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[LOGO OMITTED]
757 THIRD AVENUE
NEW YORK, NEW YORK 10017
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A NO-LOAD MUTUAL FUND
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PROSPECTUS
Manager
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
Telephone: (212) 832-3232
Transfer Agent
Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02208-2798
Telephone: (800) 437-9912
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED OF THE FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO INDICATES OTHERWISE IS
COMMITTING A CRIME.
JANUARY 31, 2000
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TABLE OF CONTENTS
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PAGE
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RISK/RETURN SUMMARY......................................... 1
Investment Objective and Principal Investment
Strategies........................................... 1
Who Should Invest....................................... 1
Principal Risks......................................... 1
HISTORICAL FUND PERFORMANCE................................. 2
FEES AND EXPENSES OF THE FUND............................... 2
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND
RELATED RISKS............................................. 3
Objective............................................... 3
Principal Investment Strategies......................... 3
Principal Risks of Investing in the Fund................ 4
MANAGEMENT OF THE FUND...................................... 5
The Manager............................................. 5
Portfolio Managers...................................... 6
HOW TO PURCHASE AND SELL FUND SHARES........................ 6
Pricing of Fund Shares.................................. 6
Purchase Minimums....................................... 6
Form of Payment......................................... 6
Purchases of Fund Shares................................ 7
Exchange Privilege...................................... 8
How To Sell Fund Shares................................. 8
DIVIDENDS AND DISTRIBUTIONS................................. 9
TAX CONSIDERATIONS.......................................... 9
RELATED PERFORMANCE......................................... 10
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
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RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The investment goal of Cohen & Steers Institutional Realty Shares, Inc. (the
'Fund') is total return through investment in real estate securities. In
pursuing total return, the Fund seeks both capital appreciation and current
income with approximately equal emphasis. The Fund may change its investment
goal without shareholder approval, although it has no current intention to do
so.
The Fund invests at least 65%, and normally substantially all of its total
assets, in common stocks and other equity securities issued by domestic real
estate companies, such as 'real estate investment trusts' ('REITs'). A real
estate company generally derives at least 50% of its revenue from real estate or
has at least 50% of its assets in real estate. A REIT is a company dedicated to
owning, and usually operating, income producing real estate, or to financing
real estate. The Fund invests primarily in shares of Equity REITs, which are
companies that invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. One of the most important
characteristics of REITs is that they are not subject to tax if they distribute
to their shareholders substantially all of their income. As a result, REITs
generally pay a higher dividend than other types of companies. The Fund can
invest in real estate companies of any size.
In making investment decisions on behalf of the Fund, the manager seeks real
estate companies that it believes have strong growth prospects and are
attractively priced relative to their projected growth rates. An investment may
be sold when this is no longer the case or a better opportunity is identified.
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WHO SHOULD INVEST
Cohen & Steers Institutional Realty Shares may be suitable for you if you are
seeking:
Some exposure to real estate to add to your portfolio mix;
A fund that may perform differently than a general stock or bond fund to add
to your portfolio;
Liquidity in a real estate-related investment;
A fund offering the potential for both current income and long-term capital
growth; and
A fund intended for institutional investors.
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PRINCIPAL RISKS
Investment Risk. An investment in the Fund is subject to investment risk,
including the possible loss of the entire principal amount that you invest.
Stock Market Risk. Your investment in Fund shares represents an indirect
investment in the REIT shares and other real estate securities owned by the
Fund. The value of these equity securities, like other stock market investments,
may move up or down, sometimes rapidly and unpredictably. Your Fund shares at
any point in time may be worth less than what you invested, even after taking
into account the reinvestment of Fund dividends and distributions.
Real Estate Markets and REIT Risk. Additionally, since the Fund concentrates its
assets in the real estate industry, your investment in the Fund will be closely
linked to the performance of the real estate markets. Property values may fall
due to increasing vacancies or declining rents resulting from unanticipated
economic, legal, cultural or technological developments. REIT prices also may
drop because of the failure of borrowers to pay their loans and poor management.
Smaller Companies. Even the larger REITs in the industry tend to be small to
medium-sized companies in relation to the equity markets as a whole. REIT shares
therefore can be more volatile than, and perform differently from,
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larger company stocks. There may be less trading in a smaller company's stock,
which means that buy and sell transactions in that stock could have a larger
impact on the stock's price than is the case with larger company stocks.
Further, smaller companies may have fewer business lines; changes in any one
line of business, therefore, may have a greater impact on a smaller company's
stock price than is the case for a larger company.
As of November 30, 1999, the market capitalization of REITs ranged in size from
approximately $5 million to $5.5 billion.
Non-Diversification. As a 'non-diversified' investment company, the Fund can
invest in fewer individual companies than a diversified investment company.
Because a non-diversified portfolio is more likely to experience large market
price fluctuations, the Fund could be subject to a greater risk of loss than a
fund that has a diversified portfolio.
Your investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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HISTORICAL FUND PERFORMANCE
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BECAUSE THE FUND HAS LESS THAN ONE CALENDAR YEAR OF PERFORMANCE, IT DOES NOT
HAVE ANNUAL TOTAL OR AVERAGE ANNUAL TOTAL RETURNS TO REPORT IN A BAR CHART OR
PERFORMANCE TABLE.
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FEES AND EXPENSES OF THE FUND
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THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU COULD PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your
investment): None
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets):
MANAGEMENT FEE................................................ 0.75%
OTHER EXPENSES*............................................... 0.03%
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TOTAL ANNUAL FUND OPERATING EXPENSES:......................... 0.78%
EXPENSE REIMBURSEMENT......................................... 0.03%
NET EXPENSES.................................................. 0.75%
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* Cohen & Steers Capital Management, Inc. has contractually agreed to reimburse
the Fund so that its total annual operating expenses never exceed 0.75% of
average daily net assets. This commitment will remain in place for the life of
the Fund. These other expenses include the fees and expenses of the Fund's
independent directors, taxes, interest charged on borrowings, trade
organization membership dues and federal and state registration fees. This
arrangement does not cover extraordinary expenses. Other expenses are based on
estimated amounts for the current fiscal year.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE FUND
WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES THAT YOU
INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED AND THEN REDEEM ALL OF
YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR
INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S OPERATING EXPENSES
REMAIN THE SAME. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON
THESE ASSUMPTIONS YOUR COSTS WOULD BE:
1 YEAR 3 YEARS
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$77 $241
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INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS
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OBJECTIVE
The investment objective of Cohen & Steers Institutional Realty Shares, Inc.
(the 'Fund') is total return through investment in real estate securities. The
Fund pursues its investment objective of total return by seeking, with
approximately equal emphasis, capital appreciation and current income. There can
be no assurance that the Fund will achieve its investment objective. The Fund,
of course, will concentrate its investments in the real estate industry.
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PRINCIPAL INVESTMENT STRATEGIES
In making investment decisions on behalf of the Fund, the manager seeks real
estate companies that it believes have strong growth prospects and are
attractively priced relative to their projected growth rates. This approach is
generally referred to as 'growth at a reasonable price.' In selecting
investments, the manager relies on a fundamental analysis of each company. The
manager reviews each company's potential for success in light of the company's
current financial condition, its industry position, and economic and market
conditions. The manager evaluates a number of factors, including growth
potential, earnings estimates and the quality of management. The manager may
sell an investment from the portfolio when the company's fundamentals
deteriorate, a target price is reached, or when the company appears
substantially less desirable than another investment.
The following are the Fund's principal investment strategies. A more detailed
description of the Fund's investment policies and restrictions and more detailed
information about the Fund's investments are contained in the Fund's Statement
of Additional Information ('SAI').
Real Estate Companies
For purposes of the Fund's investment policies, a real estate company is one
that:
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial or residential real
estate; or
has at least 50% of its assets in such real estate.
Under normal circumstances, the Fund will invest substantially all of its assets
in the equity securities of real estate companies. These equity securities can
consist of:
common stocks (including REIT shares);
rights or warrants to purchase common stocks;
securities convertible into common stocks where the conversion feature
represents, in the manager's view, a significant element of the securities'
value; and
preferred stocks.
Real Estate Investment Trusts
The Fund may invest, without limit, in shares of real estate investment trusts
('REITs'). REITs pool investors' funds for investment primarily in income
producing real estate or real estate-related loans or interests. A REIT is not
taxed on income distributed to shareholders if, among other things, it
distributes to its shareholders substantially all of its taxable income (other
than net capital gains) for each taxable year. As a result, REITs tend to pay
relatively higher dividends than other types of companies and the Fund intends
to use these REIT dividends in an effort to meet the current income goal of its
investment objective.
Types of REITs. REITs can generally be classified as Equity REITs, Mortgage
REITs and Hybrid REITs. Equity REITs invest the majority of their assets
directly in real property and derive their income primarily from rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
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mortgages and derive their income primarily from interest payments. Hybrid REITs
combine the characteristics of both Equity REITs and Mortgage REITs. The Fund
invests primarily in Equity REITs.
Defensive Position
When the Fund's manager believes that market or general economic conditions
justify a temporary defensive position, the Fund may deviate from its investment
objective and invest all or any portion of its assets in high-grade debt
securities without regard to whether the issuer is a real estate company. When
and to the extent the Fund assumes a temporary defensive position, it may not
pursue or achieve its investment objective.
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PRINCIPAL RISKS OF INVESTING IN THE FUND
Because prices of equity securities fluctuate from day to day, the value of the
Fund's portfolio and the Fund's price per share will vary based upon general
market conditions.
