Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Cohen & Steers REIT and
Preferred and Income Fund, Inc. (the Fund) as of December 31, 2021, the related statements of operations and cash flows for the year ended December 31, 2021, the statement of changes in net assets for each of the two years in
the period ended December 31, 2021, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2021 (collectively referred to as the financial statements). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2021, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two
years in the period ended December 31, 2021 and the financial highlights for each of the five years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2021 by correspondence with the custodian,
transfer agent, issuers of privately offered securities and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
February 25,
2022
We have served as the auditor of one or more investment companies in the Cohen & Steers family of mutual funds since 1991.
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(The following pages are unaudited)
TAX INFORMATION2021
For the calendar year ended December 31, 2021, for individual taxpayers, the Fund designates $24,114,678 as qualified dividend
income eligible for reduced tax rates and long-term capital gain distributions of $46,693,561 taxable at the maximum 20% rate. In addition, for corporate taxpayers, 63.88% of the ordinary dividends paid qualified for the dividends received deduction
(DRD).
REINVESTMENT PLAN
The Fund has a dividend reinvestment plan commonly referred to as an opt-out plan (the Reinvestment Plan). Each common
shareholder who participates in the Reinvestment Plan will have all distributions of dividends and capital gains (Dividends) automatically reinvested in additional common shares by Computershare as agent (the Plan Agent). Shareholders who elect not
to participate in the Reinvestment Plan will receive all Dividends in cash paid by check mailed directly to the shareholder of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, as dividend
disbursing agent. Shareholders whose common shares are held in the name of a broker or nominee should contact the broker or nominee to determine whether and how they may participate in the Reinvestment Plan.
The Plan Agent serves as agent for the shareholders in administering the Reinvestment Plan. After the Fund declares a Dividend, the
Plan Agent will, as agent for the shareholders, either: (i) receive the cash payment and use it to buy common shares in the open market, on the NYSE or elsewhere, for the participants accounts or (ii) distribute newly issued common
shares of the Fund on behalf of the participants.
The Plan Agent will receive cash from the Fund with which to buy
common shares in the open market if, on the Dividend payment date, the NAV per share exceeds the market price per share plus estimated brokerage commissions on that date. The Plan Agent will receive the Dividend in newly issued common shares of the
Fund if, on the Dividend payment date, the market price per share plus estimated brokerage commissions equals or exceeds the NAV per share of the Fund on that date. The number of shares to be issued will be computed at a per share rate equal to the
greater of (i) the NAV or (ii) 95% of the closing market price per share on the payment date.
If the market
price per share is less than the NAV on a Dividend payment date, the Plan Agent will have until the last business day before the next ex-dividend date for the common stock, but in no event more than 30 days after the Dividend payment date (as the
case may be, the Purchase Period), to invest the Dividend amount in shares acquired in open market purchases. If at the close of business on any day during the Purchase Period on which NAV is calculated the NAV equals or is less than the market
price per share plus estimated brokerage commissions, the Plan Agent will cease making open market purchases and the uninvested portion of such Dividends shall be filled through the issuance of new shares of common stock from the Fund at the price
set forth in the immediately preceding paragraph.
Participants in the Reinvestment Plan may withdraw from the
Reinvestment Plan upon notice to the Plan Agent. Such withdrawal will be effective immediately if received not less than ten days prior to a Dividend record date; otherwise, it will be effective for all subsequent Dividends. If any participant
elects to have the Plan Agent sell all or part of his or her shares and remit the proceeds, the Plan Agent is authorized to deduct a $15.00 fee plus $0.10 per share brokerage commissions.
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The Plan Agents fees for the handling of reinvestment of Dividends will be paid by the Fund. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the Plan Agents open market purchases in connection with the reinvestment of Dividends. The automatic reinvestment of Dividends will not relieve participants of any income
tax that may be payable or required to be withheld on such Dividends.
The Fund reserves the right to amend or terminate
the Reinvestment Plan. All correspondence concerning the Reinvestment Plan should be directed to the Plan Agent at 800-432-8224.
OTHER INFORMATION
A description of the policies and procedures that the Fund uses to determine how to
vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 866-227-0757, (ii) on our website at cohenandsteers.com or (iii) on the U.S. Securities and Exchange Commissions (SEC)
website at http://www.sec.gov. In addition, the Funds proxy voting record for the most recent 12-month period ended June 30 is available by August 31 of each year (i) without charge, upon
request, by calling 866-227-0757 or (ii) on the SECs website at http://www.sec.gov.
Disclosures of the
Funds complete holdings are required to be made monthly on Form N-PORT, with every third month made available to the public by the SEC 60 days after the end of the Funds fiscal quarter. The Funds Form N-PORT is available
(i) without charge, upon request, by calling 866-227-0757 or (ii) on the SECs website at http://www.sec.gov.
Please note that distributions paid by the Fund to shareholders are subject to recharacterization for tax purposes and are taxable up to the amount of the Funds investment company taxable income and net realized gains.
Distributions in excess of the Funds investment company taxable income and net realized gains are a return of capital distributed from the Funds assets. To the extent this occurs, the Funds shareholders of record will be notified
of the estimated amount of capital returned to shareholders for each such distribution and this information will also be available at cohenandsteers.com. The final tax treatment of all distributions is reported to shareholders on their 1099-DIV
forms, which are mailed after the close of each calendar year. Distributions of capital decrease the Funds total assets and, therefore, could have the effect of increasing the Funds expense ratio. In addition, in order to make these
distributions, the Fund may have to sell portfolio securities at a less than opportune time.
Notice is hereby given in
accordance with Rule 23c-1 under the 1940 Act that the Fund may purchase, from time to time, shares of its common stock in the open market.
The following information in this annual shareholder report is a summary of certain changes since the Funds most recent annual shareholder
report. This information may not reflect all of the changes that have occurred since you purchased the Fund.
Changes to the
Portfolio Management Team
Effective May 1, 2021, Thomas Bohjalian no longer serves as a portfolio manager of the
Fund. William Scapell, Jason Yablon and Mathew Kirschner continue to serve as portfolio managers of the Fund.
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Changes to the Board of Directors and Officers
On March 8, 2021, the Board of Directors voted to set the number of directors on the Funds Board of Directors to ten. In
addition, the Board of Directors elected Ms. Ramona Rogers-Windsor as a Director of the Fund.
Effective December 7,
2021, Director and Chairman Robert H. Steers resigned from the Funds Board of Directors. The Board of Directors has appointed Director Joseph M. Harvey to succeed Mr. Steers as Chairman. In addition, effective March 1, 2022, Mr. Harvey,
Cohen & Steers, Inc.s (CNS) current President and a member of CNS board of directors, will succeed Mr. Steers as Chief Executive Officer of CNS and Cohen & Steers Capital Management, Inc., the Funds investment manager (the
investment manager). At that time, Mr. Steers will assume the role of Executive Chairman of CNS and continue on as a member of CNS board of directors.
On December 7, 2021, the Board of Directors elected Adam M. Derechin, President and Chief Executive Officer of the Fund, as a
Director of the Fund. Concurrent with his election, Mr. Derechin resigned as President and Chief Executive Officer of the Fund. Mr. Derechin currently serves as the Chief Operating Officer of CNS and the investment manager since 2004 and 2003,
respectively. Effective December 7, 2021, James Giallanza, previously Chief Financial Officer of the Fund, succeeded Mr. Derechin as President and Chief Executive Officer of the Fund and Albert Laskaj, Treasurer of the Fund, succeeded Mr.
Giallanza as Chief Financial Officer of the Fund.
In addition, also on December 7, 2021, the Board of Directors voted
to set the number of directors on the Funds Board of Directors to nine, effective January 1, 2022. Director C. Edward Ward, Jr. retired from the Board of Directors on December 31, 2021 pursuant to the Funds mandatory retirement policy.
Investment in Illiquid Securities
Effective October 1, 2021, the Funds limit on illiquid securities was increased to 15% of the Funds total assets.
Previously, the Fund was permitted to invest up to 10% of its total assets in illiquid securities. This restriction is measured at the time of investment.
Investment Policy Clarification
The Funds investments in securities of real estate
companies may also include private real estate investments. Private real estate investments include debt or equity investments in private real estate operating companies that own or manage real estate, privately offered REITs, mortgages secured by
commercial or residential real estate, securities issued by real estate companies prior to an IPO, private investments in public equity (PIPEs) and joint ventures which invest in residential and commercial real estate. The Fund expects to invest
directly or indirectly in certain real estate and real estate-related investments through one or more private, wholly owned REIT subsidiaries (each, a REIT Subsidiary). The Funds private real estate investments may consist of real estate joint
ventures where the Fund (generally through a REIT Subsidiary) partners with a real estate operator. These investments may include retail, office, hotel, healthcare, multifamily residential, industrial and other properties. The Investment Manager
believes that a REIT Subsidiary will allow it to access more attractive investment opportunities than would otherwise be the case. See Current Investment Objectives, Principal Investment Policies and Principal Risks of the Fund below for
additional information regarding the Funds investments in private real estate and the related risks, including Geopolitical Risk, Potential
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Conflicts of Interest Risk, Private Real Estate Risk, Real Estate Market Risk, Real Estate Joint Venture Risk, Recourse Financings Risk, REIT Risk,
REIT Subsidiary Risk, Regulatory Risk, Restricted and Illiquid Securities Risk, Small- and Medium-Sized Companies Risk and Valuation Risk.
CURRENT INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT POLICIES AND PRINCIPAL RISKS OF THE FUND
The
information contained herein is provided for informational purposes only and does not constitute a solicitation of an offer to buy or sell Fund shares.
Investment Objectives
Cohen & Steers REIT and Preferred and Income Fund, Inc. (the
Fund) is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The Funds primary investment objective is high
current income. The Funds secondary objective is capital appreciation. The Funds investment objectives are considered fundamental and may not be changed without stockholder approval. The Funds policy of investing at least 80% of
its total assets in common stocks issued by real estate investment trusts (REITs) and preferred securities may only be changed upon 60 days prior written notice to the Funds stockholders.
