UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


_____________

FORM 10-Q

(Mark One)
SQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2005
  
OR
  
£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  _________TO _________

Commission File Number: 001-32236

_____________

COHEN & STEERS, INC.
(Exact name of Registrant as specified in its charter)

Commission File Number: 001-32236

COHEN & STEERS, INC.Delaware
(Exact name of Registrant as specified in its charter)
Delaware  14-1904657
(State or other jurisdiction of
incorporation or organization)
   (I.R.S.14-1904657
(I.R.S. Employer
Identification No.)
 
 757 Third Avenue
New York, NY
(Address of principal executive
offices)
10017
     (Zip(Zip Code)

(212) 832-3232
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

            Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesSNo£


            Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Yes
£ NoS



            The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of August 12,November 9, 2005 was 35,407,029.


COHEN & STEERS, INC. AND SUBSIDIARIES
Form 10-Q
Index

   Page
Part I.Financial Information  
Item 1.Financial Statements  
 Condensed Consolidated Statements of Financial Condition as of JuneSeptember 30,
      2005 (Unaudited) and December 31, 2004 2
 Condensed Consolidated Statements of Income (Unaudited) For The Three
      and SixNine Months Ended JuneSeptember 30, 2005 and 2004 3
 Condensed Consolidated Statement of Changes in Stockholders’ Equity
      (Unaudited) For The ThreeNine Months Ended March 31, 2005 and JuneSeptember 30, 2005 4
 Condensed Consolidated Statements of Cash Flows (Unaudited) For The SixNine
      Months Ended JuneSeptember 30, 2005 and 2004 5
 Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 1514
Item 3.Quantitative and Qualitative Disclosures About Market Risk 2826
Item 4.Controls and Procedures 2927
Part II.Other Information  
Item 6.1.ExhibitsLegal Proceedings 3028
Item 4.Submission of Matters to a Vote of Security Holders28
Item 6.Exhibits29
Signature  3031

Forward-Looking Statements

            This report and other documents filed by us contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties.

            Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2004, which is accessible on the Securities and Exchange Commission’s websiteWeb site athttp://www.sec.gov and on our websiteWeb site atcohenandsteers.com. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.


Part I – Financial Information
Item 1. Financial Statements

COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
   September 30,
2005
  December 31,
2004
 
   
 
 
   (Unaudited)    
ASSETS
        
Current assets:  
  Cash and cash equivalents  $27,731 $30,164 
  Marketable securities available-for-sale   90,629  69,935 
  Accounts receivable:        
    Company-sponsored mutual funds   10,405  8,498 
    Other   6,366  4,654 
  Due from company-sponsored mutual funds   309  386 
  Income tax refunds receivable   170  380 
  Prepaid expenses and other current assets   5,273  2,119 
 
 
      Total current assets   140,883  116,136 
 
 
Property and equipment-net   4,621  2,638 
 
 
Intangible asset-net   10,362  13,693 
 
 
Other assets:        
  Deferred commissions-net   4,740  5,716 
  Investments, company-sponsored mutual funds     100 
  Equity investment   4,276  3,961 
  Deferred income tax asset   21,455  18,003 
  Deposits   1,990  43 
 
 
      Total other assets   32,461  27,823 
 
 
      Total assets  $188,327 $160,290 
 
 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
  Accrued expenses and compensation  $20,982 $7,328 
  Dividends payable   4,385  3,983 
  Current portion of long-term debt     115 
  Current portion of obligations under capital leases   56  20 
  Deferred income tax liability   1,795  1,301 
  Other current liabilities   121  254 
 
 
      Total current liabilities   27,339  13,001 
 
 
Long-term liabilities:        
  Long-term debt     1,558 
  Deferred rent less current maturities   1,230  66 
  Obligations under capital leases less current maturities   70  30 
 
 
      Total long-term liabilities   1,300  1,654 
 
 
Stockholders’ equity:        
  Common stock, $0.01 par value; 500,000,000 shares authorized;
     35,407,029 shares issued and outstanding at September 30, 2005
     and 35,388,736 shares issued and outstanding at December 31, 2004
   354  354 
  Additional paid-in capital   183,538  178,594 
  Accumulated deficit   (10,336) (21,557)
  Unearned compensation   (14,711) (13,546)
  Accumulated other comprehensive income, net of tax   843  1,790 

 
      Total stockholders’ equity   159,688  145,635 

 
      Total liabilities and stockholders’ equity  $188,327 $160,290 

 
See notes to condensed consolidated financial statements

COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
2

June 30,
2005
December 31,
2004


(Unaudited)
ASSETS     
Current assets:       
     Cash and cash equivalents $26,649 $30,164 
     Marketable securities available-for-sale  90,302  69,935 
     Accounts receivable:       
          Company-sponsored mutual funds  9,814  8,498 
          Other  4,661  4,654 
     Due from company-sponsored mutual funds  375  386 
     Income tax refunds receivable  200  380 
     Prepaid expenses and other current assets  1,146  2,119 
  
 
 
               Total current assets  133,147  116,136 
  
 
 
Property and equipment-net  3,085  2,638 
  
 
 
Intangible asset-net  11,472  13,693 
  
 
 
Other assets:       
     Deferred commissions-net  5,019  5,716 
     Investments, company-sponsored mutual funds    100 
     Equity investment  4,321  3,961 
     Deferred income tax asset  19,933  18,003 
     Deposits  1,611  43 
  
 
 
               Total other assets  30,884  27,823 
  
 
 
               Total assets $178,588 $160,290 
  
 
 
                                             LIABILITIES AND STOCKHOLDERS’ EQUITY       
Current liabilities:       
     Accrued expenses and compensation $16,650 $7,328 
     Dividends payable  3,984  3,983 
     Current portion of long-term debt  129  115 
     Current portion of obligations under capital leases  56  20 
     Deferred income tax liability  855  1,301 
     Income taxes payable  321   
     Other current liabilities  92  254 
  
 
 
               Total current liabilities  22,087  13,001 
  
 
 
Long-term liabilities:       
     Long-term debt  1,486  1,558 
     Deferred rent less current maturities  708  66 
     Obligations under capital leases less current maturities  85  30 
  
 
 
               Total long-term liabilities  2,279  1,654 
  
 
 
Stockholders’ equity:       
     Common stock, $0.01 par value; 500,000,000 shares authorized;
          35,407,029 shares issued and outstanding at June 30, 2005
          and 35,388,736 shares issued and outstanding at December 31, 2004
  354  354 
     Additional paid-in capital  179,756  178,594 
     Accumulated deficit  (13,956) (21,557)
     Unearned compensation  (13,126) (13,546)
     Accumulated other comprehensive income, net of tax  1,194  1,790 
  
 
 
               Total stockholders’ equity  154,222  145,635 
  
 
 
               Total liabilities and stockholders’ equity $178,588 $160,290 
  
 
 

COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
  Three Months Ended Nine Months Ended
 
  
 
 
  September 30,
2005
 September 30,
2004
 September 30,
2005
 September 30,
2004
 
 
 
 
 
 
Revenue             
    Investment advisory and administration fees $31,402 $24,174 $87,732 $66,077 
    Distribution and service fee revenue  3,122  2,554  8,941  7,246 
    Portfolio consulting and other  720  512  2,515  2,136 
    Investment banking fees  1,187  1,881  9,618  6,599 
 
 
 
 
 
        Total revenue  36,431  29,121  108,806  82,058 
 
 
 
 
 
Expenses             
    Employee compensation and benefits  10,154  55,183  27,963  71,006 
    Distribution and service fee expenses  7,838  7,072  21,861  16,202 
    General and administrative  5,195  2,789  16,400  8,916 
    Depreciation and amortization  1,380  889  4,144  1,454 
    Amortization, deferred commissions  826  1,005  2,625  3,295 
 
 
 
 
 
        Total expenses  25,393  66,938  72,993  100,873 
 
 
 
 
 
Operating income (loss)  11,038  (37,817) 35,813  (18,815)
 
 
 
 
 
Non-operating income (expense)             
    Interest and dividend income  877  302  2,232  515 
    Gain from sale of marketable securities  827  —     1,976  —    
    Gain from sale of property and equipment  289  —     289  —    
    Foreign currency transaction loss  (33) —     (64) —    
    Interest expense  (54) (30) (102) (111)
 
 
 
 
 
        Total non-operating income  1,906  272  4,331  404 
 
 
 
 
 
Income (loss) before provision for income
    taxes and equity in earnings of affiliate
  12,944  (37,545) 40,144  (18,411)
Provision for income taxes  5,226  (16,956) 17,250  (15,753)
Equity in earnings of affiliate  285  —     683  —    
 
 
 
 
 
Net income (loss) $8,003 $(20,589)$23,577 $(2,658)
 
 
 
 
 
Earnings (loss) per share             
    Basic $0.20 $(0.60)$0.59 $(0.09)
 
 
 
 
 
    Diluted $0.20 $(0.60)$0.58 $(0.09)
 
 
 
 
 
Weighted average shares outstanding             
    Basic  39,980  34,068  39,999  29,156 
 
 
 
 
 
    Diluted  40,371  34,138  40,303  29,226 
 
 
 
 
 

See notes to condensed consolidated financial statements


3


COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)

Three Months Ended June 30,Six Months Ended June 30,


2005200420052004
 



Revenue:             
   Investment advisory and administration fees $29,010 $22,174 $56,330 $41,903 
   Distribution and service fee revenue  2,950  2,284  5,819  4,692 
   Portfolio consulting and other  766  915  1,795  1,624 
   Investment banking fees  5,542  255  8,431  4,718 
  
 
 
 
 
       Total revenue  38,268  25,628  72,375  52,937 
  
 
 
 
 
Expenses:             
   Employee compensation and benefits  9,150  6,843  17,809  15,823 
   Distribution and service fee expenses  7,363  4,935  14,023  9,130 
   General and administrative  5,802  3,370  11,205  6,127 
   Depreciation and amortization  1,389  284  2,764  565 
   Amortization of deferred commissions  810  1,233  1,799  2,290 
  
 
 
 
 
       Total expenses  24,514  16,665  47,600  33,935 
  
 
 
 
 
Operating income  13,754  8,963  24,775  19,002 
  
 
 
 
 
Non-operating income (expense):             
   Interest and dividend income  804  112  1,355  213 
   Gain from sale of marketable securities  642    1,149   
   Foreign currency transaction loss  (10)   (31)  
   Interest expense  (26) (39) (48) (81)
  
 
 
 
 
       Total non-operating income  1,410  73  2,425  132 
  
 
 
 
 
Income before provision for income taxes and equity in
    earnings of affiliate
  15,164  9,036  27,200  19,134 
Provision for income taxes  6,901  436  12,024  1,203 
Equity in earnings of affiliate  246    398   
  
 
 
 
 
Net income $8,509 $8,600 $15,574 $17,931 
  
 
 
 
 
Earnings per share:             
   Basic $0.21 $0.32 $0.39 $0.67 
  
 
 