General Risks of Securities Linked to the Real Estate Market
The Fund will not invest in real estate directly, but only in securities issued
by real estate companies. However, because of its policy of concentration in the
securities of companies in the real estate industry, the Fund is also subject to
the risks associated with the direct ownership of real estate. These risks
include:
declines in the value of real estate;
risks related to general and local economic conditions;
possible lack of availability of mortgage funds;
overbuilding;
extended vacancies of properties;
increased competition;
increases in property taxes and operating expenses;
changes in zoning laws;
losses due to costs resulting from the clean-up of environmental problems;
liability to third parties for damages resulting from environmental problems;
casualty or condemnation losses;
limitations on rents;
changes in neighborhood values and the appeal of properties to tenants; and
changes in interest rates.
Thus, the value of the Fund's shares may change at different rates compared to
the value of shares of a mutual fund with investments in a mix of different
industries.
In addition to these risks, Equity REITs may be affected by changes in the value
of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be diversified.
Equity and Mortgage REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, Equity and Mortgage
REITs could possibly fail to qualify for tax-free pass-through of income under
the Internal Revenue Code ('Code'), or to maintain their exemptions from
registration under the Investment Company Act of 1940 ('1940 Act'), as amended.
The above factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
In addition, even the larger REITs in the industry tend to be small to
medium-sized companies in relation to the equity markets as a whole. There may
be less trading in a smaller company's stock, which means that buy and sell
transactions in that stock could have a larger impact on the stock's price than
is the case with larger company stocks. Smaller companies also may have fewer
lines of business so that changes in any one line of business may have a greater
impact on a smaller company's stock price than is the case for a larger company.
Further, smaller company stocks may perform in different cycles than larger
company stocks. Accordingly, REIT shares can be more volatile than -- and at
times will perform differently from -- large company
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stocks such as those found in the Dow Jones Industrial Average.
Portfolio Turnover
The Fund anticipates that its annual portfolio turnover rate will not exceed
150%, but the turnover rate will not be a limiting factor when the manager deems
portfolio changes appropriate. The turnover rate may vary greatly from year to
year. An annual turnover rate of 150% occurs, for example, when all of the
securities held by the Fund are replaced one and one-half times in a period of
one year. A higher turnover rate results in correspondingly greater brokerage
commissions and other transactional expenses which are borne by the Fund. High
portfolio turnover may result in the realization of net short-term capital gains
by the Fund which, when distributed to shareholders, will be taxable as ordinary
income. See 'Tax Considerations.'
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MANAGEMENT OF THE FUND
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THE MANAGER
Cohen & Steers Capital Management, Inc., with offices located at 757 Third
Avenue, New York, New York 10017, has been retained to provide investment
advice, and, in general, to conduct the management and investment program of the
Fund under the overall supervision and control of the Board of Directors of the
Fund. Cohen & Steers Capital Management, Inc., a registered investment adviser,
was formed in 1986 and is a leading U.S. manager of portfolios dedicated to
investments in REITs. Its current clients include pension plans, endowment funds
and mutual funds, including Cohen & Steers Realty Income Fund, Inc. and Cohen &
Steers Total Return Realty Fund, Inc., which are closed-end investment
companies, and Cohen & Steers Equity Income Fund, Inc., Cohen & Steers Realty
Shares, Inc. and Cohen & Steers Special Equity Fund, Inc., which are open-end
investment companies. All of Cohen & Steers' client accounts are invested
principally in real estate securities.
Under its Management Agreement with the Fund, the 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 policies of the Fund, subject to the general
supervision of the Board of Directors of the Fund. The manager also performs
certain administrative services for the Fund, and provides persons satisfactory
to the Board of Directors of the Fund to serve as officers of the Fund. Such
officers, as well as certain other employees and Directors of the Fund, may be
directors, officers, or employees of the manager.
The manager selects brokers and dealers to execute the Fund's portfolio
transactions. Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
manager may consider sales of shares of the Fund as a factor in the selection of
brokers and dealers to execute portfolio transactions on behalf of the Fund. For
its services under the Management Agreement, the Fund pays the manager a monthly
management fee at the annual rate of 0.75% of the average daily net asset value
of the Fund. The manager pays all expenses of the Fund except for brokerage
fees, taxes, interest, fees and expenses of the Independent Directors (including
fees and expenses of their independent counsel and other independent
consultants), trade organization membership dues, federal and state registration
fees and extraordinary expenses.
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PORTFOLIO MANAGERS
The Fund's portfolio managers, who have managed the Fund since its inception,
are
Martin Cohen -- Mr. Cohen is a Director, President and Treasurer of the Fund.
He is, and has been since their inception, President of Cohen & Steers Capital
Management, Inc., the Fund's manager, and Vice President of Cohen & Steers
Securities, Inc., the Fund's distributor.
Robert H. Steers -- Mr. Steers is a Director, Chairman and Secretary of the
Fund. He is, and has been since their inception, Chairman of Cohen & Steers
Capital Management, Inc., the Fund's manager, and President of Cohen & Steers
Securities, Inc., the Fund's distributor.
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HOW TO PURCHASE AND SELL FUND SHARES
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PRICING OF FUND SHARES
The price at which you can purchase and redeem the Fund's shares is the net
asset value of the shares next determined after we receive your order in proper
form. Proper form means that your request includes the Fund name and account
number, states the amount of the transaction (in dollars or shares), includes
the signatures of all owners exactly as registered in the account, signature
guarantees (if necessary), any supporting legal documentation that may be
required and any outstanding certificates representing shares to be redeemed. We
calculate our net asset value per share as of the close of trading on the New
York Stock Exchange generally 4:00 p.m. Eastern Time, on each day the Exchange
is open for trading. We determine net asset value per share by adding the market
value of all securities and other assets in the Fund's portfolio, subtracting
the Fund's liabilities, and dividing by the total number of shares of the Fund
then outstanding. Securities for which market prices are unavailable will be
valued at fair value as determined by the Fund's Board of Directors.
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PURCHASE MINIMUMS
You may open an account with the Fund with a minimum investment of $3,000,000.
(We are authorized to waive these minimums for particular investors.) Additional
investments must be at least $10,000. The Fund reserves the right, on 30 days
notice, to automatically redeem any account that falls below $100,000 (because
of any voluntary redemption) unless within 30 days the account value is
increased to $3,000,000. We are free to reject any purchase order.
You may invest in the Fund through accounts with certain financial
intermediaries, in which case your intermediary may charge you a transaction fee
when you purchase or redeem shares or other fees for their services.
Intermediaries who, in the aggregate, invest more than $3,000,000 on behalf of
their clients are free to increase or decrease the investment minimums for their
clients.
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FORM OF PAYMENT
We will accept payment for shares in three forms:
1. A check drawn on any bank or domestic savings institution. Checks must be
payable in U.S. dollars and will be accepted subject to collection at full face
value.
2. A bank wire or Federal Reserve Wire of federal funds.
3. At the Fund's discretion, marketable securities having a value that meets the
investment minimum.
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PURCHASES OF FUND SHARES
Initial Purchase By Wire
1. Telephone toll free from any continental U.S. state: (800) 437-9912. When you
contact the transfer agent, you will need the following information:
name of the Fund;
name(s) in which shares are to be registered;
address;
social security or tax identification number (where applicable);
dividend payment election;
amount to be wired;
name of the wiring bank; and
name and telephone number of the person to be contacted in connection with the
order.
The transfer agent will assign you an account number and a wire reference
control number.
2. Instruct the wiring bank to transmit at least the required minimum amount
(see 'Purchase Minimums' above) to the custodian:
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-1000
ABA # 021000021
Account: DDA #
Attn: Cohen & Steers Institutional Realty Shares
For further credit to: (Account name)
Account Number: (provided by Transfer Agent)
Wire Reference Control #: (provided by Transfer Agent)
3. Complete the Subscription Agreement attached to the end of this Prospectus.
Mail the Subscription Agreement to the transfer agent:
Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Initial Purchase By Mail
1. Complete the Subscription Agreement included at the end of this Prospectus.
2. Mail the Subscription Agreement and a check in at least the required minimum
amount (see 'Purchase Minimums' above), payable to the Fund, to the transfer
agent at the above address.
Additional Purchases By Wire
1. Telephone toll free from any continental U.S. state: (800) 437-9912. When you
contact the transfer agent, you will need the following information:
name of the Fund;
account number;
amount to be wired;
name of the wiring bank; and
name and telephone number of the person to be contacted in connection with the
order.
The transfer agent will assign you a wire reference control number.
2. Instruct the wiring bank to transmit at least the required minimum amount
(see 'Purchase Minimums' above) to the custodian:
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-1000
ABA # 021000021
Account: DDA # 910-2-733012
Attn: Cohen & Steers Institutional Realty Shares
For further credit to: (Account Name)
Account Number: (provided by Transfer Agent)
Wire Reference Control #: (provided by Transfer Agent)
Additional Purchases By Mail
1. Make a check payable to the Fund in at least the required minimum amount (see
'Purchase Minimums' above). Write your Fund account number on the check.
2. Mail the check and the detachable stub from your account statement (or a
letter providing your account number) to the transfer agent at the address set
forth above.
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EXCHANGE PRIVILEGE
You may exchange some or all of your Fund shares for shares of the other mutual
funds managed by Cohen & Steers, or for shares of Cohen & Steers Vista Cash
Management Fund, subject to any applicable initial sales charges. You may
exchange shares of any other Cohen & Steers mutual fund for shares of the Fund,
subject to any applicable contingent deferred sales charge at the time you sell
your Fund shares.
An exchange of shares may result in your realizing a taxable gain or loss for
income tax purposes. See 'Tax Considerations.' The exchange privilege is
available to shareholders residing in any state in which the shares being
acquired may be legally sold. Before you exercise the exchange privilege, you
should read the prospectus of the fund whose shares you are acquiring. Your
broker may limit or prohibit your right to use the exchange privilege.