Investment Strategies
Under normal market conditions, the Fund seeks to achieve its objectives through a portfolio of income producing common stock issued by REITs and preferred and other debt securities. Under normal circumstances at least 80% of the
Funds total assets will be invested in common stocks issued by REITs and preferred securities. The Funds investments in contingent capital securities (sometimes referred to as CoCos) and convertible preferred securities, which are types
of hybrid preferred securities, are considered preferred securities for purposes of this 80% policy.
The investment
manager adheres to a bottom-up, relative value investment process when selecting publicly traded real estate securities. To guide the portfolio construction process, the investment manager utilizes a proprietary valuation model that quantifies
relative valuation of real estate securities based on price-to-net asset value (NAV), cash flow multiple/growth ratios and a dividend discount model (DDM). Analysts incorporate both quantitative and qualitative analysis in
their NAV, cash flow, growth and DDM estimates. The company research process includes an evaluation of the commercial real estate supply and demand dynamics, management, strategy, property quality, financial strength, and corporate structure.
Judgments with respect to risk control, geographic and property sector diversification, liquidity and other factors are considered along with the models output and drive the portfolio managers investment decisions.
In making investment decisions with respect to preferred securities and debt securities, the investment manager seeks to select
what it believes are superior securities (i.e., securities the investment manager views as undervalued on the basis of risk and return profiles). In making this determination, the investment manager evaluates the fundamental characteristics of an
issuer, including an issuers creditworthiness, and also takes into account prevailing market factors. In analyzing credit quality, the investment manager considers not only fundamental analysis, but also an issuers corporate and capital
structure and the placement of the preferred or debt securities within that structure. In
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evaluating relative value, the investment manager also takes into account call, conversion and other structural security features, in addition to
such factors as the likely directions of credit ratings and relative value versus other income security classes.
The
Fund will not seek to achieve specific environmental, social or governance (ESG) outcomes through its portfolio of investments, nor will it pursue an overall impact or sustainable investment strategy. However, the investment manager will incorporate
consideration of relevant ESG factors into its investment decision-making. For example, although the investment manager does not generally exclude investments based on ESG factors alone, when considering an investment opportunity with material
exposure to carbon emissions regulation, this risk may be considered as one factor in the investment managers holistic review process.
Under normal market conditions, at least 40%, but no more than 60%, of the Funds total assets will be invested in common stocks issued by real estate companies, consisting primarily of REITs. Substantially all of the common
stocks issued by REITs in which the Fund seeks to invest are traded on a national securities exchange or in the over-the-counter market (OTC). The Fund defines a real
estate company as a company that derives at least 50% of its revenue 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. A REIT
is a company dedicated to owning, and usually operating, income producing real estate, or to financing real estate. REITs are generally not taxed on income distributed to shareholders provided they distribute to their shareholders substantially all
of their income and otherwise comply with the requirements of the Internal Revenue Code of 1986, as amended (the Code). As a result, REITs generally pay relatively high dividends (as compared to other types of companies) and the Fund seeks to use
these REIT dividends in an effort to meet its primary objective of high current income.
The Funds investments in
securities of real estate companies may also include private real estate investments. Private real estate investments include debt or equity investments in private real estate operating companies that own or manage real estate, privately offered
REITs, mortgages secured by commercial or residential real estate, securities issued by real estate companies prior to an IPO, private investments in public equity (PIPEs) and joint ventures which invest in residential and commercial real estate.
The Fund expects to invest directly or indirectly in certain real estate and real estate-related investments through one or more private, wholly owned REIT subsidiaries (each, a REIT Subsidiary). The Funds private real estate investments may
consist of real estate joint ventures where the Fund (generally through a REIT Subsidiary) partners with a real estate operator. These investments may include retail, office, hotel, healthcare, multifamily residential, industrial and other
properties. The Investment Manager believes that a REIT Subsidiary will allow it to access more attractive investment opportunities than would otherwise be the case.
Private real estate investments are generally less liquid than public real estate investments and may involve complex investment
structures. In addition, private real estate investments may have higher capital requirements, and transactions involving this asset class may be more complex than those of public real estate investments. Making private real estate investments
involves a high degree of sophistication, and returns are subject to the skill and decision-making process of the Investment Manager, as well as local, regional, and national market conditions. As is common in the real estate industry, many of the
Funds investments in private real estate will be leveraged. For example, the Fund (through a REIT Subsidiary) expects to make investments in private real estate investments which obtain
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debt financing consisting of property level debt. Property level debt will be secured by the real estate owned through private real estate
investment. Typically, these investments would solely own real estate assets and would borrow from a lender using the owned property as mortgage collateral. If one of the Funds investments were to default on a loan, the lenders recourse
would be to the mortgaged property and the lender would typically not have a claim to other assets of the Fund or its subsidiaries. Such property level debt is generally not recourse to the Fund and the Fund will not treat these non-recourse borrowings as senior securities (as defined in the 1940 Act) for purposes of complying with the 1940 Acts limitations on leverage unless the financial statements of the entity holding such
property-level debt are consolidated with the Funds financial statements. See Recourse Financings Risk. The Fund intends to manage its investments to avoid treating such non-recourse
borrowings as senior securities, although there is no guarantee that the Fund will be successful in doing so, and failure to do so may impede the Funds ability to achieve its investment objective and decrease returns to shareholders. There is
no guarantee that the Funds investments will be able to obtain mortgage loans on attractive terms or at all. In certain limited cases, property level debt may be recourse to the Fund. The Funds private real estate investments may also
include direct or indirect interests in companies or properties with highly leveraged capital structures. The cumulative effect of the use of leverage by the Fund or the real estate investments in which the Fund invests could result in substantial
losses, exceeding those that would have been incurred had leverage not been employed. Because of the leveraged nature of the Funds private real estate investments, the Funds economic exposure to these investments may be greater than the
percentage of the Funds total assets invested in such investments.
Under normal market conditions, at least 40%,
but no more than 60%, of the Funds total assets will be invested in preferred securities. Preferred securities may pay fixed or floating dividends to investors and have preference over common stock in the payment of dividends
and the liquidation of a companys assets. This means that a company must pay dividends on preferred stock before paying dividends on its common stock. Preferred stockholders usually have no right to vote for corporate directors or on other
matters. Such securities may include, but are not limited to, traditional preferred securities; hybrid-preferred securities that have investment and economic characteristics of both preferred stock and debt securities; floating-rate,
fixed-to-floating-rate, and fixed-to-fixed preferred securities; convertible securities; and CoCos. The Fund may also invest up to 10% of its total assets in preferred securities issued by REITs. The Fund may invest in both OTC and exchange-traded
preferred securities. The Fund may invest in both taxable securities (i.e., securities that may pay dividends that are not eligible for the corporate dividends received deduction (DRD) for corporations or for treatment as qualified dividend income
(QDI) for individuals) and tax-advantaged preferred securities (i.e., securities that may pay dividends eligible for the DRD for corporations or for treatment as QDI for individuals).
The Fund also may invest without limit in preferred or other debt securities that at the time of investment are rated below
investment grade. These below investment grade quality securities are commonly referred to as junk bonds and are regarded as having predominantly speculative characteristics with respect to the payment of interest and repayment of
principal. A security will be considered to be investment grade if it is rated as such by one nationally recognized statistical rating organization (NRSRO) (for example minimum Baa3 or BBB- by Moodys
Investors Services, Inc. (Moodys) or S&P Global Ratings (S&P)) or, if unrated, is judged to be investment grade by the investment manager.
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The Fund may invest up to 15% of its total assets in illiquid securities. The Board of Directors or its delegate has the ultimate
authority to determine, to the extent permissible under the Federal securities laws, which securities are liquid or illiquid for purposes of this limitation. The Board of Directors has delegated to the investment manager the day-to-day determination of the illiquidity of any security held by the Fund, although it has retained oversight and ultimate responsibility for such determinations. The Board
and/or the investment manager will consider factors such as (i) the nature of the market for a security (including the institutional private resale market; the frequency of trades and quotes for the security; the number of dealers willing to
purchase or sell the security; the amount of time normally needed to dispose of the security; and the method of soliciting offers and the mechanics of transfer), (ii) the terms of certain securities or other instruments allowing for the disposition
to a third party or the issuer thereof (e.g., certain repurchase obligations and demand instruments) and (iii) other permissible relevant factors. The Fund may also invest in certain restricted securities including securities that are only
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (the Securities Act) (referred to as Rule 144A Securities) and securities of U.S. and non-U.S. issuers that are issued through private
offerings without registration with the Securities and Exchange Commission (the SEC) pursuant to Regulation S under the Securities Act.
The Fund may invest up to 20% of its total assets in debt securities, including convertible debt securities. Common stock acquired pursuant to a conversion feature will be subject to this 20% limitation. Convertible preferred stock
will not be considered debt securities for the purposes of the 20% limit on debt securities. The Fund may invest in CoCos. CoCos are debt or preferred securities with loss absorption characteristics that provide for an automatic write-down of the
principal amount or value of securities or the mandatory conversion into common shares of the issuer under certain circumstances. A mandatory conversion might be automatically triggered, for instance, if a company fails to meet the capital minimum
described in the security, the companys regulator makes a determination that the security should convert, or the company receives specified levels of extraordinary public support. Since the common stock of the issuer may not pay a dividend,
investors in these instruments could experience a reduced income rate, potentially to zero, and conversion would deepen the subordination of the investor (worsening the Funds standing in a bankruptcy). In addition, some CoCos provide for an
automatic write-down of capital under such circumstances.
The Fund may invest significantly in securities of companies
in the financial sector, although it will not invest more than 25% of its total assets in any single industry within the financial sector. In addition, under normal market conditions the Fund will invest at least 40% of its total assets in common
stock issued by real estate companies, consisting primarily of REITs. This policy of investing in the financial services industry and the Funds concentration of its investments in the real estate industry make the Fund more susceptible to
adverse economic or regulatory occurrences affecting these sectors.