 
 
   Diluted $0.21 $0.32 $0.39 $0.67 
  
 
 
 
 
Weighted average shares outstanding:             
   Basic  39,986  26,700  40,009  26,700 
  
 
 
 
 
   Diluted  40,293  26,700  40,301  26,700 
  
 
 
 
 
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(in thousands)
  Nine Months Ended September 30, 2005 
  
 
  Common
Stock
 Additional
Paid-In
Capital
 Accumulated
Deficit
 Unearned
Compensation
 Accumulated Other
Comprehensive
Income, Net
 Total 
 
 
 
 
 
 
 
Beginning balance, January 1, 2005 $354 $178,594 $(21,557)$(13,546)$1,790 $145,635 
Dividends  —    —     (12,356)   —     (12,356)
Issuance of common stock  —    319  —       —     319 
Tax benefit from issuance of dividends on restricted stock units  —    941  —       —     941 
Issuance of restricted stock units  —    5,101  —     (4,950) —     151 
Amortization of unearned compensation  —    —     —     3,437  —     3,437 
Forfeitures of restricted stock awards  —    (1,417) —     348  —     (1,069)
Net income  —    —     23,577    —     23,577 
Other comprehensive loss, net of taxes  —    —     —       (947) (947)
 
 
Ending balance, September 30, 2005 $354 $183,538 $(10,336)$(14,711)$843 $159,688 
 
 

See notes to condensed consolidated financial statements


4


COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(in thousands)

 For The Three Months Ended March 31, 2005 and June 30, 2005 
 
 
 Common Stock Additional Paid-In Capital Accumulated Deficit Unearned Compensation Accumulated Other Comprehensive Income, Net Total 
 
 
 
 
 
 
 
Beginning balance, January 1, 2005$354 $178,594 $(21,557)$(13,546)$1,790 $145,635 
Dividends     (3,990)     (3,990)
Issuance of restricted stock units   649        649 
Amortization of unearned compensation       1,102    1,102 
Forfeitures of restricted stock awards   (123)   (53)   (176)
Net income     7,065      7,065 
Other comprehensive loss, net of taxes         (782) (782)
 
 
Ending balance, March 31, 2005 354  179,120  (18,482) (12,497) 1,008  149,503 
Dividends     (3,983)     (3,983)
Issuance of common stock   319        319 
Issuance of restricted stock units   1,611    (2,150)   (539)
Amortization of unearned compensation       1,045    1,045 
Forfeitures of restricted stock awards   (1,294)   476    (818)
Net income     8,509      8,509 
Other comprehensive income, net of taxes         186  186 
 
 
Ending balance, June 30, 2005$354 $179,756 $(13,956)$(13,126)$1,194 $154,222 
 
 
COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
   Nine Months Ended September 30, 
   
 
   2005 2004 
 
 
 
Cash flows from operating activities:        
    Net income (loss)  $23,577 $(2,658)
    Adjustments to reconcile net income to net cash provided by operating activities:        
        Stock compensation expense   4,020  46,330 
        Stock appreciation right plan expense   —     869 
        Amortization, deferred commissions   2,625  3,295 
        Depreciation and amortization   4,144  1,454 
        Amortization, bond discount - net   (131) —    
        Deferred rent   1,164  (23)
        Gain from sale of marketable securities   (1,976) —    
        Equity in earnings of affiliate   683  —    
        Deferred income taxes   (2,958) (17,103)
        Foreign currency transaction loss   64  —    
        Gain from sale of property and equipment   (289) —    
    Tax benefit from issuance of dividends on restricted stock units   941  —    
    Changes in operating assets and liabilities:        
        Accounts receivable, company-sponsored mutual funds   (1,907) (2,152)
        Accounts receivable, others   (1,776) 169 
        Due from company-sponsored mutual funds   77  230 
        Deferred initial public offering costs   —     139 
        Income tax refunds receivable   210  46 
        Prepaid expenses and other current assets   (3,154) (1,566)
        Deferred commissions   (1,649) (2,524)
        Deposits   (1,947) —    
        Accrued expenses and compensation   12,323  13,617 
        Income taxes payable   —     (99)
        Other current liabilities   (133) —    
 
 
 
Net cash provided by operating activities   33,908  40,024 
 
 
 
Cash flows from investing activities:        
    Purchases of marketable securities available-for-sale   (52,450) (56,763)
    Proceeds from maturities of marketable securities available-for-sale   24,747  —    
    Proceeds from sale of marketable securities available-for-sale   8,199  —    
    Purchases of property and equipment   (2,981) (333)
 
 
 
Net cash used in investing activities   (22,485) (57,096)
 
 
 
Cash flows from financing activities:        
    Distributions to S-corporation shareholders   —     (37,741)
    Dividends to stockholders   (11,954) —    
    Repayment of bank line of credit   —     (4,713)
    Payment of capital lease obligations   (76) —    
    Principal payments on long-term debt   (1,673) (89)
    Offering costs   —     (4,837)
    Issuance of common stock   215  104,276 
 
 
 
Net cash (used in) provided by financing activities   (13,488) 56,896 
 
 
 
Net increase (decrease) in cash and cash equivalents   (2,065) 39,824 
Effect of foreign currency translation   (368) —    
 
 
 
Cash and cash equivalents, beginning of period   30,164  7,526 
 
 
 
Cash and cash equivalents, end of period  $27,731 $47,350 
 
 
 
Supplementary disclosure of cash flow information:        
Cash paid for interest  $107 $117 
 
 
 
Cash paid for taxes, net  $21,217 $530 
 
 
 

See notes to condensed consolidated financial statements


COHEN & STEERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
5

 Six Months Ended June 30, 
 
 
 2005 2004 
 
 
 
Cash flows from operating activities:      
   Net income$15,574 $17,931 
   Adjustments to reconcile net income to net cash provided by operating activities:      
      Stock compensation expense 2,748   
      Amortization, deferred commissions 1,799  2,291 
      Depreciation and amortization 2,764  565 
      Amortization, bond discount - net (88)  
      Deferred rent 647  (15)
      Gain on sale of marketable securities (1,149)  
      Equity in earnings of affiliate (360)  
      Deferred income taxes (1,930) (111)
      Foreign currency transaction loss 31   
   Changes in operating assets and liabilities:      
      Accounts receivable, company-sponsored mutual funds (1,316) (1,659)
      Accounts receivable, others (38) 37 
      Due (from) to company-sponsored mutual funds (155) 200 
      Income tax refunds receivable 180  43 
      Prepaid expenses and other current assets 117  138 
      Deferred commissions - net (1,067) (1,858)
      Deposits (1,568)  
      Accrued expenses and compensation 7,630  8,311 
      Income taxes payable 1,142  (589)
 
 
 
Net cash provided by operating activities 24,961  25,284 
 
 
 
Cash flows from investing activities:      
   Purchases of marketable securities available-for-sale (38,675) (1,277)
   Proceeds from maturities of marketable securities available-for-sale 15,470   
   Proceeds from sale of marketable securities available-for-sale 3,173   
   Purchases of property and equipment (598) (252)
 
 
 
Net cash used in investing activities (20,630) (1,529)
 
 
 
Cash flows from financing activities:      
   Distributions to S-corporation shareholders   (17,000)
   Dividends to stockholders (7,973) 
   Repayment of bank line of credit   (441)
   Payment of capital lease obligations (19) (9)
   Principal payments on long-term debt (58) (23)
   Offering costs   (1,984)
   Issuance of common stock 243   
 
 
 
Cash used in financing activities (7,807) (19,457)
 
 
 
Net increase (decrease) in cash and cash equivalents (3,476) 4,298 
Effect of foreign currency translation (39)  
 
 
 
Cash and cash equivalents, beginning of period 30,164  7,526 
 
 
 
Cash and cash equivalents, end of period$26,649 $11,824 
 
 
 
Supplementary disclosure of cash flow information:      
Cash paid for interest$55 $86 
 
 
 
Cash paid for taxes, net$12,808 $1,903 
 
 
 
       
Non-cash transactions:      
       Acquisition of property and equipment under capital leases$110 $ 



See notes to condensed consolidated financial statements


COHEN & STEERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.  Organization and Description of Business

                Cohen & Steers, Inc. (“CNS”) completed the initial public offering of its common stock on August 18, 2004. On August 17, 2004, prior to the completion of the initial public offering and pursuant to a reorganization into a holding company structure, CNS became the parent holding company of Cohen & Steers Capital Management, Inc. (“CSCM”). CNS, together withthrough its direct and indirect subsidiaries, succeeded to the business conducted by CSCM and its subsidiaries. The reorganization is described in greater detail in the Registration Statement on Form S-1 (File No. 333-114027) (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”) in connection with the initial public offering. On August 16, 2004, the Company terminated its status as an S-corporation under Subchapter S of the Internal Revenue Code and converted to a C-corporation. The results for the three and sixnine months ended JuneSeptember 30, 2004 representinclude operations as a private company and include results that are not necessarily comparable with the results of operations as a public company in the three and sixnine months ended JuneSeptember 30, 2005.

                The unaudited condensed consolidated financial statements include the accounts of CNS and its direct and indirect subsidiaries, which include CSCM, Cohen & Steers Securities, LLC (“Securities, LLC”), and Cohen & Steers Capital Advisors, LLC (“Advisors, LLC” and collectively, the “Company”) and. On September 9, 2005, CNS terminated Cohen & Steers Holdings, LLC (collectively,(“Holdings, LLC”). Holdings, LLC was organized to retain fractional ownership interests in two aircraft. During the “Company”).quarter ended September 30, 2005, these interests were transferred to CSCM. Material intercompany transactions and balances have been eliminated in consolidation.

                The Company is a registered investment advisor providingprovides investment management services to individual and institutional investors through a wide range of open-end mutual funds, closed-end mutual funds and institutional separate accounts. As a registered investment advisor, theThe Company manages high-income equity portfolios, specializing in real estate investment trusts, globalU.S. REITs, international real estate securities, preferred securities, utilities value equity securities and other high-dividend paying commonlarge cap value stocks. Through its registered broker-dealers, Securities, LLC and Advisors, LLC, the Company provides distribution services for certain of its funds as well as investment banking services to companies in real estate and real estate intensive businesses. On January 27, 2005, the National Association of Securities Dealers (“NASD”(the “NASD”) approved the expansion of Advisors, LLC’s underwriting business to include firm commitment underwriting.

2. Basis of Presentation and Significant Accounting Policies

                The unaudited condensed consolidated financial statements of the Company included herein have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the interim results have been made. The preparation of the unaudited condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

                The Company’s unaudited condensed consolidated financial statements and the related notes should be read together with the consolidated financial statements and the related notes


included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and the unaudited condensed

6


consolidated financial statements and the related notes included in the Company’s Quarterly Reports on Form 10-Q for the periodperiods ended March 31, 2005 and June 30, 2005. Certain prior period amounts have been reclassified to conform to the three and sixnine months ended JuneSeptember 30, 2005 presentation.

