Q are available (i) without charge, upon request by calling
1-800-330-7348, 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 1-800-SEC-0330.
Please note that the distributions paid by the fund to shareholders are
subject to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders on their 1099-DIV forms, which are
mailed to shareholders after the close of each fiscal year. The fund may pay
distributions in excess of the fund's net investment company taxable income and
this excess would be a tax-free 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. 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.
- --------------------------------------------------------------------------------
27
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
CONTINUATION OF INVESTMENT MANAGEMENT AGREEMENT
The board of directors of the fund, including a majority of the directors
who are not parties to the fund's Investment Management Agreement, or interested
persons of any such party ('Independent Directors'), has the responsibility
under the 1940 Act to approve the fund's Investment Management Agreement for its
initial two year term and its continuation annually thereafter at a meeting of
the board called for the purpose of voting on the approval or continuation. At
meetings held in person on June 13, 2005, the Investment Management Agreement
was discussed and was unanimously continued for a one-year term by the fund's
board, including the Independent Directors. The Independent Directors were
represented by independent counsel who assisted them in their deliberations
during the board meeting and executive session.
In considering whether to continue the Investment Management Agreement, the
board reviewed materials provided by the fund's investment advisor (the
'Advisor') and Fund counsel, which included, among other things, fee and expense
information and performance comparisons of funds with investment objectives and
policies similar to those of the fund prepared by Morningstar Associates LLC
('Morningstar') and summaries of the fee and expense information prepared by the
Advisor, information regarding the past performance of the Advisor prepared by
Morningstar, sales and redemption data for the fund and memoranda outlining the
legal duties of the board. The board also met with investment advisory personnel
from the Advisor. The board considered factors relating to both the selection of
the Advisor and the approval of the advisory fee when reviewing the Investment
Management Agreement. In particular, the board considered the following:
(i) The nature, extent and quality of services to be provided by the
Advisor: The directors reviewed the services that the Advisor provides to the
fund, including, but not limited to, making the day-to-day investment decisions
for the fund, and generally managing the fund's investments in accordance with
the stated policies of the fund. The directors also discussed with officers and
portfolio managers of the fund the amount of time the Advisor dedicated to the
fund during the last year and the types of transactions that were being done on
behalf of the fund. The directors also listened to a presentation by the Advisor
on its investment philosophy with respect to the fund and the investment outlook
for the fund. Additionally, the directors considered the services provided by
the Advisor to its other closed-end investment companies that invest
substantially in real estate securities and have investment objectives and
strategies similar to the fund.
In addition, the board considered the education, background and experience
of the personnel at the Advisor. They also took into consideration the favorable
history and reputation of the portfolio managers for the fund, finding that this
has had, and would likely continue to have, a favorable impact on the success of
the fund. The board noted that the Advisor's experience in investing in real
estate securities generally helped further the fund's objectives. Lastly, the
directors noted the Advisor's ability to attract quality and experienced
personnel. The directors concluded that the scope of services provided by the
Advisor to the fund, including compliance with investment restrictions and tax
reporting requirements, was consistent with services provided by the Advisor for
other funds and accounts in both nature and quality.
- --------------------------------------------------------------------------------
28
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
(ii) Investment performance of the fund and the Advisor: The directors
reviewed the past investment performance of the fund, as well as the past
investment performance of the fund's peer group. In particular, they focused on
materials provided by Morningstar. The directors noted that the fund had
significantly outperformed its peer group for 1 and 3 years (there was only one
other peer fund for the 3 year period), outperformed slightly versus the
benchmark for 1 year and significantly outperformed versus the benchmark over 3
years.
The directors reviewed the Advisor's performance for other closed-end real
estate funds. In particular, the directors noted that the Advisor managed
several real estate funds, other than the fund, that were outperforming their
benchmark indices and their competitors. The directors recognized that past
performance is not an indicator of future performance, but found that the
Advisor had the necessary expertise to manage the fund in accordance with its
investment objectives and strategies. The directors determined that the Advisor
would continue to be an appropriate investment adviser for the fund and that
fund performance was satisfactory.
(iii) Cost of the services to be provided and profits to be realized by the
Advisor from the relationship with the Fund: Next, the directors considered the
cost of the services provided by the Advisor. As part of their analysis, the
directors gave substantial consideration to the fees and expense ratios of the
fund provided by Morningstar. Under the Investment Management Agreement, the
fund pays the Advisor a monthly advisory fee computed at the annual rate of
0.85% of the managed assets of the Corporation, which at current asset levels
equals 1.24% of net assets. The management fee (which includes both advisory and
affiliated administrative fees) at current asset levels equals 1.29% of net
assets.
The directors considered the fees of the fund's peer group (selected by
Morningstar) and noted that, after the Advisor's fee waiver, the fund paid a
management fee (including both advisory and administrative fees) of 0.45% of
managed assets, which was the lowest in the peer group and significantly below
the peer group average. The directors also noted that the fund's total expense
ratio was below the peer group average (both before and after the Advisor's fee
waiver). The directors concluded that the fund's investment advisory fee and
management fee were projected to continue to be in line with the average fees
charged to peer group funds.
The directors also reviewed information regarding the profitability to the
Advisor of its relationship with the fund. The board considered the level of the
Advisor's profits and whether the profits were reasonable for the Advisor. The
profitability analysis took into consideration fall out benefits from the
Advisor's relationship with the fund, including fees paid to the Advisor under
the Administration Agreement. The director's found that the profits realized by
the Advisor from its relationship with the fund were reasonable and consistent
with fiduciary duties.