The Fund may invest up to 50% of the funds
managed assets in foreign securities, with up to 15% of the Funds managed assets in emerging market issuers.
The
Fund will generally not invest more than 10% of its total assets in the securities of one issuer. The Fund may engage in portfolio trading when considered appropriate, but short-term trading will not be used as the primary means of achieving the
Funds investment objectives. There are no limits on portfolio turnover, and investments may be sold without regard to length of time held when, in the opinion of the investment manager, investment considerations warrant such action. A higher
portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are
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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.
The Fund may invest in securities of other investment companies,
including open-end funds, closed-end funds or ETFs, such as other funds, to the extent permitted under Section 12(d)(1) of the 1940 Act, and the rules thereunder,
or any exemption granted under the 1940 Act.
The Fund may invest in mortgage- and asset-backed securities.
Mortgage-backed securities are mortgage-related securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or issued by non-government entities. Mortgage related securities
represent pools of mortgage loans assembled for sale to investors by various government agencies, as well as by non-government issuers such as commercial banks, savings and loan institutions, mortgage bankers
and private mortgage insurance companies. Although certain mortgage-related securities are guaranteed by a third party or otherwise similarly secured, the market value of the security, which may fluctuate, is not guaranteed. Other asset-backed
securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various
types of real and personal property, and receivables from credit card agreements and from sales of personal property. Regular payments received in respect of such securities include both interest and principal. Asset-backed securities typically have
no U.S. Government backing. Additionally, the ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited.
The Fund may, but is not required to, use, without limit, various derivatives transactions described below to seek to generate
return, facilitate portfolio management and mitigate risks. Although the investment manager may seek to use these kinds of transactions to further the Funds investment objectives, no assurance can be given that they will achieve this result.
The Fund may enter into exchange-listed and over-the-counter put and call options on securities (including securities of investment companies and baskets of securities),
indexes, and other financial instruments; purchase and sell financial futures contracts and options thereon; enter into various interest rate transactions, such as swaps, caps, floors or collars or credit transactions; equity index, total return and
credit default swaps; forward contracts; and structured investments. In addition, the Fund may enter into various currency transactions, such as forward currency contracts, currency futures contracts, currency swaps or options on currency or
currency futures. The Fund also may purchase and sell derivative instruments that combine features of these instruments. The Fund may invest in other types of derivatives, structured and similar instruments which are not currently available but
which may be developed in the future. The Fund may enter into short sales, provided that the dollar amount of short sales at any one time does not exceed 25% of the net assets of the Fund, and the value of securities of any one issuer in which the
Fund is short does not exceed the lesser of 2% of the value of the Funds net assets or 2% of the securities of any class of any issuer. These restrictions do not limit the Funds ability to take short positions through transactions other
than short sales, such as futures, swaps or other derivatives.
Temporary Defensive Positions. For temporary
defensive purposes, the Fund may deviate from its investment objectives and, among other things, invest all or any portion of its assets in investment grade debt securities, without regard to whether the issuer is a real estate company or REIT. When
and to the extent the Fund assumes a temporary defensive position, the Fund may not pursue or achieve its investment objective.
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Real Property Valuation. The Fund intends to retain an independent valuation services firm (the Independent Valuation
Advisor) to assist the Investment Manager in the determination of the Funds fair value of private real estate investments, including those held through a REIT Subsidiary. While the Independent Valuation Advisor will provide valuations of the
real property investments, it is not responsible for, and does not calculate, the Funds or REIT Subsidiarys daily NAV. The Funds valuation policies may change from time to time.
The REIT Subsidiarys real property investments will primarily be through joint ventures with an operating partner. The
operating partner will be responsible (subject to oversight by the Investment Manager) for maintaining the joint ventures official books and records along with other pertinent information that will be the basis upon which the Independent
Valuation Advisor will prepare their appraisals as described below.
The Independent Valuation Advisor is expected to
administer the real property valuation process for investments held by the REIT Subsidiary and is expected to select (subject to the Investment Managers approval) and manage the process associated with third-party appraisal firms with respect
to the valuation of the Funds real property investments.
Investments in newly acquired properties are expected to
be initially valued at cost. Each property is then expected to be valued by an independent third-party appraisal firm within approximately 90 to 120 days after it was acquired and no less than annually thereafter. Each third-party appraisal will be
reviewed by the Independent Valuation Advisor and the Valuation Committee for reasonableness. Each month, the Investment Manager, with the assistance of the Independent Valuation Advisor, will determine an accrual schedule for the daily value of
each real property investment based on an estimated month-end income accrual for each real property. The Fund expects that the REIT Subsidiary will use the daily values determined in such accrual schedule for purposes of calculating its NAV. Any
material changes to the valuation of real property investments of the REIT Subsidiary, and related changes to the daily accrual schedule for any real property investment, will be reflected in the NAV calculation beginning with the first NAV
calculated after a revised valuation is determined and approved by the CNS Valuation Committee.
The Investment Manager
will monitor for material events that the Investment Manager believes may be expected to have a material impact on the most recent estimated fair values of such real property investment. Possible examples of such a material change include an
unexpected termination or renewal of a material lease, a material change in vacancies, an unanticipated structural or environmental event at a property, capital market events, tenant bankruptcy, recent financial results or changes in the capital
structure of the property, terrorism events, natural disasters or other force majeure events, any regulatory changes that affect the investment, or a significant industry event or adjustment to the industry outlook that may cause the value of real
property to change materially. Upon the occurrence of such a material event that is likely to have a material impact on the most recent estimated values of the impacted real property investments and provided that the Investment Manager is aware that
such event has occurred, the Investment Manager will instruct the Independent Valuation Advisor to evaluate the impact of the event on the fair value of such investment. However, rapidly changing market conditions or material events may not be
immediately reflected in the Funds or REIT Subsidiarys daily NAV.
The Investment Manager will value the
real properties using the valuation methodology it deems most appropriate and consistent with industry best practices and market conditions. The Investment Manager expects the primary methodology used to value real property investments will be the
income approach, whereby value is derived by determining the present value of an assets stream of future
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cash flows (for example, discounted cash flow analysis). Consistent with industry practices, the income approach incorporates actual contractual
lease income, professional judgments regarding comparable rental and operating expense data, the capitalization or discount rate and projections of future rent and expenses based on appropriate market evidence, and other subjective factors. Other
methodologies that may also be used to value properties include, among other approaches, sales comparisons and cost approaches.
Real estate appraisals are reported on a free and clear basis (i.e. any property-level indebtedness that may be in place is not incorporated into the valuation). Property level debt will be valued separately in accordance with GAAP.
Real properties held through joint ventures generally will be valued in a manner that is consistent with the methods described above. Once the value of a real property held by the joint venture and the fair value of any other assets and liabilities
of the joint venture is determined, the value of the REIT Subsidiarys interest in the joint venture would then be determined by the Investment Manager using a hypothetical liquidation calculation to value the REIT Subsidiarys interest in
the joint venture.
Use of Leverage
The Fund currently seeks to enhance the level of its distributions and total return through the use of leverage. The Fund may
utilize leverage in an amount up to 33 1/3% of its managed assets through borrowings, including loans from certain financial institutions and/or the issuance of debt securities (collectively, Borrowings). Under the 1940 Act, the Fund may utilize
leverage through (i) Borrowings in an aggregate amount of up to 33 1/3% of the Funds total assets immediately after such Borrowings and (ii) the issuance of preferred stock (Preferred Shares) in an aggregate amount of up to 50% of
the Funds total assets immediately after such issuance. In addition, the Fund may utilize leverage through reverse repurchase agreements (Reverse Repurchase Agreements). The Fund also may borrow money as a temporary measure for extraordinary
or emergency purposes, including the payment of dividends and the settlement of securities transactions.
The Fund may
also engage in various derivatives transactions to seek to generate return, facilitate portfolio management and mitigate risks. Certain derivatives transactions effect a form of economic leverage on the Funds portfolio and may be subject to
the risks associated with the use of leverage. There is no assurance that the Fund will utilize leverage or, if leverage is utilized, that it will be successful. The net asset value of the Funds common shares may be reduced by the issuance or
incurrence costs of any leverage. See Leverage Risk.
Effects of Leverage.
Assuming that leverage in the form of Borrowings will represent up to 23% of the Funds managed assets and charge interest or
involve payment at a rate set by an interest rate transaction at an annual average rate of approximately 1.54%, the income generated by the Funds portfolio (net of estimated expenses) must exceed 0.36% in order to cover such interest payments
or payment rates and other expenses specifically related to leverage. Of course, these numbers are merely estimates, used for illustration. Actual interest, or payment rates may vary frequently and may be significantly higher or lower than the rate
estimated above.
The following table is furnished in response to requirements of the SEC. It is designed to illustrate
the effect of leverage on common share total return, assuming investment portfolio total returns (comprised of income and changes in the value of investments held in the Funds portfolio) of -10%,
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-5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not
necessarily indicative of the investment portfolio returns expected to be experienced by the Fund. The table assumes leverage in an aggregate amount equal to 26% of the Funds managed assets. See Leverage Risk below.
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Assumed Portfolio Total Return |
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-10 |
% |
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-5 |
% |
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0 |
% |
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5 |
% |
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10 |
% |
Common Share Total Return |
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(13.5) |
% |
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(7.0) |
% |
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(0.5) |
% |
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6.0 |
% |
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12.5 |
% |
Common share total return is comprised of two elementsthe net investment income of the Fund
after paying expenses, including interest expenses on the Funds Borrowings as described above and dividend payments on any preferred shares issued by the Fund and gain and losses on the value of the securities the Fund owns. As required by the
rules of the SEC, the table assumes the Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, the Fund must assume that the income it receives on its investments is entirely
offset by losses in the value of those securities.
Principal Risks of the Fund
The Fund is a diversified, closed-end management investment company designed primarily as a
long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives.