Cash Equivalents—Cash equivalents consist of short-term, highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Investments—The management of the Company determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination at each statement of financial condition date. Marketable securities classified as available-for-sale consist of investments in Company-sponsored open-end and closed-end mutual funds as well as highly rated debt and preferred instruments. These investments are carried at fair value based on quoted market prices, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income.

Goodwill and Intangible Asset—Intangible assets are amortized over their useful life. Goodwill represents the excess of the cost of the Company’s investment in the net assets of an acquired company over the fair value of the underlying identifiable net assets at the date of acquisition. Goodwill is not amortized but is tested at least annually for impairment by comparing the fair value to carrying amount, including goodwill. See Note 3 for further discussion about the Company’s goodwill and intangible assets.

Deferred Commissions—Deferred commissions consist of commissions paid in advance to broker-dealers in connection with the sale of certain shares of Company-sponsored open-end load mutual funds and are capitalized and amortized over a period not to exceed six years.

Investment Advisory and Administration Fees—The Company earns the majority of its revenue by providing asset management services to Company-sponsored open-end and closed-end mutual funds and to institutional separate accounts. This revenue is earned pursuant to the terms of the underlying advisory contract and is based on a contractual investment advisory fee applied to the assets in the respective portfolios. The Company also earns revenue from administration fees paid by certain Company-sponsored open-end and closed-end mutual funds, based on the average daily net assets of such funds. This revenue is recognized as such fees are earned.

Distribution and Service Fee Revenue—Distribution and service fee revenue is recognizedearned as the services are performed, generally based on contractually-predetermined percentages of the average daily net assets of the open-end load mutual funds. Distribution and service fee revenue is recorded gross of any third-party distribution and service arrangements; the expenses associated with these third-party distribution and service arrangements are recorded in distribution and service fee expenses.

Portfolio Consulting Fees—The Company earns revenue for various portfolio consulting services provided to clients, as well as for providing a license to use its name. This revenue is recognized pursuant to the terms of individual agreements and is based on the net assets of the clients’ funds.

New Accounting Pronouncements—In March 2005, a Financial Accounting Standards Board (“FASB”) Staff Position was issued addressing the application of Emerging Issues Task Force (“EITF”) Issue No. 85-24 (“FSP EITF 85-24-1”), “Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,” when cash for the right to future distribution fees for shares previously sold is received from third parties. FSP EITF 85-24-1 did not materially impact the Company’s unaudited condensed consolidated financial position or results of operations.

            In December 2004, the FASB issued the revised Statement of Financial Accounting Standards No. 123, (“SFAS No. 123 (R)”), which requires public companies to recognize the7



cost resulting from all share-based transactions in their financial statements. SFAS No. 123 (R) eliminates the ability to account for share-based compensation using the intrinsic value method under Accounting Principles Board Opinion (“APB”) 25. The adoption of SFAS No. 123 (R) did not materially impact the Company’s unaudited condensed consolidated financial position or results of operations.

            In September 2004, EITF reached a consensus on Issue 04-10, “Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.” This EITF requires that individual operating segments that do not meet the quantitative thresholds set forth in SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” for separate reporting may be aggregated only if the segments meet certain requirements. These requirements are applicable for fiscal years ending after September 15, 2005. The adoption of EITF 04-10 will not materially impact the Company’s identified segments.

3.  Intangible Asset

                The Company’s intangible asset, which expires in January 2008, reflects the independently determined value of the non-competition agreements that the Company received from certain employees who received fully vested restricted stock units (“RSUs”) at the time of CNS’sthe Company’s initial public offering in exchange for terminated stock appreciation rights granted to such holders prior to CNS’sthe Company’s initial public offering. The intangible asset, with an original value of $15,400,000, is being amortized on a straight-line basis over the life of these agreements. The following table details the gross carrying amounts and accumulated amortization for the intangible asset at JuneSeptember 30, 2005 and December 31, 2004 (in thousands):

  June 30,
2005
 December 31,
2004
  
  
 
  
 Gross carrying amount$15,400 $15,400  
 Accumulated amortization (3,928) (1,707) 
  
 
  
 Intangible asset, net$11,472 $13,693  
  
 
  
   September 30,
2005
 December 31,
2004
  
   
 
  
                      
 Gross carrying amount $15,400 $15,400  
 Accumulated amortization  (5,038) (1,707) 
   
 
  
 Intangible asset, net $10,362 $13,693  
   
 
  

                Amortization expense ofrelated to the intangible asset was approximately $1,110,000 and $2,221,000$3,331,000 in the three and sixnine months ended JuneSeptember 30, 2005, respectively. Estimated amortization expense from JulyOctober 1, 2005 through January 31, 2008, the date of expiration, is as follows (in thousands):


 Years Ended December 31, Estimated Amortization Expense 
 
 
 2005 $2,220  
 2006  4,441  
 2007  4,441  
 2008  370  
 Years Ending December 31, Estimated Amortization Expense   
 
  
 2005  $1,110    
 2006   4,441    
 2007   4,441    
 2008   370    

4. Investments

Marketable Securities

                The following is a summary of the cost and fair value of investments in marketable securities at JuneSeptember 30, 2005 and December 31, 2004 (in thousands):

 September 30, 2005
   Gross Unrealized
 December 31, 2004
  Gross Unrealized
 
June 30, 2005
Gross Unrealized
 December 31, 2004
Gross Unrealized
  
 
 

 
  Cost
 Gains Losses Market Value Cost Gains Losses Market Value 
Cost Gains Losses Market Value Cost Gains Losses Market Value  
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
                                   
Debt securities (1):                                                 
Maturity Less than 1 year$29,928 $ $(152)$29,776 $27,451 $ $(65)$27,386   23,953  —     (120) 23,833  27,451  —     (65) 27,386 
Maturity Between 1yr - 5 yrs 25,922    (97) 25,825  19,990    (150) 19,840   34,880  —     (250) 34,630  19,990  —     (150) 19,840 
Preferred securities 19,997    (104) 19,893  13,000  72    13,072   17,689  117  —     17,806  13,000  72  —     13,072 
Company-sponsored mutual funds 12,365  2,443    14,808  6,403  3,235  (1) 9,637 
Company sponsored mutual funds  12,033  2,327  —     14,360  6,403  3,235  (1) 9,637 

 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
Total investments, available for sale$88,212 $2,443 $(353)$90,302 $66,844 $3,307 $(216)$69,935 
Total marketable securities, available for sale  88,555  2,444  (370) 90,629  66,844  3,307  (216) 69,935 








 
 
 
 
 
 
 
 
 

(1) Debt securities consist of U.S. Treasury and U.S. Government agency securities.

                In the three months ended JuneSeptember 30, 2005, sales proceeds and gross realized gains from Company-sponsored mutual funds were approximately $1,651,000$1,797,000 and $642,000,$775,000, respectively. In the sixnine months ended JuneSeptember 30, 2005, sales proceeds and gross realized gains from Company-sponsored mutual

8


funds were approximately $3,173,000$4,970,000 and $1,149,000,$1,924,000, respectively. There was no sales activity in the three and sixnine months ended JuneSeptember 30, 2004. Dividend income from Company-sponsored mutual funds was approximately $159,000$85,000 and $77,000,$138,000, in the three months ended JuneSeptember 30, 2005 and 2004, respectively and approximately $203,000$288,000 and $177,000$315,000 in the sixnine months ended JuneSeptember 30, 2005 and 2004, respectively.

Equity Investment

                At JuneSeptember 30, 2005, the Company had a non-controlling 50% investment of approximately $4,321,000$4,276,000, which includes approximately $2,721,000 of goodwill, in Houlihan Rovers, S.A. (“Houlihan Rovers”), the Company’s Brussels-based investment advisor affiliate. The Company accounts for its investment in Houlihan Rovers using the equity method of accounting. Under such accounting method, the investor recognizes its respective share of the investee’s net income for the period. In the three and sixnine months ended JuneSeptember 30, 2005, the Company recognized approximately $246,000$285,000 and $398,000,$683,000, respectively, of income from Houlihan Rovers.


5. Property and Equipment

                On September 30, 2005, the Company sold its fractional ownership interest in an aircraft for approximately $485,000, net of commissions. The aircraft had a net book value of approximately $196,000 at September 30, 2005. Pursuant to this transaction, the Company recognized a gain on sale of approximately $289,000.

6. Earnings Per Share

                Basic earnings per share are calculated by dividing net income by the weighted average shares outstanding. Diluted earnings per share are calculated by dividing net income by the total weighted average shares of common stock outstanding and common stock equivalents. Common stock equivalents are comprised of dilutive potential shares from restricted stock unit awards. Common stock equivalents are excluded from the computation if their effect is anti-dilutive. Diluted earnings per share are computed using the treasury stock method.

                The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations in the three and sixnine months ended JuneSeptember 30, 2005 and 2004 (in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,  Three Months Ended September 30, Nine Months Ended September 30, 

 
 
 
 
2005 2004 2005 2004  2005 2004 2005 2004 

 
 
 
 
 
 
 
 
                   
Net income$8,509 $8,600 $15,574 $17,931 
Net income (loss) $8,003 $(20,589)$23,577 $(2,658) 

 
 
 
 
  
  
  
   
Basic weighted average shares outstanding 39,986  26,700  40,009  26,700   39,980  34,068  39,999  29,156  
Dilutive potential shares from restricted stock awards 307    292     391  70  304  70  

 
 
 
 
  
  
  
   
Dilutive weighted average shares outstanding 40,293  26,700  40,301  26,700   40,371  34,138  40,303  29,226  

 
 
 
 
  
  
  
   
Basic earnings per share$0.21 $0.32 $0.39 $0.67 
Basic earnings (loss) per share $0.20 $(0.60)$0.59 $(0.09) 

 
 
 
 
  
  
  
   
Diluted earnings per share$0.21 $0.32 $0.39 $0.67 
Diluted earnings (loss) per share $0.20 $(0.60)$0.58 $(0.09) 

 
 
 
 
  
  
  
   

9


 6.7. Income Taxes

                On August 16, 2004, the Company terminated its status as an S-corporation and converted to a C-corporation. For all periods prior to such date, the Company operated as an S-corporation and was not subject to U.S. Federal and certain state income taxes. The Company’s historical income tax expense consisted of New York State and New York City income taxes. As a C-corporation, the Company is liable for U.S. Federal and certain state and local income taxes to which it had not been previously subject.

                The Company accounts for taxes in accordance with the guidance set forth in Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting For Income Taxes.” In accordance with SFAS No. 109, recognition of tax benefits or expenses is required for temporary differences between the book and tax bases of assets and liabilities.

