1166
AVENUE OF THE AMERICAS, 30TH
FLOOR
NEW YORK, NEW YORK 10036
NEW YORK, NEW YORK 10036
PROSPECTUS
Advisor
Cohen & Steers Capital Management, Inc.
1166 Avenue of Americas, 30th Floor
New York, New York 10036
Cohen & Steers Capital Management, Inc.
1166 Avenue of Americas, 30th Floor
New York, New York 10036
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Fund |
Ticker |
Stock
Exchange |
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Cohen
& Steers Future of Energy Active ETF |
CSEN |
Nasdaq |
THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THE FUND’S
SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO
INDICATES OTHERWISE IS COMMITTING A CRIME.
Summary Section
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Management
Fee |
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Other
Expenses(1) |
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Total
Annual Fund Operating Expenses(1) |
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$ |
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3
4
5
6
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8
9
10
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12
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Annual Total Returns
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Return
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Return
After Taxes on Distributions and Sale of Fund Shares |
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MSCI
World Index-net (reflects no deduction for fees, expenses or
taxes) |
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Linked
Benchmark (reflects no deduction for fees, expenses or
taxes) |
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Custom
Linked Benchmark (reflects no deduction for fees, expenses or
taxes) |
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Advisor
Cohen & Steers
Capital Management, Inc.
Subadvisors
Cohen & Steers Asia
Limited (“CNS Asia”)
Cohen & Steers UK Limited (“CNS UK”)
Cohen & Steers UK Limited (“CNS UK”)
Portfolio
Managers
The
Fund’s portfolio managers are:
Benjamin
Morton—Executive Vice
President of the Advisor. Mr. Morton has been a portfolio manager of the Fund
since its inception, and was a portfolio manager of the Predecessor Fund since
2013.
Tyler
S. Rosenlicht—Senior Vice President
of the Advisor. Mr. Rosenlicht has been a portfolio manager of the Fund since
its inception, and was a portfolio manager of the Predecessor Fund since
2015.
The Fund issues and
redeems shares only through Authorized Participants (intermediaries, typically
broker-dealers who have executed an agreement with Foreside Fund Services, LLC,
the Fund’s
15
distributor
(the “Distributor”), that governs transactions in Fund creation units) in large
blocks of shares called Creation Units. Creation Units are issued and redeemed
typically for an in-kind basket of securities. Except when aggregated in
Creation Units, the Fund shares are not redeemable securities of the Fund.
Individual
shares may only be purchased and sold on secondary markets through a financial
intermediary, such as a broker-dealer or a bank. Because the Fund’s shares trade
at market prices rather than NAV, shares may trade at a price greater than NAV
(a premium) or less than NAV (a discount). You may incur costs attributable to
the difference between the highest price a buyer is willing to pay to purchase
shares of the ETF (bid) and the lowest price a seller is willing to accept for
shares of the ETF (ask) when buying or selling shares in the secondary market
(the bid/ask spread). Information regarding the Fund’s NAV, market price,
premiums and discounts, and bid/ask spread, is available at
www.cohenandsteers.com.
The
Fund’s distributions may be taxable to you as ordinary income and/or capital
gains, unless you are investing through a tax-advantaged arrangement, such as a
401(k) plan or an individual retirement account, and may consist of a
non-taxable return of capital. Investments through such tax-advantaged
arrangements may be taxed upon withdrawal of monies from the tax-advantaged
arrangement.
If you
purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and/or its Advisor or Distributor may
pay the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your individual financial representative to recommend the
Fund over another investment. Ask your individual financial representative or
visit your financial intermediary’s website for more information.
16
The
investment objective of the Fund is to provide attractive total return,
comprised of current income and price appreciation. In pursuing its investment
objective, the Fund seeks both capital appreciation and current income. There
can be no assurance that the Fund will achieve its investment objective. The
Fund may change its investment objective without shareholder approval, although
it has no current intention to do so. Shareholders will be provided with at
least 60 days’ prior written notice of any change to the Fund’s investment
objective.