Risk of Market Price Discount from Net Asset Value. Shares of closed-end
investment companies frequently trade at a discount from their net asset value (NAV). This characteristic is a risk separate and distinct from the risk that NAV could decrease as a result of investment activities and may be greater for investors
expecting to sell their shares in a relatively short period following completion of this offering. Whether investors will realize gains or losses upon the sale of the shares will depend not upon the Funds NAV but entirely upon whether the
market price of the shares at the time of sale is above or below the investors purchase price for the shares. Because the market price of the shares will be determined by factors such as relative supply of and demand for shares in the market,
general market and economic conditions, and other factors beyond the control of the Fund, Fund shares may trade at, above or below NAV, or at below or above the initial public offering price.
Investment Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire
principal amount that you invest.
Market Risk. Your investment in the Fund represents an indirect investment in
the securities owned by the Fund, a significant portion of which are traded on a national securities exchange or in the OTC markets. The value of these securities, like other investments, may move up or down, sometimes rapidly and unpredictably. The
Fund may utilize leverage, which magnifies this risk. Your 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. See Leverage Risk
below.
Real Estate Market Risk. The Fund will not invest in real estate directly, but may invest in securities
issued by real estate companies, including REITs. Therefore, the Fund is also subject to the risks associated with the direct ownership of real estate. These risks include:
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declines in the value of real estate; |
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risks related to general and local economic conditions; |
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possible lack of availability of mortgage funds; |
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extended vacancies of properties; |
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increases in property taxes and operating expenses; |
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changes in zoning laws; |
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losses due to costs resulting from the clean-up of
environmental problems; |
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liability to third parties for damages resulting from environmental problems;
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casualty or condemnation losses; |
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changes in neighborhood values and the appeal of properties to tenants; |
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changes in interest rates; |
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failure of borrowers to pay their loans; |
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early payment or restructuring of mortgage loans; |
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slower mortgage origination; and |
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rising construction costs. |
REIT Risk. In addition to the risks of securities linked to the real estate industry, REITs are subject to certain other
risks related to their structure and focus. REITs generally are dependent upon management skills and may not be diversified. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to (i) qualify for favorable tax treatment under applicable tax law, or (ii) maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrowers or a lessees
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.
Preferred Securities Risk. There are various risks associated with investing in preferred
securities, including those described below. In addition, the on-going COVID-19 outbreak has increased certain risks associated with investing in preferred securities.
The impact of the COVID-19 outbreak could persist for years to come and the full impact to financial markets is not yet known. See Geopolitical Risk below for additional information regarding the
COVID-19 outbreak.
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Deferral and Omission Risk. Preferred securities may include provisions that permit the
issuer, at its discretion, to defer or omit distributions for a stated period without any adverse consequences to the issuer. In certain cases, deferring or omitting distributions may be mandatory. If the Fund owns a preferred security that is
deferring its distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. In addition, recent changes in bank regulations may increase the likelihood for issuers to defer or omit
distributions. |
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Credit and Subordination Risk. Credit risk is the risk that a preferred security in the
Funds portfolio will decline in price or the issuer of the security will fail to make dividend, interest or principal payments when due because the issuer experiences a decline in its financial status. Preferred securities are generally
subordinated to bonds and other debt instruments in a companys capital structure in terms of having priority to corporate income, claims to corporate assets and liquidation payments, and therefore will be subject to greater credit risk than
more senior debt instruments. |
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Interest Rate Risk. Interest rate risk is the risk that preferred securities will decline in
value because of changes in market interest rates. When market interest rates rise, the market value of such securities generally will fall, and therefore the Fund may underperform during periods of rising interest rates. The Fund may be subject to
a greater risk of rising interest rates than would normally be the case due to the current period of historically low rates and the effect of government monetary policy initiatives and resulting market reaction to those initiatives. Preferred
securities without maturities or with longer periods before maturity may be more sensitive to interest rate changes. |
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Prepayment and Extension Risk. Prepayment risk is the risk that changes in interest rates,
credit spreads or other factors will result in the call (repayment) of a preferred security more quickly than expected, such that the Fund may have to invest the proceeds in lower yielding securities, or that expectations of such early call will
negatively impact the market price of the security. Extension risk is the risk that changes in the interest rates or credit spreads may result in diminishing call expectations, which can cause prices to fall. |
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Floating-Rate and
Fixed-to-Floating-Rate Securities Risk. The market value of floating-rate securities is a reflection of discounted expected cash flows based on expectations for
future interest rate resets. The market value of such securities may fall in a declining interest rate environment and may also fall in a rising interest rate environment if there is a lag between the rise in interest rates and the reset. This risk
may also be present with respect to fixed-to-floating-rate securities in which the Fund may invest. A secondary risk associated with declining interest rates is the risk
that income earned by the Fund on floating-rate and fixed-to-floating-rate securities will decline due to lower coupon payments on floating-rate securities.
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Call, Reinvestment and Income Risk. During periods of declining interest rates, an issuer may
be able to exercise an option to redeem its issue at par earlier than scheduled which is generally known as call risk. Recent regulatory changes may increase call risk with respect to certain types of preferred securities. If this occurs, the Fund
may be forced to reinvest in lower yielding securities. This is known as reinvestment risk. Preferred securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem
preferred securities if the issuer can refinance the preferred securities at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer, or in the event of regulatory changes affecting the capital treatment
of a security. Another risk associated with a declining interest rate environment is that the income from the Funds portfolio may decline over time when the Fund invests the proceeds from new share sales at market rates that are below the
portfolios current earnings rate. |
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Liquidity Risk. Certain preferred securities may be substantially less liquid than many other
securities, such as common stocks or U.S. government securities. Illiquid securities involve the |
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risk that the securities will not be able to be sold at the time desired by the Fund or at prices approximating the value at which the Fund is carrying the securities on its books. |
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Limited Voting Rights Risk. Generally, traditional preferred securities offer no voting rights
with respect to the issuer unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuers board of directors. Generally, once all
the arrearages have been paid, the preferred security holders no longer have voting rights. Hybrid-preferred security holders generally have no voting rights. |
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Special Redemption Rights. In certain varying circumstances, an issuer of preferred securities
may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in U.S. federal income tax or securities laws. As with call provisions, a redemption by the
issuer may have a negative impact on the return of the security held by the Fund. See Call, Reinvestment and Income Risk above and Regulatory Risk below. |
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New Types of Securities. From time to time, preferred securities, including hybrid-preferred
securities and contingent capital securities, have been, and may in the future be, offered having features other than those described herein. The Fund reserves the right to invest in these securities if the investment manager believes that doing so
would be consistent with the Funds investment objectives and policies. Since the market for these instruments would be new, the Fund may have difficulty disposing of them at a suitable price and time. In addition to limited liquidity, these
instruments may present other risks, such as high price volatility. |
Debt Securities
Risk. Debt securities generally present two primary types of riskcredit risk, which refers to the possibility that the issuer of a security will not be able to make payments of interest and principal when due, and interest rate
risk, which is the risk that debt securities will decline in value because of changes in market interest rates. Debt securities also are subject to other similar risks as preferred securities, including call risk, extension risk and liquidity risk.
Convertible Securities Risk. Although to a lesser extent than with
non-convertible fixed-income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. A unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
Below Investment Grade Securities Risk. The Fund may invest
in below investment grade securities or securities that are unrated but judged to be below investment grade by the investment manager. Below investment grade securities, or equivalent unrated securities, generally involve greater volatility of price
and risk of loss of income and principal, and may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade securities. It is
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reasonable to expect that any adverse economic condition could disrupt the market for below investment grade securities, have an adverse impact on
the value of those securities and adversely affect the ability of the issuers of those securities to repay principal and interest on those securities.
Contingent Capital Securities Risk. Contingent capital securities (sometimes referred to as CoCos) are debt or preferred
securities with loss absorption characteristics built into the terms of the security for the benefit of the issuer, for example, an automatic write-down of principal or a mandatory conversion into common stock of the issuer under certain
circumstances, such as the issuers capital ratio falling below a certain level. CoCos may be subject to an automatic write-down (i.e., the automatic write-down of the principal amount or value of the securities, potentially to zero, and the
cancellation of the securities) under certain circumstances, which could result in the Fund losing a portion or all of its investment in such securities. In addition, the Fund may not have any rights with respect to repayment of the principal amount
of the securities that has not become due or the payment of interest or dividends on such securities for any period from (and including) the interest or dividend payment date falling immediately prior to the occurrence of such automatic write-down.
An automatic write-down could also result in a reduced income rate if the dividend or interest payment is based on the securitys par value. If a CoCo provides for mandatory conversion of the security into common stock of the issuer under
certain circumstances, such as an adverse event, the Fund could experience a reduced income rate, potentially to zero, as a result of the issuers common stock not paying a dividend. In addition, a conversion event would likely be the result of
or related to the deterioration of the issuers financial condition (e.g., such as a decrease in the issuers capital ratio) and status as a going concern, so the market price of the issuers common stock received by the Fund may have
declined, perhaps substantially, and may continue to decline, which may adversely affect the Funds NAV. Further, the issuers common stock would be subordinate to the issuers other security classes and therefore worsen the
Funds standing in a bankruptcy proceeding. In addition, most CoCos are considered to be high yield or junk securities and are therefore subject to the risks of investing in below investment grade securities. Finally, CoCo issuers
can, at their discretion, suspend dividend distributions on their CoCo securities and are more likely to do so in response to negative economic conditions and/or government regulation. Omitted distributions are typically non-cumulative and will not be paid on a future date. Any omitted distribution may negatively impact the returns or distribution rate of the Fund.
Small- And Medium-Sized Companies Risk. Real estate companies 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 companys stock, which means that buy and sell transactions in that stock could
have a larger impact on the stocks 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 companys
stock price than is the case for a larger company. Further, smaller company stocks may perform differently in different cycles than larger company stocks. Accordingly, real estate company shares can, and at times will, perform differently than large
company stocks.