(iv) The extent to which economies of scale would be realized as the fund
grows and whether fee levels would reflect such economies of scale: The
directors noted that this factor did not apply to the fund because its fee
schedule does not contain any breakpoints.
(v) Comparison of services rendered and fees paid to those under other
investment advisory contracts, such as contracts of the same and other
investment advisers or other clients: As discussed above in (i) and (iii), the
directors compared both the services rendered and the fees paid under the
Investment Management Agreement to other contracts of the Advisor and compared
the fees paid under the Investment Management Agreement to
- --------------------------------------------------------------------------------
29
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
contracts of other investment advisers managing real estate securities. The
directors also considered fees charged by the Advisor to institutional and other
clients. The directors determined that the services and fees were comparable to
those being offered under the other contracts by the Advisor and other
investment advisers.
The directors took into consideration other benefits to be derived by the
Advisor in connection with the Investment Management Agreement, noting
particularly the research and related services, within the meaning of
Section 28(e) of the Securities Exchange Act of 1934, as amended, that the
Advisor would be eligible to receive by allocating the fund's brokerage
transactions. The directors also noted the administrative services provided
under the Administration Agreement by the Advisor for the fund such as
operational services and furnishing office space and facilities for the fund,
and providing persons satisfactory to the board to serve as officers of the
fund, noting that these services were beneficial to the fund.
No single factor was determinative to the decision of the board. Rather,
after weighing all of the reasons discussed above, the board, including the
Independent Directors, unanimously approved the continuation of the Investment
Management Agreement.
- --------------------------------------------------------------------------------
30
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
<Table>
FOR TOTAL RETURN: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
REALTY SHARES INSTITUTIONAL REALTY SHARES
DESIGNED FOR INVESTORS SEEKING MAXIMUM TOTAL DESIGNED FOR INSTITUTIONAL INVESTORS SEEKING
RETURN, INVESTING PRIMARILY IN REITS MAXIMUM TOTAL RETURN, INVESTING PRIMARILY IN
SYMBOL: CSRSX REITS
SYMBOL: CSRIX
FOR HIGH CURRENT INCOME: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
REALTY INCOME FUND REALTY FOCUS FUND
DESIGNED FOR INVESTORS SEEKING HIGH CURRENT DESIGNED FOR INVESTORS SEEKING MAXIMUM CAPITAL
INCOME, INVESTING PRIMARILY IN REITS APPRECIATION, INVESTING IN A LIMITED NUMBER OF
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX REITS AND OTHER REAL ESTATE SECURITIES
SYMBOLS: CSFAX, CSFBX, CSFCX, CSSPX
FOR TOTAL RETURN: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
INTERNATIONAL REALTY FUND UTILITY FUND
DESIGNED FOR INVESTORS SEEKING MAXIMUM TOTAL DESIGNED FOR INVESTORS SEEKING MAXIMUM TOTAL
RETURN, INVESTING PRIMARILY IN INTERNATIONAL RETURN, INVESTING PRIMARILY IN UTILITIES
REAL ESTATE SECURITIES SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX
SYMBOLS: IRFAX, IRFCX, IRFIX
</Table>
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. THE PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION ABOUT THE FUND.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
COHEN & STEERS SECURITIES, LLC, DISTRIBUTOR
- --------------------------------------------------------------------------------
31
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
<Table>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT MANAGER
Director and co-chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and co-chairman (212) 832-3232
Bonnie Cohen FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
George Grossman Boston, MA 02110
Director
TRANSFER AGENT -- COMMON SHARES
Richard E. Kroon Computershare
Director 250 Royall Street
Canton, MA 02021
Richard J. Norman (800) 426-5523
Director
TRANSFER AGENT -- PREFERRED SHARES
Frank K. Ross The Bank of New York
Director 100 Church Street
New York, NY 10007
Willard H. Smith Jr.
Director LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
C. Edward Ward, Jr. 425 Lexington Avenue
Director New York, NY 10017
Adam M. Derechin New York Stock Exchange Symbol: RLF
President and chief executive officer
Web site: cohenandsteers.com
Joseph M. Harvey
Vice president This report is for shareholder information. This is not
a prospectus intended for use in the purchase or sale
James S. Corl of fund shares. Past performance is of course no
Vice president guarantee of future results and your investment may
be worth more or less at the time you sell.
Lawrence B. Stoller
Secretary
Jay J. Chen
Treasurer
John E. McLean
Chief compliance officer and assistant
secretary
</Table>
- --------------------------------------------------------------------------------
32
<Page>
COHEN & STEERS
ADVANTAGE INCOME REALTY FUND
- ---------------------------
SEMIANNUAL REPORT
JUNE 30, 2005
COHEN & STEERS
ADVANTAGE INCOME REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
<Page>
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded, based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing date of this
report, that these disclosure controls and procedures provide reasonable
assurance that material information required to be disclosed by the registrant
in the report it files or submits on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms and that such material information is
accumulated and communicated to the registrant's management, including its
principal executive officer and principal financial officer, as appropriate, in
order to allow timely decisions regarding required disclosure.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a) (2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a- 2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS ADVANTAGE INCOME REALTY FUND, INC.
By: /s/ Adam M. Derechin
-------------------------------
Name: Adam M. Derechin
Title: President and Chief Executive Officer
Date: August 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Adam M. Derechin
-------------------------------
Name: Adam M. Derechin
Title: President and Chief Executive Officer
(principal executive officer)
By: /s/ Jay J. Chen
----------------------------------------
Name: Jay J. Chen
Title: Treasurer
(principal financial officer)
Date: August 23, 2005
STATEMENT OF DIFFERENCES
The division sign shall be expressed as............................... [div]
The section symbol shall be expressed as.............................. 'SS'