There is no charge for the exchange privilege (although your broker may impose a
transaction fee). We may limit or terminate your exchange privilege if you make
exchanges more than four times a year. WE MAY MODIFY OR REVOKE THE EXCHANGE
PRIVILEGE FOR ALL SHAREHOLDERS UPON 60 DAYS PRIOR WRITTEN NOTICE. For additional
information concerning exchanges, or to make an exchange, please call the
transfer agent at (800) 437-9912.
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HOW TO SELL FUND SHARES
You may sell or 'redeem' your shares by telephone or through the transfer agent.
Redemption By Telephone
To redeem shares by telephone, call the Fund's transfer agent at
(800) 437-9912. In order to be honored at that day's price, we must receive any
telephone redemption requests by 4:00 p.m., Eastern Time. If we receive your
telephone redemption request after 4:00 p.m., Eastern Time, your redemption will
be honored at the next day's price.
If you would like to change your telephone redemption instructions, you must
send the transfer agent written notification signed by all of the account's
registered owners, accompanied by signature guarantee(s), as described below.
We may modify or suspend telephone redemption privileges without notice during
periods of drastic economic or market changes. WE MAY MODIFY OR TERMINATE THE
TELEPHONE REDEMPTION PRIVILEGE AT ANY TIME ON 30 DAYS NOTICE TO SHAREHOLDERS.
Redemption By Mail
You can redeem Fund shares by sending a written request for redemption to the
transfer agent:
Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02208-2798
Attn: Cohen & Steers Institutional Realty Shares
A written redemption request must:
state the number of shares or dollar amount to be redeemed;
identify your account number and tax identification number; and
be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificate
must be endorsed for transfer (or be accompanied by a duly executed stock power)
and must be submitted to the transfer agent together with a redemption request.
Other Redemption Information
Payment of Redemption Proceeds. The Fund will send you the proceeds by check. If
you made the election to receive redemption proceeds by wire on the Subscription
Agreement, the Fund will send you the proceeds by wire to your designated bank
account. When proceeds of a redemption are to be paid to someone other
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than the shareholder, either by wire or check, you must send a letter of
instruction and the signature(s) on the letter of instruction must be
guaranteed, as described below, regardless of the amount of the redemption. The
transfer agent will normally mail checks for redemption proceeds within five
business days. Redemptions by wire will normally be sent within two business
days. The Fund will delay the payment of redemption proceeds, however, if your
check used to pay for the shares to be redeemed has not cleared, which may take
up to 15 days or more.
The Fund will pay redemption proceeds in cash, by check or wire, unless the
Board of Directors believes that economic conditions exist which make redeeming
in cash detrimental to the best interests of the Fund. In the event that this
were to occur, all or a portion of your redemption proceeds would consist of
readily marketable portfolio securities of the Fund transferred into your name.
You would then incur brokerage costs in converting the securities to cash.
Signature Guarantee. The guarantor of a signature must be a trust company or
national bank, a member bank of the Federal Reserve System, a member firm of a
national securities exchange or any other guarantor approved by the Fund's
transfer agent. For redemptions made by corporations, executors, administrators
or guardians, the transfer agent may require additional supporting documents
evidencing the authority of the person making the redemption (including evidence
of appointment or incumbency). For additional information regarding the specific
documentation required, contact the transfer agent at (800) 437-9912. The
transfer agent will not consider your redemption request to be properly made
until it receives all required documents in proper form.
Redemption of Small Accounts. If your Fund account has a value of $100,000 or
less as the result of any voluntary redemption, we may redeem your remaining
shares. We will, however, give you 30 days notice of our intention to do so.
During this 30-day notice period, you may make additional investments to
increase your account value to $3,000,000 (the minimum purchase amount) or more
and avoid having the Fund automatically liquidate your account.
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DIVIDENDS AND DISTRIBUTIONS
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The Fund will declare and pay dividends from its investment income quarterly.
The Fund intends to distribute net realized capital gains, if any, at least once
each year, normally in December. The transfer agent will automatically reinvest
your dividends and distributions in additional shares of the Fund unless you
elected on your Subscription Agreement to have them paid to you in cash.
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TAX CONSIDERATIONS
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The following brief tax discussion assumes you are a U.S. shareholder. In the
SAI we have provided more detailed information regarding the tax consequences of
investing in the Fund.
Dividends paid to you out of the Fund's 'investment company taxable income'
(which includes dividends the Fund receives on REIT shares, interest income, and
net short-term capital gains) will be taxable to you as ordinary income.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, are taxable to you as long-term
capital gains, regardless of how long you have held your Fund shares. A
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distribution of an amount in excess of the Fund's earnings is treated as a
non-taxable return of capital that reduces your tax basis in your Fund shares;
any such distributions in excess of your tax basis are treated as gain from a
sale of your shares. The tax treatment of your dividends and distributions will
be the same regardless of whether they were paid to you in cash or reinvested in
additional Fund shares.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid during January of the following
year.
Each year, we will notify you of the tax status of dividends and other
distributions.
If you redeem your Fund shares, or exchange them for shares of another Cohen &
Steers fund, you may realize a capital gain or loss which will be long-term or
short-term, depending on your holding period for the shares.
We may be required to withhold U.S. federal income tax at the rate of 31% of all
taxable distributions payable if you:
fail to provide us with your correct tax payer identification number;
fail to make required certifications; or
have been notified by the IRS that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against your U.S. federal income tax liability.
Fund distributions also may be subject to state and local taxes.
You should consult with your own tax advisor regarding the particular
consequences of investing in the Fund.
- --------------------------------------------------------------------------------
RELATED PERFORMANCE
- --------------------------------------------------------------------------------
Set forth below is a chart containing prior performance information for Cohen &
Steers Capital Management, Inc. in managing accounts, including registered
investment companies, with investment objectives, policies, techniques and
restrictions substantially similar, although not necessarily identical, to the
Fund. The chart shows average annual returns for a composite of the actual
performance of all accounts with an investment objective of total return ('total
return accounts') managed during the periods indicated. This information was
prepared in compliance with the performance presentation standards of the
Association for Investment Management and Research ('AIMR'), which are different
from the SEC's standards. AIMR did not prepare or review this information.
The prior performance of Cohen & Steers Capital Management, Inc. does not
represent the performance of the Fund, which has no history of operations, and
is not an indication or guarantee of the Fund's future performance, which may be
higher or lower. The performance information reflects all fees and expenses
charged to each account (except custodial fees in the case of non-investment
company accounts).
The Fund's fees and expenses are higher than those charged to certain of the
total return accounts. In addition, not all of the accounts are subject to the
same types of expenses as the Fund. Had the Fund's fees and expenses been
applied, the composite performance numbers may have been lower.
The Fund's performance will be influenced by a number of factors, including the
timing of money flowing into and out of the Fund. These factors may be different
for the Fund than for the other total return accounts managed by Cohen & Steers
Capital Management, Inc. and therefore may result in different performance
results for the Fund and these other accounts.
With the exception of the registered investment companies, the total return
accounts included in the composite are not subject to the specific tax
restrictions and investment limitations imposed on the Fund by the 1940 Act or
the Code. The
10
<PAGE>
performance results for these accounts may otherwise have been lower.
The prior performance of Cohen & Steers Capital Management, Inc. is provided
merely to indicate the experience of Cohen & Steers Capital Management, Inc. in
managing substantially similar accounts.
These figures reflect the reinvestment of dividends and distributions. Included
for comparison purposes are performance figures for the NAREIT Equity REIT Index
and the Wilshire Real Estate Securities Index, which are unmanaged indices
designed to be reflective of the performance of the Equity REIT and real estate
securities markets in general. The performance of the indices has not been
adjusted for any fees or expenses.
AVERAGE ANNUAL TOTAL RETURNS
(For periods ended December 31, 1999)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Cohen & Steers Capital Management, Inc. .................... 2.17% 9.44% 10.28%
------ ---- -----
NAREIT Equity REIT Index.................................... - 4.62% 8.09% 9.14%
------ ---- -----
Wilshire Real Estate Securities Index....................... - 3.19% 8.30% 4.11%
------ ---- -----
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
- --------------------------------------------------------------------------------
SUBSCRIPTION AGREEMENT
1 ACCOUNT TYPE (Please print; indicate only one registration type)
[ ] INDIVIDUAL OR JOINT ACCOUNT
___________________________________ ____________________________________
Name Social Security Number
___________________________________
Name of Joint Registrant, if any.
(For joint registrations, the account
registrants will be joint tenants with
the right of survivorship and not
tenants in common unless tenants
in common or community property
registrations are requested.)
[ ] TRUST [ ] CORPORATION [ ] PARTNERSHIP [ ] OTHER ENTITY
___________________________________ ____________________________________
Name of Entity Tax Identification Number
___________________________________ ____________________________________
Name of Trust Agreement Date of Trust Agreement
(if applicable) (if applicable)
[ ] UNIFORM GIFT TO MINORS, OR [ ] UNIFORM TRANSFER TO MINORS
(where allowed by Law)
___________________________________ Under the ________ (state of
Name of Adult Custodian residence of minor)
(only one permitted) Uniform Gifts/Transfer to
Minor's Act
----------------------------------- ------------------------------------
Name of Minor (only one permitted) Minor's Social Security Number
2 MAILING ADDRESS
___________________________________ ____________________________________
Street or P.O. Box Home Telephone Number
___________________________________ ____________________________________
City and State Zip Code Business Telephone Number
3 INVESTMENT INFORMATION
$__________ Amount to invest ($3,000,000 minimum investment). Do not send
cash. Investment will be paid for by (please check one):
[ ] Check or draft made payable to 'Cohen & Steers Institutional Realty
Shares, Inc.'