                Deferred income taxes represent the tax effects of the temporary differences between book and tax bases and are measured using the tax rates expected during the periods in which the differences are expected to reverse. The provision for income taxes for the three and six months ended JuneSeptember 30, 2005, reflects U.S. federal, state and local income taxes at an effective tax rate equal to 39.5%. Under Accounting Principles Board Opinion 23 –Accounting for income taxes-special areas(“APB 23”), the Company has not provided for U.S. taxes for the undistributed earnings of Houlihan Rovers, which reduced the Company’s effective tax rate for the three months ended September 30, 2005. The provision for income taxes for the nine months ended September 30, 2005, includes U.S. Federal,federal, state and local income taxes at a 44.8% and 43.6%an effective tax rate respectively.equal to 42.3%. Included in the tax provision for the nine months ended September 30, 2005 is an adjustment to the net deferred tax asset resulting from a recent change in the New York State tax law. The deferred tax asset is primarily attributable to a benefitfuture income tax deductions derived from vested restricted stock units granted at the time of the Company'sCompany’s initial public offering. Before adjusting for the deferred tax rate change and including the effect of a higher percentage of investment income, the effective tax rate was 41% for

8.  Long-Term Debt

            During the three and six months ended JuneSeptember 30, 2005.2005, the Company prepaid its long-term debt, which included two loans with original principal of approximately $1,440,000 and $620,000, respectively. These loans were collateralized by fractional ownership interests in certain aircraft. Amounts paid pursuant to these loan pre-payments as of September 30, 2005, were approximately $1,135,000 million and $493,000 respectively. No gains or losses were recognized on such pre-payments.

7.9.  Contingencies

                As previously disclosed, on October 11, 2004, the Company’s Compensation Committee canceled fully vested RSUs previously granted to an employee who resigned from the Company due to such employee’s violation of the non-competition covenants relating to the RSUs. On October 29, 2004, this former employee filed a lawsuit against the Company challenging the forfeiture of these RSUs. On November 18, 2004, the Company filed a motion to dismiss this action and on April 1, 2005, the court granted the Company’s motion to dismiss. On November 7, 2005, this former employee appealed the Supreme Court’s decision to dismiss the matter to the Appellate Division of the Supreme Court, First Department. Based on information currently available and advice of counsel, the Company believes that the eventual outcome of the action against it will not have a material adverse effect on its unaudited condensed consolidated financial position, results of operations or liquidity.

10


10. Comprehensive Income

                Total comprehensive income includes net income and other comprehensive income, net of tax. The components of comprehensive income in the three months and sixnine months ended JuneSeptember 30, 2005 and 2004 are as follows (in thousands):


Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30,Nine Months Ended September 30,

 
 
 
 
2005 2004 2005 2004 2005200420052004

 
 
 
 
 
 
 
 
        
Net income$8,509 $8,600 $15,574 $17,931 
Net income (loss)$8,003 $(20,589)$23,577 $(2,658) 
Foreign currency translation adjustment     (39)   (330) —     (368) —     
Net unrealized gain (loss) on available-for-sale securities, net of tax (198) (476) (1,235) 103  (509) (307) (1,744) (204) 
Reclassification of realized gain on available-for-sale securities, net of tax 384    678    488  —     1,165  —     

 
 
 
 
 
 
 
  
Total comprehensive income$8,695 $8,124 $14,978 $18,034 
Total comprehensive income (loss)$7,652 $(20,896)$22,630 $(2,862) 

 
 
 
 
 
 
 
  

8.11. Regulatory Requirements

                Securities, LLC and Advisors, LLC, as registered broker-dealers and member firms of the NASD, are subject to the SEC’s Uniform Net Capital Rule 15c3-1 (the “Net Capital Rule”), which requires that broker-dealers maintain a minimum level of net capital, as defined. At JuneSeptember 30, 2005, Securities, LLC and Advisors, LLC had net capital of approximately $2,100,000$2,325,000 and $7,200,000,$7,143,000, respectively, which exceeded their requirements by approximately $1,900,000$2,097,000 and $6,900,000$6,827,000, respectively.

                The Net Capital Rule also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital of a broker-dealer is less than the amount required under the Net Capital Rule.

                 Securities, LLC and Advisors, LLC do not carry customer accounts and are exempt from the SEC’s Rule 15c3-3 pursuant to provisions (k)(2)(i) and (k)(2)(ii) of such rule.

9.12. Related Party Transactions

                The Company is an investment advisor to, and has administrative agreements with, affiliated open-end and closed-end mutual funds for which certain employees are officers and/or directors. In the three months ended JuneSeptember 30, 2005 and 2004, the Company earned advisory and administrative fee revenue of approximately $25,179,000$27,269,000 and $19,313,000,$21,126,000, respectively, from these affiliated funds. In the sixnine months ended JuneSeptember 30, 2005 and 2004, the Company earned advisory and administrative fee revenue of approximately $48,979,000$76,248,000 and $36,413,000,$57,539,000, respectively, from these affiliated funds. In the three months ended JuneSeptember 30, 2005 and 2004, distribution and service fee revenue from such funds aggregated approximately $2,950,000$3,091,000 and $2,285,000,$2,561,000, respectively. In the sixnine months ended JuneSeptember 30, 2005 and 2004, distribution and service fee revenue from such funds aggregated approximately $5,850,000$8,941,000 and $4,685,000,$7,246,000, respectively.

 The Company has investment advisory agreements with certain affiliated closed-end mutual funds which contractually require the waiver of a portion of the advisory fees it is otherwise entitled to receive. These fee waivers, which can last for up to ten years from the respective funds’ inception date, are scheduled to decrease for certain funds beginning in 2006. In the three months ended June 30, 2005 and 2004, the Company waived advisory fees of approximately $4,241,000 and $3,418,000, respectively. In the six months ended June 30, 2005 and 2004, approximately $8,441,000 and $6,018,000 of advisory fees were waived by the Company, respectively.

11


                The Company incurs expenses associated with the launch of its open and closed-end mutual funds. These organizational costs, which are included in general and administrative expenses,


totaled approximately $369,000$242,000 and $500,000$100,000 in the three months ended JuneSeptember 30, 2005 and 2004, respectively, and $2,169,000$2,411,000 and $500,000$600,000 in the sixnine months ended JuneSeptember 30, 2005 and 2004, respectively.

                The Company has an agreement with an affiliated open-end mutual fund whichthat contractually requires the Company to pay expenses of the fund so that its total annual operating expenses do not exceed 0.75% of average daily net assets. This commitment will remain in place for the fund’s life. In the three months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $200,000$270,000 and $100,000,$200,000, respectively, were incurred by the Company pursuant to this agreement and are included in general and administrative expenses. In the sixnine months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $500,000$770,000 and $400,000,$600,000, respectively, were incurred.

                The Company has agreements with fourfive other affiliated open-end mutual funds to waive and/or reimburse certain fund expenses. These commitments will remain in place through December 31, 2005. In the three months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $300,000$167,000 and $100,000,$54,000, respectively, were incurred by the Company pursuant to these agreements and are included in general and administrative expenses. In the sixnine months ended JuneSeptember 30, 2005 and 2004, expenses of approximately $400,000$567,000 and $100,000,$154,000, respectively, were incurred.

                General and administrative expenses include $117,000$227,000 and $344,000 of sub-advisory fees paid to Houlihan Rovers in the three and sixnine months ended JuneSeptember 30, 2005.2005, respectively.

                See Note 4 relating to additional investments in Company-sponsored mutual funds.

10.13. Segment Reporting

            Statement of Financial Accounting Standards (“SFAS”)                 SFAS No. 131, Disclosures“Disclosures about Segments of an Enterprise and Related Information,, establishes disclosure requirements relating to operating segments in financial statements. The Company operates in two business segments: Asset Management and Investment Banking. The Company’s reporting segments are strategic divisions that offer different services and are managed separately, as each division requires different resources and marketing strategies.

                The Company does not record revenue between segments (referred to as inter-segment revenue).

                The Company evaluates performance of its segments based on profit or loss from operations before taxes. Information on the unaudited condensed consolidated statement of financial condition data by segment is not disclosed because it is not used in evaluating segment performance and deciding how to allocate resources to segments.

                Summarized financial information for the Company’s reportable segments is presented in the following tables (in thousands):


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 Three Months Ended
  
 
  
 September 30,
2005
 September 30,
2004
  
 
 
  
Asset Management       
  Total revenue$35,244 $27,240  
  Total expenses (23,693) (62,420) 
  Net non-operating income, including equity in earnings of affiliate 2,123  257  
 
 
  
  Income (loss) before provision for income taxes$13,674 $(34,923) 
 
 
  
        
Investment Banking       
  Total revenue$1,187 $1,881  
  Total expenses (1,700) (4,518) 
  Net non-operating income 68  15  
 
 
  
  Loss before provision for income taxes$(445)$(2,622) 
 
 
  
        
Total       
  Total revenue$36,431 $29,121  
  Total expenses (25,393) (66,938) 
  Net non-operating income, including equity in earnings of affiliate 2,191  272  
 
 
  
  Income (loss) before provision for income taxes$13,229 $(37,545) 
 
 
  
    
 Nine Months Ended
  
 
  
 September 30,
2005
 September 30,
2004
  
 
 
  
Asset Management       
  Total revenue$99,188 $75,459  
  Total expenses (65,982) (92,618) 
  Net non-operating income, including equity in earnings of affiliate 4,865  374  
 
 
  
  Income (loss) before provision for income taxes$38,071 $(16,785) 
 
 
  
        
Investment Banking       
  Total revenue$9,618 $6,599  
  Total expenses (7,011) (8,255) 
  Net non-operating income 149  30  
 
 
  
  Income (loss) before provision for income taxes$2,756 $(1,626) 
 
 
  
        
Total 
  Total revenue$108,806 $82,058  
  Total expenses (72,993) (100,873) 
  Net non-operating income, including equity in earnings of affiliate 5,014  404  
 
 
  
  Income (loss) before provision for income taxes$40,827 $(18,411) 
 
 
  

Statement of Income Segment Data

 Three Months Ended 
 
 
 June 30,
2005
 June 30,
2004
 
 
 
 
Asset Management      
  Total revenue$32,726 $25,373 
  Total expenses (21,434) (15,920)
  Net non-operating income, including equity in earnings of affiliate 1,599  64 
 
 
 
  Income before provision for income taxes$12,891 $9,517 
 
 
 
Investment Banking      
  Total revenue$5,542 $255 
  Total expenses (3,080) (745)
  Net non-operating income 57  9 
 
 
 
  Income (loss) before provision for income taxes$2,519 $(481)
 
 
 
Total      
  Total revenue$38,268 $25,628 
  Total expenses (24,514) (16,665)
  Net non-operating income, including equity in earnings of affiliate 1,656  73 
 
 
 
  Income before provision for income taxes$15,410 $9,036 
 
 
 

 Six Months Ended 
 
 
 June 30,
2005
 June 30,
2004
 
 
 
 
Asset Management      
  Total revenue$63,944 $48,219 
  Total expenses (42,289) (30,198)
  Net non-operating income, including equity in earnings of affiliate 2,742  117 
 
 
 
  Income before provision for income taxes$24,397 $18,138 
 
 
 
Investment Banking      
  Total revenue$8,431 $4,718 
  Total expenses (5,311) (3,737)
  Net non-operating income 81  15 
 
 
 
  Income before provision for income taxes$3,201 $996 
 
 
 
Total      
  Total revenue$72,375 $52,937 
  Total expenses (47,600) (33,935)
  Net non-operating income, including equity in earnings of affiliate 2,823  132 
 
 
 
  Income before provision for income taxes$27,598 $19,134 
 
 
 

11.14. Subsequent Events

            On JulyOctober 18, 2005, the Company paid a cash dividend of $0.10$0.11 per share to the Company’s stockholders of record at the close of business on JuneSeptember 29, 2005.