Common Stock Risk. The Fund may invest in common stocks. Common stocks are subject to special
risks. Although common stocks have historically generated higher average returns than fixed-income securities over the long-term, common stocks also have experienced significantly more volatility in returns. Common stocks may be more susceptible to
adverse changes in market value due to issuer specific events or general movements in the equities markets. A drop in the stock market may depress the price of common stocks held by the Fund. Common stock prices fluctuate for many reasons,
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including changes to investors perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or
the occurrence of political or economic events affecting issuers. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common stock in which the Fund has invested; the price of common stock of an issuer may
be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks held by the Fund. Also, common stock of an issuer in the Funds portfolio may decline in
price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. The common stocks in which the Fund will invest are typically subordinated to
preferred securities, bonds and other debt instruments in a companys capital structure in terms of priority to corporate income and assets, and, therefore, will be subject to greater risk than the preferred securities or debt instruments of
such issuers. In addition, common stock prices may be sensitive to rising interest rates as the costs of capital rise and borrowing costs increase.
Financials Sector Risk. To the extent the Fund invests in the financials sector, it will be more susceptible to adverse
economic or regulatory occurrences affecting this sector, such as changes in interest rates, loan concentration and competition. In addition, the Fund will also be subject to the risks of investing in the individual industries and securities that
comprise the financials sector, including the bank, diversified financial services, credit card and insurance industries.
Derivatives and Hedging Transactions Risk. The Funds use of derivatives, including for the purpose of hedging interest rate or foreign currency risks and managing the Funds duration, presents risks different
from, and possibly greater than, the risks associated with investing directly in traditional securities. In certain types of derivatives transactions the Fund could lose the entire amount of its investment; in other types of derivatives transactions
the potential loss is theoretically unlimited. Although both OTC and exchange-traded derivatives markets may experience lack of liquidity, OTC non-standardized derivatives transactions are generally less
liquid than exchange-traded instruments. In addition, the liquidity of a secondary market in an exchange-traded derivative contract may be adversely affected by daily price fluctuation limits established by the exchanges which once
reached, would prevent the liquidation of open positions. If it is not possible to close an open derivative position entered into by the Fund, the Fund may be required to make cash payments of variation (or mark-to-market) margin and, if the Fund has insufficient cash, it may have to sell portfolio securities to meet variation margin requirements at a time when it may be disadvantageous to do so. The inability
to close derivatives transactions positions also could have an adverse impact on the Funds ability to effectively hedge its portfolio. Derivatives transactions entered into to seek to manage the risks of the Funds portfolio of securities
may have the effect of limiting gains from otherwise favorable market movements. The use of derivatives transactions may result in losses greater than if they had not been used. The Fund may enter into swap, cap or other transactions to attempt to
protect itself from increasing interest or dividend expenses resulting from increasing short-term interest rates on any leverage it incurs or increasing interest rates on securities held in its portfolio. A decline in interest rates may result in a
decline in the value of the transaction, which may result in a decline in the NAV of the Fund. In the event the Fund enters into forward currency contracts for hedging purposes, the Fund will be subject to currency exchange rates risk. Currency
exchange rates may fluctuate significantly over short periods of time and also can be affected unpredictably by intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. Furthermore, the ability to successfully use derivative
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instruments depends on the ability of the investment manager to predict pertinent market movements, which cannot be assured. Structured notes and
other related instruments carry risks similar to those of more traditional derivatives such as futures, forward and option contracts. However, structured instruments may entail a greater degree of market risk and volatility than other types of debt
obligations. The Fund will be subject to credit risk with respect to the counterparties to certain derivatives transactions entered into by the Fund and may experience losses in the event a counterparty fails to perform its obligations under a
derivative contract.
The investment manager is registered with the Commodity Futures Trading Commission as a commodity
pool operator (CPO). However, with respect to the Fund, the investment manager has claimed an exclusion from the definition of the CPO under the Commodity Exchange Act, as amended (the CEA). Accordingly, the investment
manager, with respect to the Fund, is not subject to registration or regulation as a CPO under the CEA.
Options
Risk. Gains on options transactions depend on the investment managers ability to predict correctly the direction of stock prices, indexes, interest rates, and other economic factors, and unanticipated changes may cause poorer overall
performance for the Fund than if it had not engaged in such transactions. A rise in the value of the security or index underlying a call option written by the Fund exposes the Fund to possible loss or loss of opportunity to realize appreciation in
the value of any portfolio securities underlying or otherwise related to the call option. By writing a put option, the Fund assumes the risk of a decline in the underlying security or index. There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position, and for certain options not traded on an exchange no market usually exists. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers
or sellers, or an 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, that
Fund may experience losses in some cases as a result of such inability, may not be able to close its position and, in such an event would be unable to control its losses.
Interest Rate Transactions Risk. The Fund may enter into a swap or cap transaction to attempt to protect itself from
increasing dividend or interest expenses resulting from increasing short-term interest rates. A decline in interest rates may result in a decline in the value of the swap or cap, which may result in a decline in the net asset value of the Fund. A
sudden and dramatic decline in interest rates may result in a significant decline in the net asset value of the Fund.
Counterparty Risk. The Fund will be subject to credit risk with respect to the counterparties to derivatives transactions
entered into by the Fund. If a counterparty, including a futures commission merchant or central clearing party, becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
Foreign (Non-U.S.) and Emerging Market Securities Risk. Risks of investing in
foreign securities, which can be expected to be greater for investments in emerging markets, include currency risks, future political and economic developments and possible imposition of foreign withholding or other taxes on income or proceeds
payable on the securities. In addition, there may be less publicly available
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information about a foreign issuer than about a domestic issuer, and foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers.
Securities of companies in emerging markets may
be more volatile than those of companies in more developed markets. Emerging market countries generally have less developed markets and economies and, in some countries, less mature governments and governmental institutions. Political developments
in foreign countries or the United States may at times subject such countries to sanctions from the U.S. government, foreign governments and/or international institutions that could negatively affect a Funds investments in issuers located in,
doing business in or with assets in such countries. Investing in securities of companies in emerging markets may entail special risks relating to potential economic, political or social instability and the risks of expropriation, nationalization,
confiscation, trade sanctions or embargoes or the imposition of restrictions on foreign investment, the lack of hedging instruments, and repatriation of capital invested. The securities and real estate markets of some emerging market countries have
in the past experienced substantial market disruptions and may do so in the future. The economies of many emerging market countries may be heavily dependent on international trade and have thus been, and may continue to be, adversely affected by
trade barriers, foreign exchange controls and other protectionist measures imposed or negotiated by the countries with which they wish to trade.
Foreign Currency Risk. Although the Fund will report its NAV and pay dividends in U.S. dollars, foreign securities often are
purchased with and make any dividend and interest payments in foreign currencies. Therefore, the Funds investments in foreign securities will be subject to foreign currency risk, which means that the Funds NAV could decline solely as a
result of changes in the exchange rates between foreign currencies and the U.S. dollar. Certain foreign countries may impose restrictions on the ability of issuers of foreign securities to make payment of principal, dividends and interest to
investors located outside the country, due to blockage of foreign currency exchanges or otherwise. The Fund may, but is not required to, engage in various investments that are designed to hedge the Funds foreign currency risks, and such
investments are subject to the risks described under Derivatives and Hedging Transactions Risk above.
Foreign currency forward contracts, OTC options on foreign currencies and foreign currency swaps are subject to the risk of default
by the counterparty and can be illiquid. These currency hedging transactions, as well as the futures contracts and exchange-listed options in which the Fund may invest, are subject to many of the risks of, and can be highly sensitive to changes in
the value of, the related currency or other reference asset. As such, a small investment could have a potentially large impact on the Funds performance. Whether or not the Fund engages in currency hedging transactions, the Fund may experience
a decline in the value of its portfolio securities, in U.S. dollar terms, due solely to fluctuations in currency exchange rates. Use of currency hedging transactions may cause the Fund to experience losses greater than if the Fund had not engaged in
such transactions.
The Funds transactions in foreign currencies may increase or accelerate the Funds
recognition of ordinary income and may affect the timing or character of the Funds distributions
Leverage
Risk. The use of leverage is a speculative technique and there are special risks and costs associated with leverage. The NAV of the Funds shares may be reduced by the issuance and ongoing costs of leverage. So long as the Fund is able to
invest in securities that produce an investment yield that is greater than the total cost of leverage, the leverage strategy will produce higher current net investment
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income for the shareholders. On the other hand, to the extent that the total cost of leverage exceeds the incremental income gained from employing
such leverage, shareholders would realize lower net investment income. In addition to the impact on net income, the use of leverage will have an effect of magnifying capital appreciation or depreciation for shareholders. Specifically, in an up
market, leverage will typically generate greater capital appreciation than if the Fund were not employing leverage. Conversely, in down markets, the use of leverage will generally result in greater capital depreciation than if the Fund had been
unlevered. To the extent that the Fund is required or elects to reduce its leverage, the Fund may incur applicable breakage fees under the Funds credit arrangement and may need to liquidate investments, including under adverse economic
conditions which may result in capital losses potentially reducing returns to shareholders. The use of leverage also results in the investment management fees payable to the investment manager being higher than if the Fund did not use leverage and
can increase operating costs, which may reduce total return. In some market conditions, the Fund may not be able to employ leverage to the extent or at the cost desired. This could prevent the Fund from executing its portfolio strategies or could
otherwise depress shareholder returns. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.
Other Investment Companies Risk. To the extent the Fund invests a portion of its assets in investment companies, including open-end funds, closed-end funds, ETFs and other types of pooled investment funds, those assets will be subject to the risks of the purchased investment companies
portfolio securities, and a shareholder in the Fund will bear not only his or her proportionate share of the Funds expenses, but also indirectly the expenses of the purchased investment companies. Shareholders would therefore be subject to
duplicative expenses to the extent the Fund invests in other investment companies. Risks associated with investments in closed-end funds also generally include the risks associated with the Funds
structure as a closed-end investment company, including market risk, leverage risk, risk of market price discount from NAV, risk of anti-takeover provisions and
non-diversification. In addition, investments in closed-end funds may be subject to dilution risk, which is the risk that strategies employed by a closed-end fund, such as rights offerings, may, under certain circumstances, have the effect of reducing its share price and the Funds proportionate interest. In addition, restrictions under the 1940 Act may
limit the Funds ability to invest in other investment companies to the extent desired.