[ ] Wire through the Federal Reserve System.*_____________________________
Wire Reference Control Number
[ ] Investment of Marketable Securities (call the Fund at 1-800-330-REIT
for details).
* Call (800) 437-9912 to notify the Fund of investments by wire and to
obtain a Wire Reference Control Number. See the PURCHASE OF FUND SHARES
section of the Prospectus for wire instructions.
4 EXCHANGE PRIVILEGES
Exchange privileges will be automatically granted unless you check the box
below. Shareholders wishing to exchange into other Cohen & Steers Funds
should consult the EXCHANGE PRIVILEGE section of the Prospectus. (Note: If
shares are being purchased through a dealer, please contact your dealer
for availability of this service.)
[ ] I decline the exchange privilege.
PLEASE CONTINUE APPLICATION ON REVERSE SIDE.
<PAGE>
5 REDEMPTION PRIVILEGES
Shareholders may select the following redemption privileges by checking the
box(es) below. See HOW TO SELL FUND SHARES section of the Prospectus for
further details. Redemption privileges will be automatically declined for
boxes not checked.
[ ] I authorize the Transfer Agent to redeem shares in my account(s) by
telephone, in accordance with the procedures and conditions set
forth in the Fund's current Prospectus.
[ ] I wish to have redemption proceeds paid by wire (please complete
Section 7).
6 DISTRIBUTION OPTIONS
Dividends and capital gains may be reinvested or paid in cash. If no options
are selected below, both dividends and capital gains will be reinvested in
additional Fund shares.
Dividends [ ] Reinvest. [ ] Pay in cash.
Capital Gains [ ] Reinvest. [ ] Pay in cash.
[ ] I wish to have my distributions paid by wire (please complete
Section 7).
7 BANK OF RECORD (FOR WIRE INSTRUCTIONS)
PLEASE ATTACH A VOIDED CHECK FROM YOUR BANK ACCOUNT.
___________________________________ ____________________________________
Bank Name Bank ABA Number
___________________________________ ____________________________________
Street or P.O. Box Bank Account Number
___________________________________ ____________________________________
City and State Zip Code Account Name
8 SIGNATURE AND TAXPAYER CERTIFICATION
By signing this form, the Investor represents and warrants that: (a) the
Investor has the full right, power and authority to invest in the Fund; and
(b) the Investor has received a current prospectus of the Fund and agrees to
be bound by its terms. Persons signing as representatives or fiduciaries of
corporations, partnerships, trusts or other organizations are required to
furnish corporate resolutions or similar documents providing evidence that
they are authorized to effect securities transactions on behalf of the
Investor (alternatively, the secretary or designated officer of the
organization may certify the authority of the persons signing on the space
provided below). In addition, signatures of representatives or fiduciaries
of corporations and other entities must be accompanied by a signature
guarantee by a commercial bank that is a member of the Federal Deposit
Insurance Corporation, a trust company or a member of a national securities
exchange.
- --------------------------------------------------------------------------------
PLEASE CHECK ONE:
[ ] U.S. CITIZEN/TAXPAYER
UNDER THE PENALTIES OF PERJURY, THE UNDERSIGNED CERTIFIES THAT: (1) THE
TAXPAYER IDENTIFICATION NUMBER PROVIDED IS CORRECT, AND (2) I/WE ARE NOT
SUBJECT TO BACKUP WITHHOLDING BECAUSE: (A) I/WE ARE EXEMPT FROM BACKUP
WITHHOLDING, OR (B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE
SERVICE ('IRS') THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF
A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED
ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. NOTE: IF YOU HAVE
BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP
WITHHOLDING BECAUSE OF UNDER-REPORTING INTEREST OF DIVIDENDS ON YOUR TAX
RETURN, YOU MUST CROSS OUT ITEM 2 ABOVE.
[ ] NON U.S. CITIZEN/TAXPAYER (FORM W-8 ATTACHED)
INDICATE COUNTRY OF RESIDENCE FOR TAX PURPOSES____________________________
UNDER PENALTY OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS AND
I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY THE IRS. THE IRS DOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- --------------------------------------------------------------------------------
I certify that (1) the information provided on this Subscription Agreement
is true, correct and complete, (2) I have read the prospectus for the Fund
and agree to the terms thereof, and (3) I am of legal age or an
emancipated minor.
x
________________________________ ______
Signature (Owner, Trustee, Etc.) Date
x
__________________________________ ______
Signature (Joint Owner, Co-Trustee) Date
Mail to: Chase Global Funds Services Company, P.O. Box 2798, Boston, MA 02208
<PAGE>
[LOGO OMITTED]
TO OBTAIN ADDITIONAL INFORMATION ABOUT THE FUND
Additional information about the Fund's structure and operations can be found in
the SAI. The information presented in the SAI is incorporated by reference into
the prospectus and is legally considered to be part of this prospectus.
To request a free copy of any of the materials described above, or to make any
other inquiries, please contact us:
By telephone (800) 437-9912
By mail Cohen & Steers Institutional Realty Shares
c/o Chase Global Fund Services Company
P.O. Box 2798
Boston, Massachusetts 02208-2798
By e-mail [email protected]
On the Internet http://www.cohenandsteers.com
Our prospectus and SAI may also be available from a financial advisor or other
intermediary. Reports and other information about the Fund (including the Fund's
SAI) may also be obtained from the SEC:
By going to the SEC's Public Reference Room in Washington, D.C. where you can
review and copy the information. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
By accessing the SEC's Internet site at http://www.sec.gov where you can view,
download and print the information.
By electronic request at the following e-mail address: [email protected],
or by writing to the Public Reference Section of the SEC, Washington, D.C.
20549-0102. Upon payment of a duplicating fee, copies of the information will
be sent to you.
SEC File No. 811-09631
757 THIRD AVENUE, NEW YORK, NEW YORK 10017
<PAGE>
[LOGO OMITTED]
757 THIRD AVENUE
NEW YORK, NEW YORK 10017
(800) 437-9912
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 31, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS,
BUT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC., DATED THE SAME DATE AS THE
STATEMENT OF ADDITIONAL INFORMATION,
AS SUPPLEMENTED FROM TIME TO TIME (THE 'PROSPECTUS'). THIS
STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE IN ITS
ENTIRETY INTO THE PROSPECTUS. COPIES OF THE STATEMENT OF ADDITIONAL
INFORMATION, PROSPECTUS, ANNUAL AND SEMI-ANNUAL REPORTS (WHEN AVAILABLE) MAY BE
OBTAINED FREE OF CHARGE BY WRITING OR CALLING THE ADDRESS
OR PHONE NUMBER SHOWN ABOVE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Investment Objective and Policies........................... 3
Investment Restrictions..................................... 9
Management of the Fund...................................... 11
Compensation of Directors and Certain Officers.............. 12
Investment Advisory and Other Services...................... 13
Portfolio Transactions and Brokerage........................ 15
Organization and Description of Capital Stock............... 16
Determination of Net Asset Value............................ 16
Sales of Fund Shares........................................ 17
Taxation.................................................... 17
Performance Information..................................... 23
Counsel and Independent Accountants......................... 24
Financial Statements........................................ 25
Report of Independent Accountants........................... 26
2
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
Cohen & Steers Institutional Realty Shares, Inc. (the 'Fund') is a
non-diversified, no-load, open-end, investment company organized as a Maryland
corporation on October 13, 1999.
Much of the information contained in this Statement of Additional Information
expands on subjects discussed in the Prospectus. No investment in shares of the
Fund should be made without first reading the Prospectus.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS
The following descriptions supplement the descriptions of the principal
investment objective, strategies and risks as set forth in the Prospectus.
Except as otherwise provided below, the Fund's investment policies are not
fundamental and may be changed by the Board of Directors of the Fund without the
approval of the shareholders; however, the Fund will not change its investment
policies without written notice to shareholders.
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
REITs are sometimes informally characterized as EQUITY REITs, MORTGAGE REITs and
HYBRID REITs. An EQUITY REIT invests primarily in the fee ownership or leasehold
ownership of land and buildings and derives its income primarily from rental
income. An EQUITY REIT may also realize capital gains (or losses) by selling
real estate properties in its portfolio that have appreciated (or depreciated)
in value. A MORTGAGE REIT invests primarily in mortgages on real estate, which
may secure construction, development or long-term loans. A MORTGAGE REIT
generally derives its income primarily from interest payments on the credit it
has extended. A HYBRID REIT combines the characteristics of EQUITY REITs and
MORTGAGE REITs, generally by holding both ownership interests and mortgage
interests in real estate. It is anticipated, although not required, that under
normal circumstances a majority of the Fund's investments in REITs will consist
of EQUITY REITs.
- --------------------------------------------------------------------------------
FOREIGN SECURITIES
The Fund may invest up to 10% of its total assets in securities of foreign real
estate companies. Investing in securities issued by foreign corporations
involves considerations and possible risks not typically associated with
investing in securities issued by domestic corporations. The values of foreign
investments are affected by changes in currency rates or exchange control
regulations, application of foreign tax laws, including withholding taxes,
changes in governmental administration or economic or monetary policy (in the
United States or abroad) or changed circumstances in dealings between nations.
Costs are incurred in connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than in the United
States, and foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United States. Investments
in foreign countries could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations which could extend settlement periods.
3
<PAGE>
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
The Fund will not invest in illiquid securities if, immediately after such
investment, more than 15% of the Fund's net assets (taken at market value) would
be invested in such securities. For this purpose, illiquid securities include,
among others, securities that are illiquid by virtue of the absence of a readily
available market, or legal or contractual restrictions on resale. Securities
that have legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid for purposes of this limitation.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the 'Securities Act')
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register restricted securities in order to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
The Securities and Exchange Commission (the 'SEC') has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on resale to the general public. Rule 144A establishes a 'safe
harbor' from the registration requirements of the Securities Act of resales of
certain securities to qualified institutional buyers. The Manager anticipates
that the market for certain restricted securities will expand further as a
result of this new regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers.