            On August 10,November 9, 2005, the Company’s Board of Directors declared a cash dividend of $0.11 per share to the Company’s stockholders, increasing the dividend by $0.01 per share, or 10%, from the prior quarter's dividend of $0.10 per share.stockholders. The dividend will be payable on OctoberJanuary 18, 20052006 to stockholders of record at the close of business on SeptemberDecember 29, 2005.


13


Item 2.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

                Set forth on the following pages is management’s discussion and analysis of our financial condition and results of operations for the three and sixnine months ended JuneSeptember 30, 2005 and JuneSeptember 30, 2004. Such information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements together with the Notesnotes to the Unaudited Condensed Consolidated Financial Statements.unaudited condensed consolidated financial statements. When we use the terms “Cohen & Steers,” the “Company,” “we,” “us,” and “our,” we mean Cohen & Steers, Inc., a Delaware corporation, and its consolidated subsidiaries.

Overview

            Cohen & Steers Inc. is a manager of high-income equity portfolios, specializing in U.S. REITs, globalinternational real estate securities, preferred securities, utilities, value equity securities and other high-dividend paying commonlarge cap value stocks. We serve individual and institutional investors through a wide range of open-end mutual funds, closed-end mutual funds and institutional separate accounts. As a complement to our asset management business, we also provide investment banking services to companies in real estate and real estate intensive businesses.

Assets Under Management

            We manage three types of accounts: closed-end mutual funds, open-end load and no-load mutual funds and institutional separate accounts.

            The following table sets forth information regarding the net flows and appreciation/(depreciation) of assets under management for the periods presented.presented (in millions):


14


Changes in Assets Under Management
(in millions)

    
Three Months Ended Six Months Ended Three Months Ended Nine Months Ended
 

 
 
 
 
June 30,
2005
 June 30,
2004
 June 30,
2005
 June 30,
2004
 September 30,
2005
 September 30,
2004
 September 30,
2005
 September 30,
2004
 

 
 
 
 
 
 
 
 
Closed-End Mutual Funds                        
Assets under management, beginning of period$9,126 $7,664 $8,984 $4,790 $10,007 $7,671 $8,984 $4,791 

 
 
 
 
 
 
 
 
Inflows 150  459  755  2,931  —     —     755  2,931 
Market appreciation (depreciation) 731  (453) 268  (51)
Market appreciation 78  334  346  283 

 
 
 
 
 
 
 
 
Total increase 881  6  1,023  2,880  78  334  1,101  3,214 

 
 
 
 
 
 
 
 
Assets under management, end of period$10,007 $7,670 $10,007 $7,670 $10,085 $8,005 $10,085 $8,005 

 
 
 
 
 
 
 
 
         
Open-End Mutual Funds         
Assets under management, beginning of period$4,824 $4,514 $5,199 $3,897 $5,428 $4,029 $5,199 $3,897 

 
 
 
 
 
 
 
 
Net outflows (101) (232) (106) (65)
Market appreciation (depreciation) 705  (253) 335  197 
Inflows 448  315  1,287  998 
Outflows (399) (215) (1,345) (963)

 
 
 
 
 
 
 
 
Total increase (decrease) 604  (485) 229  132 
Net inflows (outflows) 49  100  (58) 35 
Market appreciation 119  336  455  533 

 
 
 
 
Total increase 168  436  397  568 

 
 
 
 
 
 
 
 
Assets under management, end of period (1)$5,428 $4,029 $5,428 $4,029 $5,596 $4,465 $5,596 $4,465 

 
 
 
 
 
 
 
 
         
Institutional Separate Accounts         
Assets under management, beginning of period$3,828 $3,361 $4,118 $2,993 $4,428 $3,280 $4,118 $2,992 

 
 
 
 
 
 
 
 
Net inflows 30  79  4  79 
Market appreciation (depreciation) 570  (159) 306  209 
Inflows 83  75  351  360 
Outflows (197) (82) (461) (287)

 
 
 
 
 
 
 
 
Total increase (decrease) 600  (80) 310  288 
Net inflows (outflows) (114) (7) (110) 73 
Market appreciation 165  324  471  532 

 
 
 
 
Total increase 51  317  361  605 

 
 
 
 
 
 
 
 
Assets under management, end of period$4,428 $3,281 $4,428 $3,281 $4,479 $3,597 $4,479 $3,597 

 
 
 
 
 
 
 
 
         
Total         
Assets under management, beginning of period$17,778 $15,539 $18,301 $11,680 $19,863 $14,980 $18,301 $11,680 

 
 
 
 
 
 
 
 
Net inflows 79  306  653  2,945 
Market appreciation (depreciation) 2,006  (865) 909  355 
Inflows 531  390  2,393  4,289 
Outflows (596) (297) (1,806) (1,250)

 
 
 
 
 
 
 
 
Total increase (decrease) 2,085  (559) 1,562  3,300 
Net inflows (outflows) (65) 93  587  3,039 
Market appreciation 362  994  1,272  1,348 

 
 
 
 
Total increase 297  1,087  1,859  4,387 

 
 
 
 
 
 
 
 
Assets under management, end of period (1)$19,863 $14,980 $19,863 $14,980 $20,160 $16,067 $20,160 $16,067 

 
 
 
 
 
 
 
 

(1) As of JuneSeptember 30, 2005, assets under management included $330$387 million of assets
sub-advised by Houlihan Rovers.


15


                Assets under management were $19.9$20.2 billion at JuneSeptember 30, 2005, a 33%25% increase from $15.0$16.1 billion at JuneSeptember 30, 2004.

Closed-end mutual funds

                Closed-end mutual fund assets under management increased 30%26% to $10.0$10.1 billion at JuneSeptember 30, 2005, compared with $7.7$8.0 billion at JuneSeptember 30, 2004. The increase in assets under management was attributable to offerings of both common stockshares for new funds and preferred stockshares for new and existing funds as well as market appreciation.

                Closed-endThere were no closed-end mutual fund net inflows in the three months ended September 30, 2005 or 2004 as no new common or preferred shares were $150offered during these periods. Market appreciation was $78 million in the three months ended JuneSeptember 30, 2005, compared with $459market appreciation of $334 million in the three months ended June 30, 2004. Inflows in the second quarter of 2005 were generated through an offering of variable rate preferred shares issued for the purpose of establishing leverage in one of our funds, launched in March 2005. The assets raised in the second quarter of 2004 were the result of establishing leverage for a closed-end mutual fund launched in March 2004.

            Market appreciation was $731 million in the three months ended June 30, 2005, compared with market depreciation of $453 million in the three months ended JuneSeptember 30, 2004.

                Closed-end mutual fund inflows were $755 million in the sixnine months ended JuneSeptember 30, 2005, compared with $2.9 billion in the sixnine months ended JuneSeptember 30, 2004. In January 2005, we launched Cohen & Steers Dividend Majors Fund, our first diversified portfolio of high dividend-paying common stocks. This fund raised $244 million, net of underwriting fees. In March 2005, we launched Cohen & Steers Worldwide Realty Income Fund, a closed-end fund that invests primarily in a portfolio of global real estate equity securities, which raised $287 million, net of underwriting fees, from the launch offees. In May 2005, Cohen & Steers Worldwide Realty Income Fund. In the first half of 2005, we also raised $224Fund issued $150 million in variable rate preferred shares bringing the total raised for new andthis fund to $437 million. Also, one of our existing funds. The assets raised in the first half of 2004 were the result of two new closed-end funds and the associatedraised $74 million of variable rate preferred shares with both of these funds.during the nine months ended September 30, 2005.

                Market appreciation was $268$346 million in the sixnine months ended JuneSeptember 30, 2005, compared with market depreciationappreciation of $51$283 million in the sixnine months ended JuneSeptember 30, 2004.

Open-end mutual funds

                Open-end mutual fund assets under management increased 35%25% to $5.4$5.6 billion at JuneSeptember 30, 2005 from $4.0$4.5 billion at JuneSeptember 30, 2004. The increase was primarily attributable to market appreciation.

                Net inflows for open-end mutual funds were $49 million in the three months ended September 30, 2005, compared with net inflows of $100 million in the three months ended September 30, 2004. Gross inflows increased to $448 million in the three months ended September 30, 2005 from $315 million in the three months ended September 30, 2004. Gross outflows totaled $399 million in the three months ended September 30, 2005, compared with $215 million in the three months ended September 30, 2004.

                Market appreciation across all of our open-end mutual funds was $119 million in the three months ended September 30, 2005, compared with market appreciation of $336 million in the three months ended September 30, 2004.

16


                Net outflows for open-end mutual funds were $101$58 million in the threenine months ended JuneSeptember 30, 2005, compared with net outflowsinflows of $232$35 million in the threenine months ended JuneSeptember 30, 2004. Gross inflows increased to $421$1.3 billion in the nine months ended September 30, 2005 from $998 million in the threenine months ended June 30, 2005 from $267 million in the three months ended JuneSeptember 30, 2004. Gross outflows totaled $522$1.3 billion in the nine months ended September 30, 2005, compared with $963 million in the threenine months ended June 30, 2005, a slight increase from $499 million in the three months ended JuneSeptember 30, 2004. Included in our open-end mutual fund gross outflows for the nine months ended September 30, 2005 was a client transfer of $100 million into our institutional separate accounts.

                Market appreciation across all of our open-end mutual funds was $705$455 million in the threenine months ended June 30, 2005, compared with market depreciation of $253 million in the three months ended June 30, 2004.


            Net outflows for open-end mutual funds were $106 million in the six months ended June 30, 2005, compared with net outflows of $65 million in the six months ended June 30, 2004. Gross inflows increased to $839 million in the six months ended June 30, 2005 from $683 million in the six months ended June 30, 2004. However, gross outflows totaled $945 million in the six months ended June 30, 2005, compared with $748 million in the six months ended June 30, 2004. Included in our open-end mutual fund gross outflows was a client transfer of $100 million into our institutional separate accounts.

            Market appreciation across all of our open-end mutual funds was $335 million in the six months ended JuneSeptember 30, 2005, compared with market appreciation of $197$533 million in the sixnine months ended JuneSeptember 30, 2004.