The SEC has adopted Rule 12d1-4 permitting fund of fund arrangements subject to various conditions, and rescinding the present rule and certain exemptive relief previously granted. Once in effect, Rule
12d1-4 may adversely affect the Funds ability to invest in other investment companies and could also significantly affect the Funds ability to redeem its investments in other investment companies,
making such investments less attractive. The effects of rule and other regulatory changes are not known as of the date of this report, but they could impact the Funds ability to achieve its desired investment strategies or cause the Fund to
incur losses, realize taxable gains distributable to shareholders, incur greater or unexpected expenses or experience other adverse consequences.
Restricted and Illiquid Securities Risk. The Fund may invest in investments that may be illiquid (i.e., securities
that may be difficult to sell at a desirable time or price). Illiquid securities are securities that are not readily marketable and may include some restricted securities, which are securities that may not be resold to the public without an
effective registration statement under the Securities Act or, if they are unregistered, may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. Illiquid investments involve the risk that the securities
will not be able to be sold at the time
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desired by the Fund or at prices approximating the value at which the Fund is carrying the securities on its books. Restricted securities and
illiquid securities are often more difficult to value and the sale of such securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on
national securities exchanges or in the OTC markets. Contractual restrictions on the resale of securities result from negotiations between the issuer and purchaser of such securities and therefore vary substantially in length and scope. To dispose
of a restricted security that the Fund has a contractual right to sell, the Fund may first be required to cause the security to be registered. A considerable period may elapse between a decision to sell the securities and the time when the Fund
would be permitted to sell, during which time the Fund would bear market risks.
Rule 144A Securities Risk. Rule
144A Securities are considered restricted securities because they are not registered for sale to the general public and may only be resold to certain qualified institutional buyers. Institutional markets for Rule 144A Securities that exist or may
develop may provide both readily ascertainable values for such securities and the ability to promptly sell such securities. However, if there are an insufficient number of qualified institutional buyers interested in purchasing Rule 144A Securities
held by the Fund, the Fund will be subject to liquidity risk and thus may not be able to sell the Rule 144A Securities at a desirable time or price.
Regulation S Securities Risk. Regulation S securities are offered through non-U.S.
offerings without registration with the SEC pursuant to Regulation S of the Securities Act. Regulation S securities may be relatively less liquid as a result of legal or contractual restrictions on resale. Because Regulation S securities are
generally less liquid than registered securities, the Fund may take longer to liquidate these positions than publicly traded securities or may not be able to sell them at the price desired. Furthermore, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded or otherwise offered in the United States. Accordingly, Regulation S securities may involve a
high degree of business and financial risk and may result in losses to the Fund.
Private Real Estate Risk. The
Funds investments in private real estate include additional risks. For example, lease defaults, terminations by one or more tenants or landlord-tenant disputes may reduce the Funds revenues and net income. Any of these situations may
result in extended periods during which there is a significant decline in revenues or no revenues generated by a property. If this occurred, it could adversely affect the Funds results of operations.
The Funds financial position and its ability to make distributions may also be adversely affected by financial difficulties
experienced by any major tenants, including bankruptcy, insolvency or a general downturn in the business, or in the event any major tenants do not renew or extend their relationship as their lease terms expire. A tenant in bankruptcy may be able to
restrict the ability to collect unpaid rents or interest during the bankruptcy proceeding. Furthermore, dealing with a tenants bankruptcy or other default may divert managements attention and cause the Fund to incur substantial legal and
other costs.
The Funds investments in real estate will be pressured in challenging economic and rental market
conditions. If the private real estate investment is unable to re-let or renew leases for all or substantially all of the space at these properties, if the rental rates upon such renewal or re-letting are significantly lower than expected, or if the investments reserves for these purposes prove inadequate, the Fund will experience a reduction in net income and may be required to reduce or
eliminate cash distributions.
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The Fund may obtain only limited warranties when it purchases an equity investment in private commercial real estate. The purchase
of properties with limited warranties increases the risk that the Fund may lose some or all of its invested capital in the property, as well as the loss of rental income from that property if an issue should arise that decreases the value of that
property and is not covered by the limited warranties. If any of these results occur, it may have a material adverse effect on the Funds business, financial condition and results of operations and the Funds ability to make distributions.
The Funds investments in private real estate are expected to be substantially less liquid than many other
securities, such as common stocks or U.S. government securities.
REIT Subsidiary Risk. Investments in a REIT
Subsidiary are subject to risks associated with the direct ownership of real estate. A REIT Subsidiary, and therefore the Fund, may be affected by changes in the real estate markets generally as well as changes in the values of any properties owned
by a REIT Subsidiary or securing any mortgages owned by a REIT Subsidiary (which changes in value could be influenced by market conditions for real estate in general or issues related to the particular property). If a REIT Subsidiarys
underlying assets are concentrated in properties used by a particular industry, it will be subject to risks associated with such industry. Each REIT Subsidiary will be wholly-owned (except for its preferred shareholders) by the Fund.
Restrictions under the Internal Revenue Code applicable to regulated investment companies such as the Fund can limit investments in
private real estate, or cause such investments to be structured in a less tax-advantaged manner. Each REIT Subsidiary will not be diversified and will be subject to heavy cash flow dependency, possible lack of
availability of financing, changes in interest rates, prepayment and defaults by borrowers, self-liquidation, adverse economic conditions, adverse changes in tax laws, and the possibility of failing to maintain an exemption under the 1940 Act. Any
rental income or income from the disposition of real estate could adversely affect a REIT Subsidiarys ability to retain its tax status, which would have adverse tax consequences. Each REIT Subsidiary is subject to the risk that it will need to
liquidate a holding at an economically inopportune time.
By investing through a REIT Subsidiary, the Fund bears the
fees and expenses of the REIT Subsidiary (including, among other things operating costs, transaction expenses, administrative and custody fees, legal expenses and custody expenses). Thus, investing through a REIT Subsidiary may cause the Fund to be
subject to higher operating expenses than if it invested directly.
To the extent a REIT Subsidiary holds mortgages, it
will be subject to the following risks: (1) during periods of declining interest rates, mortgagors may be inclined to prepay their mortgages, which prepayment may diminish the yield on securities issued by the REIT Subsidiary; and (2) when
interest rates rise, the value of the REIT Subsidiarys investment in fixed rate obligations can be expected to decline.
A REIT Subsidiary may have limited diversification because it may invest in a limited number of properties, a narrow geographic area, or a single type of property. The private real estate investments owned by a REIT Subsidiary will
not be traded on a national securities exchange and an investment therein is, therefore, illiquid. These investments are also more difficult to value than publicly traded real estate investments.
A REIT Subsidiary, and therefore the Fund, will be affected by changes in the value of the underlying real property, fluctuations
in the demand for real estate, defaults by tenants, and decreases in market rates for rent. To the extent it invests in mortgages or otherwise derives income from the
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collection of interest payments, a REIT Subsidiary may be affected by the quality of credit extended, prepayments and defaults by borrowers, and
changes in market interest rates, and may be more susceptible to interest rate risk.
Each REIT Subsidiary likely will
depend on its ability to generate cash flow to make distributions to the Fund. The Funds investments in a REIT Subsidiary could cause the Fund to recognize income in excess of cash received from those investments and, as a result, the Fund may
be required to sell portfolio investments, including when it is not advantageous to do so, in order to make distributions. By investing in a REIT Subsidiary, the Fund is indirectly exposed to risks associated with the REIT Subsidiarys
investments. A REIT Subsidiary may invest in real estate and real estate-related investments through wholly-owned special purpose companies. Because each REIT Subsidiary will not be registered under the 1940 Act, the Fund, as an investor in the REIT
Subsidiary, will not have the protections afforded to investors in registered investment companies. Changes in the laws of the United States, under which the Fund and a REIT Subsidiary are organized, including the regulations under the Code, could
result in the inability of the Fund and/or a REIT Subsidiary to operate as intended and could negatively affect the Fund and its shareholders. Ownership of and investment through a REIT Subsidiary by a
closed-end management investment company is relatively novel investment strategy. Differences between the statutory and regulatory regimes applicable to a management investment company and a REIT present
additional challenges and risks with regard to a REIT Subsidiarys qualification as a REIT under the Code, which could result in the REIT Subsidiary and the Fund having additional tax liability, and reduce the Funds current income.
A REIT Subsidiary could default on its obligations or go bankrupt. Each REIT Subsidiary will be operated as a separate
company and will observe its own corporate formalities (i.e., it will maintain its own separate books & records, and execute agreements in its own name and on its own behalf). Accordingly, creditors and other claimants should only be able
to look to the REIT Subsidiary and its assets for settlement of their claims against the REIT Subsidiary. Creditors and other claimants against the REIT Subsidiary will not have general recourse against the Fund unless the Fund guarantees the debt
or obligations of the REIT Subsidiary. See Recourse Financings Risk. Each REIT Subsidiary is responsible for its own legal costs in defending against any such claims, but those legal costs may diminish its returns, and thus ultimately
diminish returns to Fund shareholders. Although each REIT Subsidiary will be organized so that it is generally responsible for its own debts and obligations, there is no guarantee that creditors and other claimants against the REIT Subsidiary will
not try to reach the assets of the Fund, even where there is no legal basis for recourse to the Funds assets. The Fund intends to dispute any such claims, but to the extent it does so it may incur legal costs that will diminish its returns to
shareholders.
The REIT Subsidiary may use derivatives for speculative or hedging purposes and non-hedging purposes (that is, to seek to increase total return). The REIT Subsidiary may incur leverage for investment or other purposes, which may increase its volatility. The REIT Subsidiary may invest without
limitation in restricted and illiquid investments and equity securities without limitation as to market capitalization, including micro-cap companies, the prices of which may be subject to erratic market
movements.