The Manager will monitor the liquidity of restricted securities in the Fund's
portfolio under the supervision of the Board of Directors. In reaching liquidity
decisions, the Manager will consider, among other things, the following factors:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security, and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
The Fund may also enter into repurchase agreements. A repurchase agreement is an
instrument under which an investor, such as the Fund, purchases a U.S.
Government security
4
<PAGE>
from a vendor, with an agreement by the vendor to repurchase the security at the
same price, plus interest at a specified rate. In such a case, the security is
held by the Fund, in effect, as collateral for the repurchase obligation.
Repurchase agreements may be entered into with member banks of the Federal
Reserve System or 'primary dealers' (as designated by the Federal Reserve Bank
of New York) in U.S. Government securities. Repurchase agreements usually have a
short duration, often less than one week. In entering into the repurchase
agreement for the Fund, the Manager will evaluate and monitor the
creditworthiness of the vendor. In the event that a vendor should default on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price.
If the vendor becomes bankrupt, the Fund might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral.
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts. A futures contract
is an agreement to buy or sell a specific security or financial instrument at a
particular price on a stipulated future date. Although some financial futures
contracts call for making or taking delivery of the underlying securities, in
most cases these obligations are closed out before the settlement date. The
closing of a contractual obligation is accomplished by purchasing or selling an
identical offsetting futures contract. Other financial futures contracts by
their terms call for cash settlements.
The Fund may also buy and sell index futures contracts with respect to any stock
or bond index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index on a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
At the time the Fund purchases a futures contract, an amount of cash or liquid
portfolio securities equal to the market value of the futures contract will be
deposited in a segregated account with the Fund's custodian. When writing a
futures contract, the Fund will maintain with its custodian similar liquid
assets that, when added to the amounts deposited with a futures commission
merchant or broker as margin, are equal to the market value of the instruments
underlying the contract. Alternatively, the Fund may 'cover' its position by
owning the instruments underlying the contract (or, in the case of an index
futures contract, a portfolio with a volatility substantially similar to that of
the index on which the futures contract is based), or holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
The Fund will be authorized to use financial futures contracts and related
options for 'bona fide hedging' purposes, as such term is defined in applicable
regulations of the Commodity Futures Trading Commission ('CFTC'). The Fund will
also be authorized to enter into such contracts and related options for
nonhedging purposes, for example to enhance total return or provide market
exposure pending the investment of cash balances, but only to the extent that
aggregate initial margin deposits plus premiums paid by it for open futures
options positions, less the amount by which any such positions are
'in-the-money,' would not exceed 5% of the Fund's total assets. The Fund may
lose the expected benefit of the transactions if
5
<PAGE>
interest rates, currency exchange rates or securities prices change in an
unanticipated manner. Such unanticipated changes in interest rates, currency
exchange rates or securities prices may also result in poorer overall
performance than if the Fund had not entered into any futures transactions.
- --------------------------------------------------------------------------------
OPTIONS ON SECURITIES AND STOCK INDICES
The Fund may write covered call and put options and purchase call and put
options on securities or stock indices that are traded on U.S. exchanges.
An option on a security is a contract that gives the purchaser of the option, in
return for the premium paid, the right to buy a specified security (in the case
of a call option) or to sell a specified security (in the case of a put option)
from or to the writer of the option at a designated price during the term of the
option. An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.
The Fund may write a call or put option only if the option is 'covered.' A call
option on a security written by the Fund is covered if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on a security is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash or liquid portfolio securities
in a segregated account with its custodian. A put option on a security written
by the Fund is 'covered' if the Fund maintains similar liquid assets with a
value equal to the exercise price in a segregated account with its custodian, or
else holds a put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written. The value of the underlying securities on
which options may be written at any one time will not exceed 25% of the total
assets of the Fund. The Fund will not purchase put or call options if the
aggregate premium paid for such options would exceed 5% of its total assets at
the time of purchase.
The Fund will cover call options on stock indices by owning securities whose
price changes, in the opinion of the Manager are expected to be similar to those
of the index, or in such other manner as may be in accordance with the rules of
the exchange on which the option is traded and applicable laws and regulations.
Nevertheless, where the Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index. In that event, the Fund will not be fully covered and could be subject to
risk of loss in the event of adverse changes in the value of the index. The Fund
will cover put options on stock indices by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which the
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any
6
<PAGE>
decline in the value of the portfolio securities being hedged. If the value of
the underlying security or index rises, however, the Fund will realize a loss in
its call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the Fund
assumes the risk of a decline in the underlying security or index. To the extent
that the price changes of the portfolio securities being hedged correlate with
changes in the value of the underlying security or index, writing covered put
options on securities or indices will increase the Fund's losses in the event of
a market decline, although such losses will be offset in part by the premium
received for writing the option.
The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the changes in value of the Fund's security holdings being
hedged.
The Fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. Similarly, the Fund may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.
There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY CONTRACTS AND CURRENCY HEDGING TRANSACTIONS
In order to hedge against foreign currency exchange rate risks, the Fund may
enter into forward foreign currency exchange contracts and foreign currency
futures contracts, as well as purchase put or call options on foreign
currencies, as described below. The Fund may also conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
The Fund may enter into forward foreign currency exchange contracts ('forward
contracts') to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price on a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to 'lock in' the U.S.
dollar price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell an amount of the
former foreign currency (or another currency which
7
<PAGE>
acts as a proxy for that currency) approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as 'cross-hedging.' Because in
connection with the Fund's foreign currency forward transactions an amount of
the Fund's assets equal to the amount of the purchase will be held aside or
segregated to be used to pay for the commitment, the Fund will always have cash
or other liquid assets available sufficient to cover any commitments under these
contracts or to limit any potential risk. The segregated account will be
marked-to-market on a daily basis. In addition, the Fund will not enter into
such forward contracts if, as a result, the Fund will have more than 15% of the
value of its total assets committed to such contracts. While these contracts are
not presently regulated by the CFTC, the CFTC may in the future assert authority
to regulate forward contracts. In such event, the Fund's ability to utilize
forward contracts in the manner set forth above may be restricted. Forward
contracts may limit potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not engaged in such contracts.
The Fund may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates although, in
the event of rate movements adverse to the Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs.
The Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ('foreign currency futures'). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of
currency futures will usually depend on the Manager's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of foreign
currency futures or may realize losses.
- --------------------------------------------------------------------------------
RISKS OF OPTIONS, FUTURES AND FOREIGN CURRENCY CONTRACTS
Options, futures and foreign currency contracts are forms of derivatives. The
use of options and futures as hedging techniques may not succeed where the price
movements of the securities underlying the options and futures do not follow the
price movements of the portfolio securities subject to the hedge. Gains on
investments in options and futures depend on the portfolio manager's ability to
predict correctly the direction of stock prices, interest rates and other
economic factors. Where a liquid secondary market for options or futures does
not exist, the Fund may not be able to close its position and, in such an event
would be unable to control its losses. The loss from investing in futures
contracts is potentially unlimited. The use of forward foreign currency
contracts may limit gains from a positive change in the
8
<PAGE>
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may cause poorer overall performance for the Fund
than if it had not engaged in such contracts.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objective and the general investment policies and investment
techniques of the Fund are described in the Prospectus. The Fund has also
adopted certain investment restrictions limiting the following activities except
as specifically authorized:
The Fund may not:
1. Borrow money, or pledge its assets, except that the Fund may borrow money
from banks for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition of securities.
Borrowing in the aggregate may not exceed 15%, and borrowing for purposes other
than meeting redemptions may not exceed 5%, of the value of the Fund's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of the Fund's total assets will be repaid before any
subsequent investments are made;
2. Issue any senior securities, except that collateral arrangements with respect
to transactions such as forward contracts, futures contracts, short sales or
options, including deposits of initial and variation margin, shall not be
considered to be the issuance of a senior security for purposes of this
restriction;
3. Act as an underwriter of securities issued by other persons, except insofar
as the Fund may be deemed an underwriter in connection with the disposition of
securities;
4. Purchase or sell real estate or commodities, except that the Fund may invest
in securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities secured
by real estate or interests therein, and the Fund may hold and sell real estate
acquired through default, liquidation, or other distributions of an interest in
real estate as a result of the Fund's ownership of such securities;
5. Purchase or sell commodities or commodity futures contracts, except that the
Fund may invest in financial futures contracts, options thereon and similar
instruments;
6. Make loans to other persons except through the lending of securities held by
it (but not to exceed a value of one-third of total assets), through the use of
repurchase agreements, and by the purchase of debt securities, all in accordance
with its investment policies;
7. With the exception of the real estate industry, invest more than 25% of its
total assets in any one industry or group of industries;
8. Purchase restricted or 'illiquid' securities, including repurchase agreements
maturing in more than seven days, if as a result, more than 15% of the Fund's
net assets would then be invested in such securities (excluding securities which
are eligible for resale pursuant to Rule 144A under the Securities Act);
9. Acquire or retain securities of any investment company, except that the Fund
may (a) acquire securities of investment companies up to the limits permitted by
Section 12(d)(1) of the Investment Company Act of 1940, as amended (the '1940
Act'), and (b) acquire securities of any investment company as part of a merger,
consolidation or similar transaction;
10. Make short sales whereby the dollar amount of short sales at any one time
would exceed 25% of the net assets of the Fund; provided the Fund maintains
collateral in a segregated account consisting of cash or liquid portfolio
securities with a value equal to the current market value of
9
<PAGE>
the shorted securities, which is marked-to-market daily. If the Fund owns an
equal amount of such securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issuer
as, and equal in amount to, the securities sold short (which sales are commonly
referred to as 'short sales against the box'), such restrictions shall not
apply;
11. Invest in puts, calls, straddles, spreads or any combination thereof, except
that the Fund may (a) purchase put and call options on securities and securities
indices, and (b) write covered put and call options on securities and securities
indices, provided that (i) the securities underlying such options are within the
investment policies of the Fund; (ii) at the time of such investment, the value
of the aggregate premiums paid for such securities does not exceed 5% of the
Fund's total assets; and (iii) the value of the underlying securities on which
options may be written at any one time does not exceed 25% of total assets;
12. Pledge, mortgage or hypothecate its assets except in connection with
permitted borrowings; or
13. Purchase securities on margin, except short-term credits as are necessary
for the purchase and sale of securities, provided that the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase on margin.