Institutional separate accounts

                Institutional separate account assets under management increased 35%25% to $4.4$4.5 billion at JuneSeptember 30, 2005 from $3.3$3.6 billion at JuneSeptember 30, 2004. The majority of the increase in assets under management during this period was due to market appreciation.

                Institutional separate accounts had net inflowsoutflows of $30$114 million in the three months ended JuneSeptember 30, 2005, compared with net outflows of $7 million in the three months ended September 30, 2004. Gross inflows increased to $83 million in the three months ended September 30, 2005 from $75 million in the three months ended September 30, 2004. Gross outflows were $197 million in the three months ended September 30, 2005, compared with $82 million in the three months ended September 30, 2004.

                Market appreciation was $165 million in the three months ended September 30, 2005, compared with market appreciation of $324 million in the three months ended September 30, 2004.

                Institutional separate accounts had net outflows of $110 million in the nine months ended September 30, 2005, compared with net inflows of $79$73 million in the threenine months ended JuneSeptember 30, 2004. Gross inflows were $186$351 million in the threenine months ended JuneSeptember 30, 2005, compared with $174$360 million in the threenine months ended JuneSeptember 30, 2004. Included in our institutional separate account gross inflows for the nine months ended September 30, 2005 was a client transfer in the amount of $100 million from one of our open-end mutual funds. Gross outflows were $156$461 million in the threenine months ended JuneSeptember 30, 2005, compared with $95$287 million in the threenine months ended JuneSeptember 30, 2004.

                Market appreciation was $570$471 million in the threenine months ended June 30, 2005, compared with market depreciation of $159 million in the three months ended June 30, 2004.

            Institutional separate accounts had net inflows of $4 million in the six months ended June 30, 2005, compared with net inflows of $79 million in the six months ended June 30, 2004. Gross inflows were $272 million in the six months ended June 30, 2005, compared with $284 million in the six months ended June 30, 2004. Included in our institutional separate account inflows was a client transfer in the amount of $100 million from one of our open-end mutual funds. Gross outflows were $268 million in the six months ended June 30, 2005, compared with $205 million in the six months ended June 30, 2004.

            Market appreciation was $306 million in the six months ended JuneSeptember 30, 2005, compared with market appreciation of $209$532 million in the sixnine months ended JuneSeptember 30, 2004.


17


Results of Operations

Three Months Ended JuneSeptember 30, 2005 compared with Three Months Ended JuneSeptember 30, 2004

                The following table of selected financial data presents our business segments in a manner consistent with the way that we manage our businesses (in thousands):

Three Months Ended Three Months Ended

 
June 30,
2005
 June 30,
2004
 September 30,
2005
September 30,
2004

 
 

Asset Management             
Total revenue$32,726 $25,373 $35,244 $27,240  
Total expenses (21,434) (15,920) (23,693) (62,420) 
Net non-operating income, including equity in earnings of affiliate 1,599  64  2,123  257  

 
 

Income before provision for income taxes$12,891 $9,517 

 
 
Income (loss) before provision for income taxes$13,674 $(34,923) 
    

Investment Banking    
Total revenue$5,542 $255 $1,187 $1,881  
Total expenses (3,080) (745) (1,700) (4,518) 
Net non-operating income 57  9  68  15  

 
 

Income (loss) before provision for income taxes$2,519 $(481)

 
 
Loss before provision for income taxes$(445)$(2,622) 
    

Total         
Total revenue$38,268 $25,628 $36,431 $29,121  
Total expenses (24,514) (16,665) (25,393) (66,938) 
Net non-operating income, including equity in earnings of affiliate 1,656  73  2,191  272  

 
 

Income before provision for income taxes$15,410 $9,036 
Income (loss) before provision for income taxes$13,229 $(37,545) 

 
 

Revenue

                Total revenue increased 49%25% to $38.3$36.4 million in the three months ended JuneSeptember 30, 2005 from $25.6$29.1 million in the three months ended JuneSeptember 30, 2004. This increase was primarily due to an increase in investment advisory and administration fees attributable to higher asset levels and an increase in investment banking fees.assets under management.

Asset Management

                Revenue increased 29% to $32.7$35.2 million in the three months ended JuneSeptember 30, 2005 from $25.4$27.2 million in the three months ended JuneSeptember 30, 2004. Investment advisory and administration fees increased 31%30% to $29.0$31.4 million in the three months ended JuneSeptember 30, 2005, compared with $22.2$24.2 million in the three months ended JuneSeptember 30, 2004.

                In the three months ended JuneSeptember 30, 2005, total investment advisory and administration revenue from closed-end mutual funds increased 30%28% to $15.1$16.2 million from $11.6$12.6 million in the three months ended JuneSeptember 30, 2004. The secondthird quarter of 2005 included a full quarter of revenue from the completion of two new fund offerings during the first quarter of 2005. The remaining increase in closed-end mutual fund revenue was due to higher levels of average daily net assets resulting from market appreciation and additional auction market preferred share offerings for certain funds during the fourth quarter of 2004 and the first half of 2005.

                In the three months ended JuneSeptember 30, 2005, total investment advisory and administration revenue from open-end mutual funds increased 29%31% to $10.1$11.2 million from $7.8$8.5 million in the


three months ended JuneSeptember 30, 2004. The increase was attributable to increased assets under management across all of our new and existing open-end mutual funds. Distribution and service fee revenue increased 30%22% to $3.0$3.1 million in the three months ended JuneSeptember 30, 2005 from $2.3$2.6 million in the three months ended JuneSeptember 30, 2004. This increase in distribution and service fee revenue was primarily due to increased assets in two open-end mutual funds.

                In the three months ended September 30, 2005, total investment advisory and administration revenue from institutional separate accounts increased 34% to $4.1 million from $3.1 million in the three months

18


ended September 30 2004. This increase was attributable to higher levels of assets resulting from market appreciation, despite net outflows during the period.

                Investment Banking

                Revenue increaseddecreased 37% to $5.5$1.2 million in the three months ended JuneSeptember 30, 2005 from $0.3$1.9 million in the three months ended JuneSeptember 30, 2004. RevenueThird quarter 2005 revenue was primarily attributable to success fees generated in connection with a merger advisory assignmentassignments and a restructuring assignment and a placement fee generated in connection with a public offering. In addition, we served as co-manager incapital raising transactions, including the final settlement of two co-managed underwritten public offerings, representing our first firm commitment underwriting transactions.offerings.

Expenses

                Total operating expenses increased 47%decreased 62% to $24.5$25.4 million in the three months ended JuneSeptember 30, 2005 from $16.7$66.9 million in the three months ended JuneSeptember 30, 2004, primarily due to increasesa decrease in employee compensation and benefits distribution and service fee expenses, general and administrative and depreciation and amortization.expense.

                Employee compensation and benefits expense increased 34%decreased 82% to $9.2$10.2 million in the three months ended JuneSeptember 30, 2005, from $6.8$55.2 million in the three months ended JuneSeptember 30, 2004. This was primarily due to a third quarter 2004 one-time non-cash compensation charge of $46.0 million and an increaseassociated Medicare tax expense of $1.0 million related to the termination of a stock appreciation rights plan for the predecessor company and the simultaneous grant of fully-vested restricted stock unit awards (“RSUs”) to certain employees coincident with the initial public offering of Cohen & Steers, Inc. common stock, partially offset by increases in base and incentive compensation which included proportionately higher compensation expense resulting from the increase in Investment Banking feesfor new employees and amortization of unearned compensation related to restricted stock unit awardsRSUs and deferred compensation plans. As a result of the new hires that occurred during the third quarter of 2005, we expect employee compensation and benefits to be higher in the fourth quarter.

                Distribution and service fee expenses increased 49%11% to $7.4$7.8 million in the three months ended JuneSeptember 30, 2005 from $4.9$7.1 million in the three months ended JuneSeptember 30, 2004. This increase was primarily due to higher levels of average daily net assets resulting from market appreciation as well as up front distribution costs associated withand the launch of one of ournew closed-end mutual funds.funds in 2005.

General and administrative expenses increased 72%86% to $5.8$5.2 million in the three months ended JuneSeptember 30, 2005 from $3.4$2.8 million in the three months ended JuneSeptember 30, 2004. The majority of the increase was attributable to higher professional fees resulting from costs related to implementing Sarbanes Oxley,compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), sub-advisory fees paid to Houlihan Rovers, higher recruiting fees and higher accounting, tax and auditing fees associated with the requirements of being a public company, the recognition of sub-placement and other fees related to investment banking transactions consummated during the quarter, and additional organization costs incurred as part of the launch of four new mutual funds during the first quarter of 2005.company. Occupancy costs were primarily higher due to the recognition of a full quarter’s rent expense for our new corporate headquarters.headquarters to which we will relocate in November 2005. In connection with our relocation, we will record a charge of approximately $1.8 million comprised primarily of moving costs and remaining lease payments, partially offset by sublease income for our current location.


                Depreciation and amortization increased 55% to $1.4 million in the three months ended JuneSeptember 30, 2005 from $0.3$0.9 million in the three months ended JuneSeptember 30, 2004. Included in depreciation and amortization expense in the secondthird quarter of 2005 was a full quarter of non-cash expense of $1.1 million relating to amortization of the intangible asset recorded in connection with the grant of fully vested RSUs at ourthe initial public offering.offering of Cohen & Steers, Inc. common stock. The intangible asset, which expires in

19


2008, reflects the independently determined value of the non-competition agreements we have received from each of the employees that received fully vested RSUs at our initial public offering and is allocatedoffering. As a result of our relocation to our two business segments.new corporate headquarters in November, we will record a charge of approximately $0.7 million attributable to the abandonment of certain furniture and fixtures and leasehold improvements.

Non-operating Income

                Non-operating income, including our share of the net income of Houlihan Rovers, was $1.7$2.2 million in the three months ended JuneSeptember 30, 2005, compared with $0.1$0.3 million in the three months ended JuneSeptember 30, 2004. The increase inthird quarter 2005 non-operating income was primarily reflects $0.8attributable to $0.9 million of interest and dividend income, and $0.6$0.8 million of realized gains earned on marketable securities.from the sale of investments in our Company-sponsored mutual funds and a $0.3 million gain from the sale of our fractional interest in an aircraft.

Income Taxes

            Historical income tax expense consisted solely of New York state and local income taxes; prior to ourthe initial public offering of Cohen & Steers, Inc. common stock, we were exempt from federal income taxes due to our status as an S-corporation. However, upon our conversion from an S-corporation to C-corporation status on August 16, 2004, we became subject to U.S. Federalfederal and certain state and local income taxes. We recorded an income tax expense of $6.9$5.2 million in the three months ended JuneSeptember 30, 2005, compared with an income tax expensebenefit of $0.4$17.0 million in the three months ended JuneSeptember 30, 2004. The provision for income taxes for the three months ended JuneSeptember 30, 2005, includesreflects U.S. federal, state and local income taxes at a 44.8%an effective tax rate. Includedrate equal to 39.5%. Under Accounting Principles Board Opinion 23 –Accounting for income taxes-special areas(“APB 23”), we have not provided for U.S. taxes for the undistributed earnings of Houlihan Rovers, which reduced our effective tax rate for the three months ended September 30, 2005. The income tax benefit in the secondthird quarter tax provision is an adjustment to our net deferred tax asset resulting from a recent change in the New York State tax law. Our deferred tax asset is attributableof 2004 was due primarily to a benefit derived from vested restricted stock units granted at the time of ourthe initial public offering. Before adjusting for the deferred tax rate change and including the effectoffering of a higher percentage of investment income,Cohen & Steers, Inc. common stock. We expect our effective tax rate was 41%to be approximately 40% for the three months ended June 30,fourth quarter of 2005.