Potential Conflicts of Interest Risk. The Investment Manager and its affiliates are involved
worldwide with a broad spectrum of financial services and asset management activities and may engage in the ordinary course of business in activities in which their interests or the interests of their
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other clients may conflict with those of the Fund. The Investment Manager and its affiliates provide investment management services to other funds
and discretionary managed accounts that follow an investment program similar to that of the Fund. Subject to the requirements of the 1940 Act, the Investment Manager and its affiliates intend to engage in such activities and receive compensation
from third parties for their services. Neither the Investment Manager nor its affiliates are under any obligation to share any investment opportunity, idea or strategy with the Fund. As a result, other accounts of the Investment Manager and its
affiliates may compete with the Fund for appropriate investment opportunities. The results of the Funds investment activities, therefore, may differ from those of other accounts managed by the Investment Manager or its affiliates, and it is
possible that the Fund could sustain losses during periods in which one or more of the proprietary or other accounts managed by the Investment Manager or its affiliates achieve profits. The investment professionals associated with the Investment
Manager are actively involved in other investment activities not concerning the Fund and will not be able to devote all of their time to the Funds business and affairs. The Investment Manager and its affiliates have adopted policies and
procedures designed to address potential conflicts of interests and to allocate investments among the accounts managed by the Investment Manager and its affiliates in a fair and equitable manner. The Fund depends to a significant extent on the
Investment Managers access to the investment professionals and senior management of the Investment Manager and the information and deal flow generated by the Investment Managers investment professionals and senior management during the
normal course of their investment and portfolio management activities. The senior management and the investment professionals of the Investment Manager source, evaluate, analyze and monitor the Funds investments. The Funds future success
will depend on the continued service of the senior management team and investment professionals of the Investment Manager.
The Investment Manager will not cause the Fund to engage in certain negotiated investments alongside affiliates unless the Fund has received an order granting an exemption from Section 17 of the 1940 Act or unless such
investments are not prohibited by Section 17(d) of the Investment Company Act or interpretations of Section 17(d) as expressed in SEC no-action letters or other available guidance. A private real
estate investment may be owned by multiple Cohen & Steers funds, including the Fund. The Investment Manager believes that having multiple funds invest in a single private real estate investment may result in economies of scale for
shareholders as expenses will be shared across a larger asset base. However, investing alongside other Cohen & Steers funds involves certain risks. Although any funds investing in the same private real estate investment will have similar
investment strategies with respect to private real estate investments and therefore are likely to be aligned with respect to their acquisition, holding and disposition of the investment, it is possible that the strategies of one fund might change to
the extent that it no longer wishes to invest in the investment. In such a case, its ability to dispose of its interest in the private real estate investment will be limited. Similarly, it is possible that the other fund owners of the investment may
wish to dispose of their interest in the investment, potentially necessitating a sale of the investment at a time or price that the Fund believes is disadvantageous.
Real Estate Joint Venture Risk. The Fund through a REIT Subsidiary may enter into real estate joint ventures with third parties to make
investments. The Fund may also make investments in partnerships or other co-ownership arrangements or participations. Such investments may involve risks not otherwise present with other methods of investment,
including, for instance, the following risks and conflicts of interest:
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the real estate joint venture partner in an investment could become insolvent or bankrupt;
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fraud or other misconduct by the real estate joint venture partner; |
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the joint venture partner will typically have day-to-day control over the investment, and the Funds rights regarding certain major decisions affecting the ownership of the real estate joint venture and the joint venture property, such as the sale
of the property or the making of additional capital contributions for the benefit of the property, will typically be limited. These factors may prevent the Fund from taking actions that are opposed by its real estate joint venture partner; under
certain real estate joint venture arrangements, neither party may have the power to unilaterally direct certain activities of the venture and, under certain circumstances, an impasse could result regarding cash distributions, reserves, or a proposed
sale or refinancing of the investment, and this impasse could have an adverse impact on the real estate joint venture, which could adversely impact the operations and profitability of the real estate joint venture and/or the amount and timing of
distributions the Fund receives from the real estate joint venture; |
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the real estate joint venture partner may at any time have economic or business interests or goals
that are or that become in conflict with the Funds business interests or goals, including, for instance, the operation of the properties; |
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the real estate joint venture partner may be structured differently than the Fund for tax purposes
and this could create conflicts of interest; |
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the Fund will typically rely upon its real estate joint venture partner to manage the day-to day operations of the real estate joint venture and underlying assets, as well as to prepare financial information for the real estate joint venture and any failure to perform these obligations appropriately
may have a negative impact on the Funds performance and results of operations; |
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the real estate joint venture partner may experience a change of control, which could result in new
management of the real estate joint venture partner with less experience or conflicting interests to the Fund and be disruptive to the Funds business; |
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the real estate joint venture partner may be in a position to take action contrary to the Funds
instructions or requests or contrary to the Funds policies or objectives; |
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the terms of the real estate joint ventures could restrict the Funds ability to sell or
transfer its interest to a third party when it desires on advantageous terms, which could result in reduced liquidity; |
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the Fund or its real estate joint venture partner may have the right to cause the Fund to sell its
interest, or acquire its partners interest, at a time when the Fund otherwise would not have initiated such a transaction; and |
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the real estate joint venture partner may not have sufficient personnel or appropriate levels of
expertise to adequately support the Funds initiatives. |
In addition, disputes between the Fund
and its real estate joint venture partners may result in litigation or arbitration that would increase the Funds expenses and prevent the Funds officers and trustees from focusing their time and efforts on the Funds business. Any
of the above might subject the Fund to liabilities and thus reduce its returns on the investment with that real estate joint venture partner.
Recourse Financings Risk. In certain cases, financings for the Funds commercial real estate properties may be recourse
to the Fund. Generally, commercial real estate financings are structured as non-recourse to the borrower, which limits a lenders recourse to the property pledged as collateral for the loan, and not the
other assets of the borrower or to any parent of borrower, in the event of a loan default. However, lenders customarily will require that a creditworthy parent entity enter into so-called
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recourse carveout guarantees to protect the lender against certain bad-faith or other
intentional acts of the borrower in violation of the loan documents.
Valuation Risk. The Fund is subject to
valuation risk, which is the risk that one or more of the assets in which the Fund invests are priced incorrectly, due to factors such as incomplete data, market instability or human error. If the Fund ascribes a higher value to assets and their
value subsequently drops or fails to rise because of market factors, returns on the Funds investment may be lower than expected and could experience losses. Within the parameters of the Funds valuation guidelines, the valuation
methodologies used to value the Funds assets, in particular the Funds private real estate investments, will involve subjective judgments and projections and that ultimately may not materialize. Ultimate realization of the value of an
asset depends to a great extent on economic, market and other conditions beyond the Funds control and the control of the Investment Manager and the Funds independent valuation firms. Rapidly changing market conditions or material events
may not be immediately reflected in the Funds daily NAV.
LIBOR Risk. Many financial instruments are tied
to the London Interbank Offered Rate, or LIBOR, to determine payment obligations, financing terms, hedging strategies, or investment value. LIBOR is the offered rate for short-term Eurodollar deposits between major international banks.
The Head of the UK Financial Conduct Authority the (FCA) and LIBORs administrator, ICE Benchmark Administration (IBA) announced that most LIBOR settings will no longer be published after the end of 2021 and that a majority of U.S. dollar LIBOR
settings will no longer be published after June 30, 2023. It is possible that the FCA may compel the IBA to publish a subset of LIBOR settings after these dates on a synthetic basis, but any such publications would be considered
non-representative of the underlying market. Alternatives to LIBOR are in development in many major financial markets, including a Secured Overnight Financing Rate (SOFR), a broad measure of secured overnight U.S. Treasury repo rates, which is
intended to replace U.S. dollar LIBOR. Bank working groups and regulators in other countries have suggested other alternatives for their markets, including the Sterling Overnight Interbank Average Rate SONIA in England. Other countries
are introducing their own local-currency-denominated alternative reference rates for short-term lending and global consensus on alternative rates is lacking.
There remains uncertainty and risk regarding the willingness and ability of issuers and lenders to include enhanced provisions in
new and existing contracts or instruments, the suitability of the proposed replacement rates, and the process for amending existing contracts and instruments remains unclear. As such, the transition away from LIBOR may lead to increased volatility
and illiquidity in markets that are tied to LIBOR, reduced values of, inaccurate valuations of, and miscalculations of payment amounts for LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or
refinancing and reduced effectiveness of hedging strategies, adversely affecting the Funds performance or NAV. In addition, any alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for
the Fund. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the cessation of LIBOR publications.
Mortgage- and Asset-Backed Securities Risk. The risks associated with mortgage-related securities include: (1) credit
risk associated with the performance of the underlying mortgage properties and of the borrowers owning these properties; (2) adverse changes in economic conditions and circumstances, which are more likely to have an adverse impact on
mortgage-related securities secured by loans on certain types of commercial properties than on those secured by loans on
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residential properties; (3) prepayment risk, which can lead to significant fluctuations in value of the mortgage-related security;
(4) loss of all or part of the premium, if any, paid; and (5) decline in the market value of the security, whether resulting from changes in interest rates or prepayments on the underlying mortgage collateral.
Asset-backed securities involve certain risks in addition to those presented by mortgage-related securities: (1) primarily,
these securities do not have the benefit of the same security interest in the underlying collateral as mortgage-related securities and are more dependent on the borrowers ability to pay; (2) credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number of state and Federal consumer credit laws, many of which give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due; and
(3) most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If these obligations are sold to another party, there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not
have an effective security interest in all of the obligations backing such receivables. There is a possibility that recoveries on repossessed collateral may not, in some cases, be able to support payments on these securities.
Tax Risk. The Fund may invest in preferred securities or other securities the Federal income tax treatment of which may not
be clear or may be subject to recharacterization by the Internal Revenue Service. It could be more difficult for the Fund to comply with the tax requirements applicable to regulated investment companies if the tax characterization of the Funds
investments or the tax treatment of the income from such investments were successfully challenged by the Internal Revenue Service.