The investment objective and policies set forth in the Prospectus and the
investment restrictions numbered 1 through 7 in this Statement of Additional
Information have been adopted as fundamental policies of the Fund. Under the
1940 Act, a fundamental policy may not be changed without the vote of a majority
of the outstanding voting securities of the Fund, as defined under the 1940 Act.
'Majority of the outstanding voting securities' means the lesser of (1) 67% or
more of the shares present at a meeting of shareholders of the Fund, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding shares of the
Fund. Investment restrictions numbered 8 through 13 above, are non-fundamental
and may be changed at any time by vote of a majority of the Board of Directors.
10
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall management of the business and affairs of the Fund is vested with
the Board of Directors. The Directors approve all significant agreements between
the Fund and persons or companies furnishing services to it, including the
Fund's agreements with the Manager, custodian and transfer agent. The management
of the Fund's day-to-day operations is delegated to its officers and the Fund's
Manager, subject always to the investment objective and policies of the Fund and
to the general supervision of the Directors. As of December 31, 1999, the
Directors and officers as a group beneficially owned, directly or indirectly,
less than 1% of the outstanding shares of the Fund.
The Directors and officers of the Fund and their principal occupations during
the past five years are set forth below. Each Director and officer of the Fund
is also a director or officer of Cohen & Steers Realty Income Fund, Inc. and
Cohen & Steers Total Return Realty Fund, Inc., both of which are closed-end
investment companies sponsored by the Manager, and Cohen & Steers Realty Shares,
Inc., Cohen & Steers Equity Income Fund, Inc. and Cohen & Steers Special Equity
Fund, Inc., which are open-end investment companies also sponsored by the
Manager. An asterisk (*) has been placed next to the name of each Director who
is an 'interested person' of the Fund, as such term is defined in the 1940 Act,
by virtue of such person's affiliation with the Fund or the Manager.
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, ADDRESS AND AGE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
--------------------- ---- -----------------------------------------------
<S> <C> <C>
Robert H. Steers*............... Director, Chairman Chairman of Cohen & Steers Capital Management, Inc., the Fund's Manager.
757 Third Avenue and Secretary President of Cohen & Steers Securities, Inc.
New York, New York
Age: 46
Martin Cohen* .................. Director, President of Cohen & Steers Capital Management, Inc., the Fund's
757 Third Avenue President and Manager. Vice President of Cohen & Steers Securities, Inc.
New York, New York Treasurer
Age: 51
Gregory C. Clark ............... Director President of Wellspring Management Group.
376 Mountain Laurel Drive
Aspen, Colorado
Age: 52
George Grossman ................ Director Attorney at law.
17 Elm Place
Rye, New York
Age: 46
Jeffrey H. Lynford ............. Director Chairman of Wellsford Group Inc. since 1986 and of Wellsford Residential
610 Fifth Avenue Property Trust from 1992 to May 1997. Mr. Lynford is also a Trustee of
New York, New York Equity Residential Properties Trust and an Emeritus Trustee of the
Age: 52 National Trust for Historic Preservation.
Willard H. Smith Jr. ........... Director Board member of Essex Property Trust, Inc., Highwoods Properties, Inc.,
5208 Renaissance Avenue Realty Income Corporation and Willis Lease Finance Corporation. Managing
San Diego, California Director at Merrill Lynch & Co., Equity Capital Markets Division from
Age: 63 1983 to 1995.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, ADDRESS AND AGE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
--------------------- ---- -----------------------------------------------
<S> <C> <C>
Elizabeth O. Reagan ............ Vice President Senior Vice President of Cohen & Steers Capital
757 Third Avenue Management, Inc., the Fund's Manager, since 1996 and
New York, New York prior to that Vice President of Cohen & Steers
Age: 37 Capital Management, Inc.
Adam Derechin .................. Vice President and Senior Vice President of Cohen & Steers Capital
757 Third Avenue Assistant Management, Inc., the Fund's Manager, since 1998 and
New York, New York Treasurer prior to that Vice President of Cohen & Steers
Age: 35 Capital Management, Inc.
Lawrence B. Stoller ............ Assistant Senior Vice President and General Counsel, Cohen &
757 Third Avenue Secretary Steers Capital Management, Inc., the Fund's Manager,
New York, New York since 1999. Prior to that, Associate General
Age: 36 Counsel, Neuberger Berman Management Inc. (money
manager); Assistant General Counsel, The Dreyfus
Corporation (money manager); and Associate, Dechert
Price & Rhoads (law firm).
</TABLE>
- --------------------------------------------------------------------------------
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
- --------------------------------------------------------------------------------
The following table sets forth information regarding compensation of Directors
by the fund complex, of which the Fund is a part, for the fiscal year ended
December 31, 1999. Officers of the Fund and Directors who are interested persons
of the Fund do not receive any compensation from the Fund or any other fund in
the fund complex which is a U.S. registered investment company. Each of the
other Directors is paid an annual retainer of $5,500, and a fee of $500 for each
meeting attended and is reimbursed for the expenses of attendance at such
meetings. In the column headed 'Total Compensation to Directors by Fund
Complex,' the compensation paid to each Director represents the six funds that
each Director serves in the fund complex. The Directors do not receive any
pensions or retirement benefits from the fund complex.
<TABLE>
<CAPTION>
COMPENSATION TABLE
FISCAL YEAR ENDED DECEMBER 31, 1999***
TOTAL
COMPENSATION
AGGREGATE FROM FUND
COMPENSATION COMPLEX PAID TO
NAME OF PERSON, POSITION FROM FUND DIRECTORS
------------------------ --------- ---------
<S> <C> <C>
Gregory C. Clark*, Director................................. $7,500 $45,000
Martin Cohen**, Director and President...................... -- --
George Grossman*, Director.................................. 7,500 45,000
Jeffrey H. Lynford*, Director............................... 7,500 45,000
Willard H. Smith Jr.*, Director............................. 7,500 45,000
Robert H. Steers**, Director and Chairman................... -- --
</TABLE>
- ---------
* Member of the Audit Committee.
** 'Interested person,' as defined in the 1940 Act, of the Fund because of the
affiliation with Cohen & Steers Capital Management, Inc., the Fund's
Manager.
*** Since the Fund is new, these amounts represent estimated future payments to
be made to the Directors during the Fund's fiscal year ending December 31,
2000.
12
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------
THE MANAGER
Cohen & Steers Capital Management, Inc. ('Cohen & Steers'), with offices located
at 757 Third Avenue, New York, New York 10017, is the Manager of the Fund.
Cohen & Steers, a registered investment adviser, was formed in 1986 and
specializes in the management of real estate securities portfolios. Its current
clients include pension plans of leading corporations, endowment funds and
mutual funds, including Cohen & Steers Realty Income Fund, Inc. and Cohen &
Steers Total Return Realty Fund, Inc., both of which are closed-end investment
companies, and Cohen & Steers Realty Shares, Inc., Cohen & Steers Equity Income
Fund, Inc. and Cohen & Steers Special Equity Fund, Inc., which are open-end
investment companies. Mr. Cohen and Mr. Steers may be deemed 'controlling
persons' of the Manager on the basis of their ownership of the Manager's stock.
Pursuant to a management agreement (the 'Management Agreement'), the Manager
furnishes a continuous investment program for the Fund's portfolio, makes the
day-to-day investment decisions for the Fund, executes the purchase and sale
orders for the portfolio transactions of the Fund and generally manages the
Fund's investments in accordance with the stated policies of the Fund, subject
to the general supervision of the Board of Directors of the Fund.
Under the Management Agreement, the Fund will pay the Adviser a monthly
management fee in an amount equal to 1/12th of 0.75% of the average daily value
of the net assets of the Fund. The Manager pays all expenses of the Fund except
for brokerage fees, taxes, interest, fees and expenses of the Independent
Directors (including fees and expenses of independent counsel and other
independent consultants to the Independent Directors), trade organization
membership dues, federal and state registration fees and extraordinary expenses.
The Manager also provides the Fund with such personnel as the Fund may from time
to time request for the performance of clerical, accounting and other office
services, such as coordinating matters with the sub-administrator, the transfer
agent and the custodian. The personnel rendering these services, who may act as
officers of the Fund, may be employees of the Manager or its affiliates. These
services are provided at no additional cost to the Fund. The Fund does not pay
any additional amounts for services performed by officers of the Manager or its
affiliates.