SixNine Months Ended JuneSeptember 30, 2005 compared with SixNine Months Ended JuneSeptember 30, 2004

The following table of selected financial data presents our business segments in a manner consistent with the way that we manage our businesses (in thousands):


20


   
Six Months Ended  Nine Months Ended 

  
 
June 30,
2005
 June 30,
2004
  September 30,
2005
 September 30,
2004
 

 
  
 
 
Asset Management            
Total revenue$63,944 $48,219  $99,188 $75,459  
Total expenses (42,289) (30,198)  (65,982) (92,618) 
Net non-operating income, including equity in earnings of affiliate 2,742  117   4,865  374  

 
  
 
  
Income before provision for income taxes 24,397  18,138 
Income (loss) before provision for income taxes $38,071 $(16,785) 

 
  
 
  
          
Investment Banking          
Total revenue$8,431 $4,718  $9,618 $6,599  
Total expenses (5,311) (3,737)  (7,011) (8,255) 
Net non-operating income 81  15   149  30  

 
  
 
  
Income before provision for income taxes 3,201  996 
Income (loss) before provision for income taxes $2,756 $(1,626) 

 
  
 
  
          
Total          
Total revenue$72,375 $52,937  $108,806 $82,058  
Total expenses (47,600) (33,935)  (72,993) (100,873) 
Net non-operating income, including equity in earnings of affiliate 2,823  132   5,014  404  

 
  
 
  
Income before provision for income taxes 27,598  19,134 
Income (loss) before provision for income taxes $40,827 $(18,411) 

 
  
 
  

Revenue

                Total revenue increased 37%33% to $72.4$108.8 million in the sixnine months ended JuneSeptember 30, 2005, from $52.9$82.1 million in the sixnine months ended JuneSeptember 30, 2004. This increase was primarily the result of an increase in investment advisory and administration fees attributable to higher asset levelsassets under management and an increase in investment banking fees.

Asset Management

                Revenue increased 33%31% to $63.9$99.2 million in the sixnine months ended JuneSeptember 30, 2005, from $48.2$75.5 million in the sixnine months ended JuneSeptember 30, 2004. Investment advisory and administration fees increased 34%33% to $56.3$87.7 million in the sixnine months ended JuneSeptember 30, 2005, compared with $41.9$66.1 million in the sixnine months ended JuneSeptember 30, 2004.

                In the sixnine months ended JuneSeptember 30, 2005, total investment advisory and administration revenue from closed-end mutual funds increased 43%38% to $29.2$45.3 million from $20.4$33.0 million in the sixnine months ended JuneSeptember 30, 2004. The sixnine months ended JuneSeptember 30, 2005 included revenue from the completion of two new closed-end fund offerings during the first half of 2005. The remaining increase in closed-end mutual fund revenue was due to higher levels of average daily net assets from market appreciation and common and additional auction market preferred share offerings for certain funds during the fourth quarter of 2004 and the first half of 2005.

                In the sixnine months ended JuneSeptember 30, 2005, total investment advisory and administration revenue from open-end mutual funds increased 23%26% to $19.8$30.9 million from $16.1$­­­­24.6 million in the sixnine months ended JuneSeptember 30, 2004. The increase was attributable to increased assets under management across all of our new and existing open-end mutual funds.

                In the nine months ended September 30, 2005, total investment advisory and administration revenue from institutional separate accounts increased 35% to $11.5 million from $8.5 million in the nine months ended September 30 2004. This increase was attributable to higher levels of assets resulting from market appreciation, despite net outflows during the period. Distribution and service fee revenue increased 24%23% to $5.8$8.9 million in the sixnine months ended JuneSeptember 30, 2005 from $4.7$7.2 million in the sixnine months ended JuneSeptember 30, 2004. This increase in distribution and service fee


revenue was primarily due to increased assets in two open-end mutual funds.

21


 Investment Banking

                Revenue increased 79%46% to $8.4$9.6 million in the sixnine months ended JuneSeptember 30, 2005 from $4.7$6.6 million in the sixnine months ended JuneSeptember 30, 2004. RevenueThis increased revenue was primarily attributable to a mix of merger advisory, restructuring and capital raising assignments.

Expenses

                Total operating expenses increased 40%decreased 28% to $47.6$73.0 million in the sixnine months ended JuneSeptember 30, 2005 from $33.9$100.9 million in the sixnine months ended JuneSeptember 30, 2004, primarily due to increasesa decrease in employee compensation and benefits distribution and service fee expenses,expense, partially offset by decreases in general and administrative expenses and depreciationdistribution and amortization.service fee expenses.

                Employee compensation and benefits expense increased 13%decreased 61% to $17.8$28.0 million in the sixnine months ended JuneSeptember 30, 2005 from $15.8$71.0 million in the sixnine months ended JuneSeptember 30, 2004. This was primarily due to a third quarter 2004 one-time non-cash compensation charge of $46.0 million and an increaseassociated Medicare tax expense of $1.0 million related to the termination of a stock appreciation rights plan for the predecessor company and the simultaneous grant of fully-vested RSUs to certain employees coincident with the initial public offering of Cohen & Steers, Inc. common stock, partially offset by increases in base and incentive compensation which included proportionately higher compensation expense resulting from the increase in Investment Banking feesfor new employees and amortization of unearned compensation related to restricted stock unit awardsRSUs and deferred compensation plans. As a result of the new hires that occurred during the third quarter of 2005, we expect employee compensation and benefits to be higher in the fourth quarter.

                Distribution and service fee expenses increased 54%35% to $14.0$21.9 million in the sixnine months ended JuneSeptember 30, 2005 from $9.1$16.2 million in the sixnine months ended JuneSeptember 30, 2004. This increase was primarily due to higher levels of average daily net assets resulting from market appreciation as well as up front distribution costs associated withand the launch of one of ournew closed-end mutual funds.funds in 2005.

                General and administrative expenses increased 83%84% to $11.2$16.4 million in the sixnine months ended JuneSeptember 30, 2005, from $6.1$8.9 million in the sixnine months ended JuneSeptember 30, 2004. The majority of the increase was attributable to higher professional fees resulting from costs related to implementing Sarbanes Oxley,compliance with Sarbanes-Oxley, sub-advisory fees paid to Houlihan Rovers, increased recruiting fees, higher accounting, tax and auditing fees associated with the requirements of being a public company the recognition of sub-placement and other fees related to investment banking transactions consummated during the first half of 2005, and additional organization costsorganizational expenses incurred as part of the launch of four new mutual funds during the first half ofnine months ended September 30, 2005. Occupancy costs were primarily higher due to the recognition of atwo full quarter’s rent expense for our new corporate headquarters. In connection with our relocation, we will record a charge of approximately $1.8 million comprised primarily of moving costs remaining lease payments, partially offset by sublease income for our current location.

Depreciation and amortization increased to $2.8$4.1 million in the sixnine months ended JuneSeptember 30, 2005 from $0.6$1.5 million in the sixnine months ended JuneSeptember 30, 2004. Included in depreciation and amortization expense infor the first half ofnine months ended September 30, 2005 was a non-cash expense of $2.2$3.3 million relating to amortization of anthe intangible asset recorded in connection with the grant of fully vested RSUs at ourthe initial public offering.offering of Cohen & Steers, Inc. common stock. The intangible asset, which expires in 2008, reflects the independently


determined value of the non-competition agreements we have received from each of the

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employees that received fully vested RSUs at ourthe initial public offering and is allocatedoffering. As a result of our relocation to our two business segments.new corporate headquarters in November, we will record a charge of approximately $0.7 million attributable to the abandonment of certain furniture and fixtures and leasehold improvements.

Non-operating Income

                Non-operating income, including our share of the net income of Houlihan Rovers, was $2.8$5.0 million in the sixnine months ended JuneSeptember 30, 2005, compared with $0.1$0.4 million in the sixnine months ended JuneSeptember 30, 2004. The increase in non-operatingNon-operating income for the 2005 period was primarily reflects $1.4attributable to $2.2 million of interest and dividend income and $1.1on our investments, $2.0 million of realized gains earned on marketable securities.from the sale of investments in our sponsored mutual funds and a $0.3 million gain from the sale of our fractional interest in an aircraft.

Income Taxes

            Historical income tax expense consisted solely of New York state and local income taxes; prior to ourthe initial public offering of Cohen & Steers, Inc. common stock, we were exempt from federal income taxes due to our status as an S-corporation. However, upon our conversion from an S-corporation to C-corporation status on August 16, 2004, we became subject to U.S. Federalfederal and certain state and local income taxes. We recorded an income tax expense of $12.0$17.3 million in the sixnine months ended JuneSeptember 30, 2005, compared with an income tax expensebenefit of $1.2$15.8 million in the sixnine months ended JuneSeptember 30, 2004. The provision for income taxes for the sixnine months ended JuneSeptember 30, 2005, includes U.S. federal, state and local income taxes at a 43.6%an effective tax rate.rate equal to 42.3%. Included in the tax provision for the first half of the yearnine months ended September 30, 2005 is an adjustment to ourthe net deferred tax asset resulting from a recent change in the New York State tax law. OurThe deferred tax asset is primarily attributable to future income tax deductions derived from vested restricted stock units granted at the time of our initial public offering. The income tax benefit in the nine months ended September 30, 2004 was due primarily to a benefit derived from vested restricted stock units granted at the time of our initial public offering. Before adjusting for the deferred tax rate change and including the effect of a higher percentage of investment income,We expect our effective tax rate was 41%to be approximately 40% for the six months ended June 30,fourth quarter of 2005.

Liquidity and Capital Resources

                Our investment advisory business does not require us to maintain significant capital balances. Our current financial condition is highly liquid, with the majority of our assets comprised of cash and cash equivalents and marketable securities. Our cash flows are generally created as a result of the operating activities of our business segments, with investment advisory and administrative fees a significant contributor.

                Cash, cash equivalents, accounts receivable and marketable securities were 74%72% and 71% of total assets as of JuneSeptember 30, 2005 and December 31, 2004, respectively. Working capital was $111.1$113.5 million at JuneSeptember 30, 2005, compared with $103.1 million at December 31, 2004.