Additional Risk Considerations
Active Management Risk. As an actively managed portfolio, the value of the Funds investments could decline because the financial condition of an issuer may change (due to such factors as management performance, reduced
demand or overall market changes), financial markets may fluctuate or overall prices may decline, or the investment managers investment techniques could fail to achieve the Funds investment objectives or negatively affect the Funds
investment performance.
Portfolio Turnover Risk. The Fund may engage in portfolio trading when considered
appropriate, but short-term trading will not be used as the primary means of achieving the Funds investment objectives. There are no limits on portfolio turnover, and investments may be sold without regard to length of time held when, in the
opinion of the investment manager, investment considerations warrant such action. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio
turnover may result in the realization of net short-term capital gains by the Fund that, when distributed to shareholders, would be taxable to such shareholders as ordinary income.
Anti-Takeover Provisions. Certain provisions of the Funds Articles of Incorporation and Bylaws could limit the ability
of other entities or persons to acquire control of the Fund or change the Funds structure. The provisions may have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices or have
the effect of inhibiting the conversion of the Fund to an open-end fund.
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Geopolitical Risk. Occurrence of global events similar to those in recent years, such as war, terrorist attacks, natural or
environmental disasters, country instability, infectious disease epidemics, such as that caused by the COVID-19 virus, market instability, debt crises and downgrades, embargoes, tariffs, sanctions and other trade barriers and other governmental
trade or market control programs, the potential exit of a country from its respective union and related geopolitical events, may result in market volatility and may have long-lasting impacts on both the U.S. and global financial markets.
Additionally, those events, as well as other changes in foreign and domestic political and economic conditions, could adversely affect individual issuers or related groups of issuers, securities markets, interest rates, secondary trading, credit
ratings, inflation, investor sentiment and other factors affecting the value of the Funds investments.
The
outbreak of COVID-19 and efforts to contain its spread have resulted in, among other things, extreme volatility in the financial markets and severe losses, reduced liquidity of many instruments, significant travel restrictions, significant
disruptions to business operations, supply chains and customer activity, lower consumer demand for goods and services, service and event cancellations, reductions and other changes, strained healthcare systems, as well as general concern and
uncertainty. The impact of the COVID-19 outbreak has negatively affected the global economy, the economies of individual countries, and the financial performance of individual issuers, sectors, industries, asset classes, and markets in significant
and unforeseen ways. Pandemics may also exacerbate other pre-existing political, social, economic, market and financial risks. The effects of the outbreak in developing or emerging market countries may be greater due to generally less established
health care systems and supply chains. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its
effects cannot be determined with certainty. The foregoing could impair the Funds ability to maintain operational standards (such as with respect to satisfying redemption requests), disrupt the operations of the Funds service providers,
adversely affect the value and liquidity of the Funds investments, and negatively impact the Funds performance and your investment in the Fund.
On January 31, 2020, the United Kingdom (UK) withdrew from the European Union (EU) (referred to as Brexit), commencing a transition
period that ended on December 31, 2020. The EU-UK Trade and Cooperation Agreement, a bilateral trade and cooperation deal governing the future relationship between the UK and the EU (TCA), provisionally went into effect on January 1, 2021, and
entered into force officially on May 1, 2021. Notwithstanding the TCA, following the transition period, there is likely to be considerable uncertainty as to the UKs post-transition framework, including how the financial markets will react. As
this process unfolds, markets may be further disrupted. Given the size and importance of the UKs economy, uncertainty about its legal, political and economic relationship with the remaining member states of the EU may continue to be a source
of instability.
Growing tensions, including trade disputes, between the United States and other nations, or among
foreign powers, and possible diplomatic, trade or other sanctions could adversely impact the global economy, financial markets and the Fund. The strengthening or weakening of the U.S. dollar relative to other currencies may, among other things,
adversely affect the Funds investments denominated in non-U.S. dollar currencies. It is difficult to predict when similar events affecting the U.S. or global financial markets may occur, the effects that such events may have, and the duration
of those effects.
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Regulatory Risk. The U.S. government has proposed and adopted multiple regulations that could have a long-lasting impact on
the Fund and on the mutual fund industry in general. The SECs final rules, related requirements and amendments to modernize reporting and disclosure, along with other potential upcoming regulations, could, among other things, restrict the
Funds ability to engage in transactions and/or increase overall expenses of the Fund. In addition, the SEC, Congress, various exchanges and regulatory and self-regulatory authorities, both domestic and foreign, have undertaken reviews of the
use of derivatives by registered investment companies, which could affect the nature and extent of instruments used by the Fund. While the full extent of all of these regulations is still unclear, these regulations and actions may adversely affect
both the Fund and the instruments in which the Fund invests and its ability to execute its investment strategy. Similarly, regulatory developments in other countries may have an unpredictable and adverse impact on the Fund.
The SEC recently adopted Rule 18f-4 under the 1940 Act relating to a registered investment companys use of derivatives and
certain financing transactions (such as reverse repurchase transactions) that could potentially require the Fund to observe more stringent requirements than are currently imposed by the 1940 Act. Among other things, Rule 18f-4 will require funds
that invest in derivative instruments beyond a specified limited amount to apply a value-at-risk based limit to their use of certain derivative instruments and financing transactions and to adopt and implement a derivatives risk management program.
A fund that uses derivative instruments in a limited amount will not be subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, funds will no longer be required to comply with the asset segregation framework
arising from prior SEC guidance for covering certain derivative instruments and related transactions. Rule 18f-4 may substantially curtail the Funds ability to use derivative instruments as part of the Funds investment strategy and could
ultimately prevent the Fund from being able to achieve its investment goals. Compliance with Rule 18f-4 will not be required until approximately August 2022. As the Fund comes into compliance, the Funds approach to asset segregation and
coverage requirements will be impacted.
Cyber Security Risk. With the increased use of technologies such as the
Internet and the dependence on computer systems to perform necessary business functions, the Fund and its service providers (including the investment manager) may be susceptible to operational and information security risks resulting from
cyber-attacks and/or other technological malfunctions. In general, cyber-attacks are deliberate, but unintentional events may have similar effects. Cyber-attacks include, among others, stealing or corrupting data maintained online or digitally,
preventing legitimate users from accessing information or services on a website, releasing confidential information without authorization, gaining unauthorized access to digital systems for purposes of misappropriating assets and causing operational
disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service. Successful
cyber-attacks against, or security breakdowns of, the Fund, the investment manager, or a custodian, transfer agent, or other affiliated or third-party service provider may adversely affect the Fund or its shareholders. For instance, cyber-attacks
may interfere with the processing of shareholder transactions, affect the Funds ability to calculate its NAV, cause the release of private shareholder information or confidential Fund information, impede trading, cause reputational damage, and
subject the Fund to regulatory fines, penalties or financial losses, reimbursement or other compensation costs, and additional compliance costs. Furthermore, as a result of breaches in cyber security or other operational and technology disruptions
or
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failures, an exchange or market may close or issue trading halts on specific securities or an entire market, which may result in the Fund being,
among other things, unable to buy or sell certain securities or financial instruments or unable to accurately price its investments. While the Fund has established business continuity plans and systems designed to prevent cyber-attacks, there are
inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Similar types of cyber security risks also are present for issuers of securities in which the Fund invests, which could result in
material adverse consequences for such issuers, and may cause the Funds investment in such securities to lose value.
Each of the Fund and the investment manager may have limited ability to prevent or mitigate cyber-attacks or security or technology breakdowns affecting the Funds third-party service providers. While the Fund has established
business continuity plans and systems designed to prevent or reduce the impact of cyber-attacks, such plans and systems are subject to inherent limitations.
Investment Restrictions
The Fund has adopted certain investment limitations. Under these limitations, the Fund may not:
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1. |
Issue senior securities (including borrowing money for other than temporary purposes) except in
conformity with the limits set forth in the 1940 Act; or pledge its assets other than to secure such issuances or borrowings or in connection with permitted investment strategies; provided that, notwithstanding the foregoing, the Fund may borrow up
to an additional 5% of its total assets for temporary purposes; |
|
2. |
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; |
|
3. |
Purchase or sell real estate, mortgages on 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 REITs, and securities secured by real estate or interests therein and the Fund may hold and sell real estate or mortgages on real estate
acquired through default, liquidation, or other distributions of an interest in real estate as a result of the Funds ownership of such securities; |
|
4. |
Purchase or sell commodities or commodity futures contracts, except that the Fund may invest in
financial futures contracts, options thereon and such similar instruments; |
|
5. |
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; |
|
6. |
Invest more than 25% of its total assets in securities of issuers in any one industry other than
the real estate industry, in which at least 25% of the Funds total assets will be invested; provided, however, that such limitation shall not apply to obligations issued or guaranteed by the United States Government or by its agencies or
instrumentalities; |
|
7. |
Invest in oil, gas or other mineral exploration programs, development programs or leases, except
that the Fund may purchase securities of companies engaging in whole or in part in such activities; or |
|
8. |
Pledge, mortgage or hypothecate its assets except in connection with permitted borrowings.
|
79
COHEN
& STEERS REIT AND
PREFERRED AND INCOME FUND, INC.
The investment restrictions numbered 1 through 6 described herein have been adopted as fundamental policies of the Fund. Under the
1940 Act, a fundamental policy may not be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund.
80
COHEN
& STEERS REIT AND
PREFERRED AND INCOME FUND, INC.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the Board of Directors. The Board of Directors approves all significant agreements between the Fund and persons or companies furnishing services to it,
including the Funds agreements with its investment manager, administrator, co-administrator, custodian and transfer agent. The management of the Funds day-to-day operations is delegated to its officers, the investment manager, administrator and co-administrator, subject always to the investment objective and policies
of the Fund and to the general supervision of the Board of Directors.
The Board of Directors and officers of the Fund
and their principal occupations during at least the past five years are set forth below.