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES
Pursuant to the Management Agreement, the Manager also performs certain
administrative functions for the Fund, including (i) providing office space,
telephone, office equipment and supplies for the Fund; (ii) paying compensation
of the Fund's officers for services rendered as such; (iii) authorizing
expenditures and approving bills for payment on behalf of the Fund;
(iv) supervising preparation of the periodic updating of the Fund's registration
statement, including the Prospectus and Statement of Additional Information, for
the purpose of filings with the SEC and state securities administrators and
monitoring and maintaining the effectiveness of such filings, as appropriate;
(v) supervising preparation of quarterly reports to the Fund's shareholders,
notices of dividends, capital gains distributions and tax credits, and attending
to routine correspondence and other communications with individual shareholders;
(vi) supervising the daily pricing of the Fund's investment portfolio
13
<PAGE>
and the publication of the net asset value of the Fund's shares, earnings
reports and other financial data; (vii) monitoring relationships with
organizations providing services to the Fund, including the custodian, transfer
agent and printers; (viii) providing trading desk facilities for the Fund;
(ix) supervising compliance by the Fund with recordkeeping requirements under
the 1940 Act and regulations thereunder, maintaining books and records for the
Fund (other than those maintained by the custodian and transfer agent) and
preparing and filing tax reports other than the Fund's income tax returns; and
(x) providing executive, clerical and secretarial help needed to carry out these
responsibilities. The Manager provides these services for no additional fee to
the Fund except for the fee under the Management Agreement.
In accordance with the terms of the Management Agreement and with the approval
of the Fund's Board of Directors, the Manager has caused the Fund to retain
Chase Manhattan Bank ('Chase') as sub-administrator under a fund accounting and
administration agreement (the 'Sub-Administration Agreement'). Under the
Sub-Administration Agreement, Chase has assumed responsibility for performing
certain of the foregoing administrative functions, including (i) determining the
Fund's net asset value and preparing these figures for publication; (ii)
maintaining certain of the Fund's books and records that are not maintained by
the Manager, custodian or transfer agent; (iii) preparing financial information
for the Fund's income tax returns, proxy statements, shareholders reports, and
SEC filings; (iv) and responding to shareholder inquiries. The Manager remains
responsible for monitoring and overseeing the performance by Chase and Chase
Global Funds Services Company of their obligations to the Fund under their
respective agreements with the Fund, subject to the overall authority of the
Fund's Board of Directors.
The Manager pays for the cost of Chase's services without any additional charge
to the Fund. Chase Global Funds Services Company, P.O. Box 2798, Boston,
Massachusetts 02208, a wholly-owned subsidiary of Chase, has been retained by
Chase to provide to the Fund the administrative services described above. Chase
also serves as the Fund's custodian and transfer agent. See 'Custodian and
Transfer and Dividend Disbursing Agent,' below. Chase Global Funds Services
Company has been similarly retained by Chase to provide transfer agency services
to the Fund and is hereafter sometimes referred to as the 'Transfer Agent.'
- --------------------------------------------------------------------------------
DISTRIBUTOR
Cohen & Steers Securities, Inc., an affiliate of the Manager, serves without
charge as the Distributor of shares of the Fund. Cohen & Steers Securities, Inc.
is not obligated to sell any specific amount of shares and will sell shares, as
agent for the Fund, on a continuous basis only against orders to purchase
shares.
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Chase, which has its principal business at One Chase Manhattan Plaza, New York,
New York 10081-1000, has been retained to act as custodian of the Fund's
investments and as the Fund's transfer and dividend disbursing agent. Chase has
retained its wholly-owned subsidiary, Chase Global Funds Services Company, to
provide transfer and dividend disbursing agency services to the Fund. Neither
Chase nor Chase Global Funds Services Company has any part in deciding the
Fund's investment policies or which securities are to be purchased or sold for
the Fund's portfolio. The Manager pays for the cost of these services without
any additional charge to the Fund.
14
<PAGE>
- --------------------------------------------------------------------------------
CODES OF ETHICS
The Fund, and the Manager and Distributor, have adopted codes of ethics that are
designed to ensure that the interests of Fund shareholders come before the
interests of those involved in managing the Fund. The codes of ethics, among
other things, prohibit management personnel from investing in REITs and real
estate securities, prohibit purchases in an initial public offering and require
pre-approval for investments in private placements. The Fund's Independent
Directors are prohibited from purchasing or selling any security if they knew or
reasonably should have known at the time of the transaction that, within the
most recent 15 days, the security is being or has been considered for purchase
or sale by the Fund, or is being purchased or sold by the Fund.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund and negotiation of its brokerage commission rates are
made by the Manager. Transactions on U.S. stock exchanges involve the payment by
the Fund of negotiated brokerage commissions. There is generally no stated
commission in the case of securities traded in the over-the-counter market but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In certain instances, the Fund may make purchases of underwritten
issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, the Manager will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker; the size and
difficulty in executing the order; and the value of the expected contribution of
the broker to the investment performance of the Fund on a continuing basis.
Accordingly, the cost of the brokerage commissions to the Fund in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, the Manager shall not be deemed to have acted unlawfully or to have
breached any duty solely by reason of its having caused the Fund to pay a broker
that provides research services to the Manager an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the Manager's
ongoing responsibilities with respect to the Fund. Research and investment
information is provided by these and other brokers at no cost to the Manager and
is available for the benefit of other accounts advised by the Manager and its
affiliates, and not all of the information will be used in connection with the
Fund. While this information may be useful in varying degrees and may tend to
reduce the Manager's expenses, it is not possible to estimate its value and in
the opinion of the Manager it does not reduce the Manager's expenses in a
determinable amount. The extent to which the Manager makes use of statistical,
research and other services furnished by brokers is considered by the Manager in
the allocation of brokerage business but there is no formula by which such
business is allocated. The Manager does so in accordance with its judgment of
the best interests of the Fund and its shareholders. The Manager may also take
into account payments made by brokers to organizations for providing services to
the Fund. In addition, consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Manager may consider sales of shares of the Fund as a factor in
the selection of brokers and dealers to enter into portfolio transactions with
the Fund.
15
<PAGE>
- --------------------------------------------------------------------------------
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The Fund was incorporated on October 13, 1999, as a Maryland corporation and is
authorized to issue 100,000,000 shares of Common Stock, $0.001 par value. The
Fund presently has one class of shares. The Fund's shares have no preemptive,
conversion or exchange rights. Each share has equal voting, dividend,
distribution and liquidation rights. All shares of the Fund, when duly issued,
will be fully paid and nonassessable. Shareholders are entitled to one vote per
share. All voting rights for the election of Directors are noncumulative, which
means that the holders of more than 50% of the shares outstanding can elect 100%
of the Directors then nominated for election if they choose to do so and, in
such event, the holders of the remaining shares will not be able to elect any
Directors. The foregoing description is subject to the provisions contained in
the Fund's Articles of Incorporation and By-Laws.
The Board of Directors is authorized to reclassify and issue any unissued shares
of the Fund without shareholder approval. Accordingly, in the future, the
Directors may create additional classes and/or series of shares with different
investment objectives, policies or restrictions. Any issuance of shares of
another class and/or series would be governed by the 1940 Act and Maryland law.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value per share is determined by the Fund on each day the New York
Stock Exchange is open for trading.
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Directors shall determine in good faith
to reflect its fair market value. Readily marketable 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 Automatic Quotations, Inc. ('NASDAQ') National List are valued in a like
manner. Portfolio 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 the Manager to be
over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Directors deem
appropriate to reflect their fair market value. Where securities are traded on
more than one exchange and also over-the-counter, the securities will generally
be valued using the
16
<PAGE>
quotations the Board of Directors believes reflect most closely the value of
such securities.
For purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean of the bid and asked prices of such currencies against
the U.S. dollar last quoted by a major bank which is a regular participant in
the institutional foreign exchange markets or on the basis of a pricing service
which takes into account the quotes provided by a number of such major banks.
- --------------------------------------------------------------------------------
SALES OF FUND SHARES
- --------------------------------------------------------------------------------
Payment of the price for shares that are sold or 'redeemed' may be made either
in cash or in portfolio securities (selected in the discretion of the Board of
Directors of the Fund and taken at their value used in determining the Fund's
net asset value per share as described in the Prospectus and in this Statement
of Additional Information), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Directors believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. The Fund will
not distribute in kind portfolio securities that are not readily marketable.
- --------------------------------------------------------------------------------
TAXATION
- --------------------------------------------------------------------------------
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the 'Code'), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership or disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.
- --------------------------------------------------------------------------------
TAXATION OF THE FUND
The Fund intends to qualify annually and to elect to be treated as a regulated
investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including
17
<PAGE>
receivables), U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) each taxable
year.
As a regulated investment company, the Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the one-year period ending on October 31 of the calendar year, and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
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DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund shares. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the net asset value
of a share of the Fund on the reinvestment date. A distribution of an amount in
excess of the Fund's current and accumulated earnings and profits will be
treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's basis in his or her shares. To the extent that the
amount of any such distribution exceeds the shareholder's basis in his or her
shares, the excess will be treated by the shareholder as gain from a sale or
exchange of the shares.
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Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of
additional shares will receive a report as to the net asset value of those
shares.
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OPTIONS AND HEDGING TRANSACTIONS
The taxation of equity options and over-the-counter options on debt securities
is governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium is received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Certain options, futures contracts and forward contracts in which the Fund may
invest are 'section 1256 contracts.' Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses; however, foreign currency gains or losses (as discussed below) arising
from certain section 1256 contracts may be treated as ordinary income or loss.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and, generally, for purposes of the 4% excise tax, on October 31 of each year)
are 'marked-to-market' (that is, treated as sold at fair market value),
resulting in unrealized gains or losses being treated as though they were
realized.
Generally, the hedging transactions undertaken by the Fund may result in
'straddles' for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the
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<PAGE>
amount which may be distributed to shareholders, and which will be taxed to them
as ordinary income or long-term capital gain, may be increased or decreased as
compared to a fund that did not engage in such hedging transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain 'appreciated financial positions' if the
Fund enters into a short sale, offsetting notional principal contract, futures
or forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment does not apply to certain transactions closed in the 90-day
period ending with the 30th day after the close of the taxable year, if certain
conditions are met.