                Net cash from operating activities was $25.0$33.9 million in the sixnine months ended JuneSeptember 30, 2005. Cash of $20.6$22.5 million was used in investing activities, primarily for the purchase of $38.7$52.5 million of marketable securities, partially offset by proceeds from sales and maturities of marketable securities in the amount of $18.6$32.9 million. Cash of $7.8$13.5 million was used in financing activities, primarily for dividends paid to stockholders.

                Net cash from operating activities was $25.3$40.0 million in the sixnine months ended JuneSeptember 30, 2004. Cash of $1.5$57.1 million was used in investing activities, primarily for the purchase of marketable securities. Cash of $19.5$56.9 million was used inprovided by financing activities, primarily related to S-corporation cash distributions made to shareholders and offering costs paid pursuant toproceeds from our initial public offering.offering of Cohen & Steers, Inc. common stock net of related offering costs partially offset by S-corporation cash distributions


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made to shareholders.

                It is our policy to continuously monitor and evaluate the adequacy of our capital. We have consistently maintained net capital in excess of the regulatory requirements for our broker-dealers, as prescribed by the Securities and Exchange Commission (“SEC”). At JuneSeptember 30, 2005, our regulatory net capital exceeded the minimum requirement by $8.8$8.9 million. The SEC’s Uniform Net Capital Rule 15c3-1 imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital. We believe that our cash flows from operations will be more than adequate to meet our anticipated capital requirements and debt and other obligations as they become due.


Contractual Obligations

                We have contractual obligations to make future payments in connection with our non-cancelable operating lease agreements for office space long-term debt on aircraft, and capital leases for office equipment. The following summarizes our contractual obligations as of JuneSeptember 30, 2005 (in thousands):

Contractual Obligations  Contractual Obligations 
2005 2006 2007 2008 2009 2010
and
after
 Total  2005 2006 2007 2008 2009 2010
and
after
 Total 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
                              
Operating leases$884 $3,515 $3,515 $2,167 $2,071 $9,164 $21,316  $534 $3,516 $3,516 $2,167 $2,071 $9,164 $20,968  
Long-term debt 52  1,079  484      —      —      —  1,615 
Capital lease obligations, net 27  57  46  10      —      —  140   14  57  46  9  —     —     126  

 
 
 
 
 
 
  
 
 
 
 
 
 
  
Total contractual obligations$963 $4,651 $4,045 $2,177 $2,071 $9,164 $23,071  $548 $3,573 $3,562 $2,176 $2,071 $9,164  21,094  

 
 
 
 
 
 
  
 
 
 
 
 
 
  

Off-Balance Sheet Arrangements

                We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any leasing activities that expose us to any liability that is not reflected in our unaudited condensed consolidated financial statements.

Critical Accounting Policies and Estimates

                The preparation of our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

                A thorough understanding of our accounting policies is essential when reviewing our reported results of operations and our financial position. Our management considers the following accounting policies critical to an informed review of our consolidated financial statements. For a summary of these and

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additional accounting policies, see the notes to the annual audited consolidated financial statements on our Annual Report on Form 10-K for the year ended December 31, 2004.

Investments

                Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination at each statement of financial condition date. Marketable securities classified as available-for-sale consist of investments in our opensponsored open-end and closed-end mutual funds as well as highly rated debt and preferred instruments. These investments are carried at fair value based on quoted market


prices, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income.

Deferred Commissions

                Deferred commissions consist of commissions paid in advance to broker-dealers in connection with the sale of certain shares of our sponsored open-end load mutual funds sponsored by us and are capitalized and amortized over a period not to exceed six years.

Investment Advisory and Administration Fees

                We earn the majority of our revenue by providing from asset management services to our sponsored open-end and closed-end mutual funds and to institutional separate accounts. This revenue is earned pursuant to the terms of the underlying advisory contract and is based on a contractual investment advisory fee applied to the assets in the portfolio. We also earn revenue from administration fees paid by certain sponsored open-end and closed-end mutual funds, based on the average daily net assets of such funds. We recognize this revenue as we earn such fees.fees are earned.

Distribution and Service Fee Revenue

                Distribution and service fee revenue is recognized as the services are performed, generally based on contractually-predetermined percentages of the average daily net assets of the open-end load mutual funds. Distribution and service fee revenue is recorded gross of any third-party distribution and service arrangements; the expenses associated with these third-party distribution and service arrangements are recorded in distribution and service fee expenses.

Portfolio Consulting Fees

                We earn revenue for various portfolio consulting services provided to clients, as well as for providing a license to use our name. This revenue is recognized pursuant to the terms of individual agreements and is based on the net assets of the clients’ funds.

New Accounting Pronouncements

                In March 2005, a Financial Accounting Standards Board (“FASB”) Staff Position was issued addressing the application of Emerging Issue Task Force (“EITF”) Issue No. 85-24 (“FSP EITF 85-24-1”), “Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,” when cash for the right to future distribution fees for shares previously sold is received from third parties. FSP EITF 85-24-1 did not materially impact our unaudited condensed consolidated financial position or results of operations.

            In December 2004, the FASB issued a revised Statement of Financial Accounting Standards No. 123 (“SFAS No. 123 (R)”), which requires public companies to recognize the cost resulting from all share-based transactions in their financial statements. SFAS No. 123 (R) eliminates the ability to account for share-based compensation using the intrinsic value method under Accounting Principles Board Opinion (“APB”) 25. The adoption of SFAS No. 123 (R) did not materially impact our unaudited condensed consolidated statement of financial position or results of operations.25


            In September 2004, EITF reached a consensus on Issue 04-10, “Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.” This EITF requires that individual operating segments that do not meet


the quantitative thresholds set forth in SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” for separate reporting may be aggregated only if the segments meet certain requirements. These requirements are applicable for fiscal years ending after September 15, 2005. The adoption of EITF 04-10 will not materially impact our identified segments.

Forward-Looking Statements

                This report and other documents filed by us contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties.

                Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, which is accessible on the Securities and Exchange Commission’s websiteWeb site athttp://www.sec.gov and on Cohen & Steers’ websiteWeb site atcohenandsteers.com. cohenandsteers.com. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

                In the normal course of our business, we are exposed to the risk of interest rate, securities market and general economic fluctuations which may have an adverse impact on the value of our marketable securities. As of JuneSeptember 30, 2005, our marketable securities totalled $90.3totaled $90.6 million and consisted of investments in our sponsored openopen-end and closed-end mutual funds as well as highly ratedinvestment grade debt and preferred instruments. In addition, a significant majority of our revenue—approximately 76%86% and 87%83% in the three months ended JuneSeptember 30, 2005 and 2004, respectively—is derived from investment advisory and administrative agreements with our clients. Under these agreements, the investment advisory and administration fees we receive are typically based on the market value of the assets we manage. Accordingly, a decline in the prices of securities generally, and real estate securities in particular, may cause our revenue and income to decline by:

Ÿcausing the value of the assets we manage to decrease, which would result in lower investment advisory and administration fees; or
 
Ÿcausing our clients to withdraw funds in favor of investments that they perceive as offering greater opportunity or lower risk, which would also result in lower investment advisory and administration fees.

                In addition, market conditions may preclude us from increasing the assets we manage in closed-end mutual funds. A significant portion of our recent growth in the assets we manage has resulted from public offerings of the shares of closed-end mutual funds. The market conditions for these offerings may not be as favorable in the future, which could adversely impact our ability to grow the assets we manage and realize higher fee revenue associated with such growth.

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                The returns for REIT common stocks have demonstrated littlea relatively low correlation with interest rates over longer periods of time. However, an increase in interest rates could have a negative impact on the valuation of REITs and other securities in our clients’ portfolios, which could reduce our revenue. In addition, an increase in interest rates could negatively impact our ability to increase open-end mutual fund assets and to offer new mutual funds.

ITEM 4.  Controls and Procedures

                Based on their evaluation as of a date as of the end of the period covered by this Quarterly Report on Form 10-Q, our co-chief executive officers and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

                There has been no change in our internal control over financial reporting that occurred during the sixnine months ended JuneSeptember 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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Part II – Other Information

ItemITEM 1.   Legal Proceedings

            As previously disclosed, on October 11, 2004, our Compensation Committee canceled fully vested RSUs previously granted to an employee who resigned from Cohen & Steers, due to such employee’s violation of the non-competition covenants relating to the RSUs. On October 29, 2004, this former employee filed a lawsuit in the Supreme Court of the State of New York against Cohen & Steers, Inc. and its wholly owned subsidiary, Cohen & Steers Capital Management, Inc., challenging the forfeiture of these RSUs. On November 18, 2004, we filed a motion to dismiss this action and on April 1, 2005, the court granted our motion to dismiss. On November 7, 2005, this former employee appealed the Supreme Court’s decision to dismiss the matter to the Appellate Division of the Supreme Court, First Department. Although the Company cannot predict with certainty the outcome of this action at this time, the Company believes that the Complaint is without merit and will defend this matter vigorously. In addition, the Company believes that the eventual outcome of the action against it will not have a material adverse effect on its unaudited condensed consolidated financial position, results of operations or liquidity.

ITEM 4.   Submission of Matters to a Vote of Security Holders

                The annual meeting of stockholders of Cohen & Steers was held on May 9, 2005, for the purpose of considering and acting upon the following:

(1)Election of Directors.  Six directors were elected and the votes cast for or against/withheld were as follows:

   Aggregate Votes  
   
  
   For Withheld  
   
 
  
 Nominees        
 Martin Cohen  35,050,502  8,763  
 Robert H. Steers  35,050,502  8,763  
 Richard E. Bruce  34,408,974  650,291  
 Peter L. Rhein  34,409,709  649,456  
 Richard P. Simon  34,409,709  649,556  
 Edmond D. Villani  34,409,709  649,556  

(2)Ratification of Independent Registered Public Accounting Firm.  The appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm was ratified and the votes cast for or against and the abstentions were as follows:

  Aggregate Votes 
  
 
  For Against Abstained 
  
 
 
 
Ratification of the appointment of Deloitte
    & Touche LLP as the Company’s
    independent registered public accounting
    firm
  32,600,962  2,455,402  2,900 

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                There were no broker non-votes. With respect to the preceding matters, holders of the Company’s common stock are entitled to one vote per share.

ITEM 6. Exhibits

Exhibit No. Description
  
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (1)
3.2 Form of Amended and Restated Bylaws of the Registrant (1)
4.1 Specimen Common Stock Certificate (1)
4.2 Form of Registration Rights Agreement among the Registrant, Martin Cohen, Robert H. Steers, The Martin Cohen 1998 Family Trust and Robert H. Steers Family Trust (1)
31.1 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.3 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2 Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.3 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
    
  (1)Incorporated by Reference to the Registrant’s Registration Statement on Form S-1 (Registration No.
333-114027), as amended, originally filed with the Securities and Exchange Commission on March 30, 2004.

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SIGNATURE

            Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 15,November 10, 2005 Cohen & Steers, Inc.
  
/s/ Matthew S. Stadler
  Name: Matthew S. Stadler
Title: Executive Vice President & Chief
Financial Officer

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