- --------------------------------------------------------------------------------
CURRENCY FLUCTUATIONS--'SECTION 988' GAINS OR LOSSES
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as 'section 988' gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
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SALE OR EXCHANGE OF FUND SHARES
Upon the sale or other disposition of shares of the Fund, including an exchange
of shares in the Fund for shares of another Cohen & Steers fund, a shareholder
may realize a capital gain or loss which will be long-term or short-term,
depending upon the shareholder's holding period for the shares. A shareholder
who exchanges shares in the Fund for shares of another Cohen & Steers fund will
have a tax basis in the newly-acquired fund shares equal to the amount invested
and will begin a new holding period for federal income tax purposes.
If a shareholder exchanges shares in the Fund for shares in another Cohen &
Steers fund pursuant to a reinvestment right, the sales charge incurred in the
purchase of the Fund shares exchanged may not be added to tax basis in
determining gain or loss for federal income tax purposes. Instead, the sales
charge for the exchanged Fund shares shall be added to basis for purposes of
determining gain or loss on the disposition of the newly-acquired fund shares,
if such newly-acquired fund shares are not disposed of in a similar exchange
transaction. Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of the shares. Any loss realized by a shareholder on a
disposition of Fund shares held by the shareholder for six months or less will
be treated as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
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INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in real estate investment trusts ('REITs') that hold
residual interests in real estate mortgage investment conduits ('REMICs'). Under
Treasury regulations that have not yet been issued, but may apply retroactively,
a portion of the Fund's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an `excess inclusion')
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as the Fund, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC
residual interest directly. In general, excess inclusion income allocated to
shareholders (i) cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions), (ii) will constitute unrelated
business taxable income to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt
entity) subject to tax on unrelated business income, thereby potentially
requiring such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a tax return and
pay tax on such income, and (iii) in the case of a foreign shareholder, will not
qualify for any reduction in U.S. federal withholding tax. In addition, if at
any time during any taxable year a 'disqualified organization' (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. The Manager does not intend on behalf of the Fund to
invest in REITs, a substantial portion of the assets of which consists of
residual interests in REMICs.
- --------------------------------------------------------------------------------
PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations that may be classified
under the Code as passive foreign investment companies ('PFICs'). In general, a
foreign corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets, or 75% or more of its gross income is
investment-type income. If the Fund receives a so-called `excess distribution'
with respect to PFIC stock, the Fund itself may be subject to a tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. The Fund will itself be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in come circumstances, the
Fund would be required to include in its gross income its share of the earnings
of a PFIC on a current basis, regardless of whether distributions were received
from the PFIC in a given year. If this election were made, the special rules,
discussed above, relating to the taxation of
21
<PAGE>
excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any marked-to-market losses and any
loss from an actual disposition of PFIC shares would be deductible as ordinary
losses to the extent of any net marked-to-market gains included in income in
prior years.
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FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
- --------------------------------------------------------------------------------
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
- --------------------------------------------------------------------------------
FOREIGN SHAREHOLDERS
U.S. taxation of income from the Fund to a shareholder who is a nonresident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ('foreign shareholder') depends on whether the income of the Fund is
'effectively connected' with a U.S. trade or business carried on by the
shareholder.
Income Not Effectively Connected. If the income from the Fund is not
'effectively connected' with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. tax of 30% (or lower treaty rate, except in the case of any excess
inclusion income allocated to the shareholder (see 'Taxation -- Investments in
Real Estate Investment Trusts,' above)), which tax is generally withheld from
such distributions.
Distributions of capital gain dividends and any amounts retained by the Fund
which are designated as undistributed capital gains will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a nonresident alien individual and is physically present in the United States
for more than 182 days during the taxable year and meets certain other
requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a foreign shareholder who is a nonresident alien individual, the
Fund may be required to withhold U.S. income tax at a rate of 31% of
distributions of net capital gains unless the foreign shareholder certifies his
or her non-U.S. status under penalties of perjury or otherwise establishes an
exemption. See 'Taxation -- Backup Withholding,' above. If a foreign shareholder
is a nonresident alien
22
<PAGE>
individual, any gain such shareholder realizes upon the sale or exchange of such
shareholder's shares of the Fund in the United States will ordinarily be exempt
from U.S. tax unless (i) the gain is U.S. source income and such shareholder is
physically present in the United States for more than 182 days during the
taxable year and meets certain other requirements, or is otherwise considered to
be a resident alien of the United States, or (ii) at any time during the shorter
of the period during which the foreign shareholder held shares of the Fund and
the five year period ending on the date of the disposition of those shares, the
Fund was a `U.S. real property holding corporation' and the foreign shareholder
held more than 5% of the shares of the Fund, in which event the gain would be
taxed in the same manner as for a U.S. shareholder as discussed above and a 10%
U.S. withholding tax would be imposed on the amount realized on the disposition
of such shares to be credited against the foreign shareholder's U.S. income tax
liability on such disposition. A corporation is a 'U.S. real property holding
corporation' if the fair market value of its U.S. real property interests equals
or exceeds 50% of the fair market value of such interests plus its interests in
real property located outside the United States plus any other assets used or
held for use in a business. In the case of the Fund, U.S. real property
interests include interests in stock in U.S. real property holding corporations
(other than stock of a REIT controlled by U.S. persons and holdings of 5% or
less in the stock of publicly traded U.S. real property holding corporations)
and certain participating debt securities.
Income Effectively Connected. If the income from the Fund is 'effectively
connected' with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Fund which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Fund will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Foreign
corporate shareholders may also be subject to the branch profits tax imposed by
the Code.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in the Fund.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may quote the Fund's total return, aggregate total
return or yield in advertisements or in reports and other communications to
shareholders. The Fund's performance will vary depending upon market conditions,
the composition of its portfolio and its operating expenses. Consequently, any
given performance quotation should not be considered representative of the
Fund's performance in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in the Fund
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Fund's performance with that of
other mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
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AVERAGE ANNUAL TOTAL RETURN
The Fund's 'average annual total return' figures will be computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)'pp'n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
- --------------------------------------------------------------------------------
YIELD
Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ('net investment income') and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
a - b
-----
2[( cd + 1)'pp'6 - 1]
Where: a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
In reports or other communications to shareholders of the Fund or in advertising
materials, the Fund may compare its performance with that of (i) other mutual
funds listed in the rankings prepared by Lipper Analytical Services, Inc.,
publications such as Barrons, Business Week, Forbes, Fortune, Institutional
Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values,
The New York Times, The Wall Street Journal and USA Today or other industry or
financial publications or (ii) the Standard and Poor's Index of 500 Stocks, the
Dow Jones Industrial Average and other relevant indices and industry
publications. The Fund may also compare the historical volatility of its
portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole -- the beta -- or in absolute terms -- the standard
deviation.)
- --------------------------------------------------------------------------------
COUNSEL AND INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Simpson Thacher & Bartlett serves as counsel to the Fund, and is located at 425
Lexington Avenue, New York, New York 10017-3909.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, have been appointed as independent accountants for the Fund.
24
<PAGE>
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FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL
REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
January 12, 2000
Cash........................................................ $100,000
--------
Total Assets............................................ $100,000
Liabilities................................................. 0
========
Net Assets applicable to 4,000 shares of $.001 par value
common stock outstanding.................................. $100,000
--------
Net Asset Value, offering and redemption price per share
($100,000 [div] 4,000 shares outstanding)............. $25.00
- --------------------------------------------------------------------------------
NOTES:
1. ORGANIZATION
Cohen & Steers Institutional Realty Shares, Inc. (the 'Fund') was incorporated
under the laws of the State of Maryland on October 13, 1999 and is registered
under the Investment Company Act of 1940, as amended (the 'Act') as an open-end,
non-diversified management investment company. The Fund has been inactive since
that date except for matters relating to the Fund's establishment, designation,
registration of the Fund's shares of common stock, par value $0.001 per share
under the Securities Act of 1933, as amended and the sale of 4,000 shares
('Initial Shares') for $100,000 to Cohen & Steers Capital Management, Inc. (the
'Manager'). The proceeds received by the Fund for the sale of the Initial Shares
were invested in cash. There are 100,000,000 shares authorized for issuance.
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. Actual results could differ from these
estimates.
2. AGREEMENT
The Fund has entered into a Management Agreement with the Manager pursuant to
which the Manager will provide general investment advisory and management
services for the Fund. For providing these services and facilities, and for
bearing the related expenses, the Manager will receive a fee from the Fund,
accrued daily and paid monthly, at an annual rate equal to 0.75% of the Fund's
average daily net assets. As described in the Management Agreement, the Manager
shall be responsible for paying certain of the Fund's operating expenses at no
additional charge to the Fund.
3. ORGANIZATION COSTS
All costs incurred in connection with organizing and establishing the Fund will
be assumed by the Manager, which will not be required to be reimbursed by the
Fund. The Manager has estimated these costs at $95,000.
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REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
Cohen & Steers Institutional Realty Shares, Inc.:
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Cohen &
Steers Institutional Realty Shares, Inc. (the 'Fund') at January 12, 2000 in
conformity with generally accepted accounting principles in the United States.
This statement of assets and liabilities is the responsibility of the Fund's
management; our responsibility is to express an opinion on this statement of
assets and liabilities based on our audit. We conducted our audit in accordance
with generally accepted auditing standards in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the statement of assets and liabilities is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 12, 2000
26
STATEMENT OF DIFFERENCES
The division sign shall be expressed as.................................. [div]
Characters normally expressed as superscript shall be preceded by......... 'pp'