The
Fund is an exchange-traded fund. In making investment decisions with respect to
securities purchased by the Fund, the Advisor relies on a fundamental analysis
of each company. Securities are evaluated for their potential to provide an
attractive level of distributions. Their potential for capital appreciation is
also evaluated. The Advisor seeks to identify Energy and Energy-Related
Companies that are leading, enabling, supplying, disrupting, or otherwise
benefiting from transitional or longer-term structural changes to the global
energy sector, such as changes resulting from shifting demand and supply of
traditional and alternative energy sources, increasing emphasis on storage,
resilience, and security of supply, and other developments in technologies,
regulations, and behaviors affecting the energy sector. The Advisor reviews each
company’s potential for success in light of general economic and industry
trends, as well as the company’s quality of management, financial condition,
business plan, industry and sector market position, distribution coverage ratio
and environmental, social and governance (“ESG”) factors. The Advisor utilizes a
value-oriented approach, and evaluates each company’s valuation on the basis of
relative price to distributable cash flow multiples, distributable cash flow
growth rate and distribution yield, among other metrics. The Fund will not seek
to achieve specific ESG outcomes through its portfolio of investments, nor will
it pursue an overall impact or sustainable investment strategy. However, the
Advisor may incorporate consideration of relevant ESG factors into its
investment decision-making.
The
following are the Fund’s principal investment strategies. A more detailed
description of the Fund’s investment policies and restrictions and more detailed
information about the Fund’s investments are contained in the Fund’s SAI.
Under
normal market conditions, the Fund invests at least 80% of its net assets in
equity securities of Energy and Energy-Related Companies.
The Fund may invest in
common and preferred stock, convertible securities, warrants and depositary
receipts of companies that are organized as corporations, limited liability
companies or limited partnerships, although,
in normal
market conditions, the Fund may invest no more than 20% of its net assets (plus
borrowings for investment purposes) in securities issued by issuers other than
Energy and Energy-Related Companies.
17
Certain
Investment Strategies:
●
Common
Stock. Common
stock generally represents an equity ownership interest in an issuer. Although
common stocks have historically generated higher average total returns than
fixed-income securities over the long term, common stocks also have experienced
significantly more volatility in those returns and may under-perform relative to
fixed-income securities during certain periods. An adverse event, such as an
unfavorable earnings report, may depress the value of a particular common stock
held by the Fund. Also, prices of common stocks are sensitive to general
movements in the stock market and a drop in the stock market may depress the
price of common stocks to which the Fund has exposure. Common stock prices
fluctuate for several reasons including changes in investors’ perceptions of the
financial condition of an issuer or the general condition of the relevant stock
market, or the occurrence of political or economic events which affect the
issuers. In addition, common stock prices may be particularly sensitive to
rising interest rates, which increases borrowing costs and the costs of capital.
●
Debt
Securities.
In normal market conditions, the Fund may invest no more than 20% of its net
assets (plus borrowings for investment purposes) in debt securities. The Fund
may invest in the debt securities, including preferred securities and other
fixed-income securities, including hybrid-preferred securities, corporate debt
obligations and debt securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Such debt securities may include those that,
at the time of investment, are rated below investment grade (below Baa3 or BBB-)
by Moody’s, S&P, Fitch or an equivalent rating by an NRSRO or that are
unrated but judged to be below investment grade by the Advisor at the time of
purchase. Such securities are commonly known as “high yield bonds” or “junk
bonds.” A security will be considered to be investment grade if it is rated as
such by one of Moody’s, S&P, Fitch or another NRSRO or, if unrated, are
judged to be investment grade by the Advisor at the time of purchase. The rate
of interest on a debt obligation may be fixed, floating or variable. The Fund
may invest in debt securities without regard to their maturity or credit rating.
●
Convertible
Securities. A
convertible security is a preferred stock, warrant or other security that may be
converted into or exchanged for a prescribed amount of common stock or other
security of the same or a different issuer or into cash within a particular
period of time at a specified price or formula. A convertible security generally
entitles the holder to receive the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both fixed income and equity securities. The value of convertible securities
tends to decline as interest rates rise and, because of the conversion feature,
tends to vary with fluctuations in the market value of the underlying
securities. Convertible securities ordinarily provide a stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities generally rank senior to common stock in a
corporation’s capital structure but are usually subordinated to comparable
non-convertible securities. Convertible securities generally do not participate
directly in any dividend increases or decreases of the underlying securities
although the market prices of convertible securities may be affected by any
dividend changes or other changes in the underlying securities.
●
Warrants
and Rights. The
Fund may invest in warrants or rights (including those acquired in units or
attached to other securities) that entitle the holder to buy equity securities
at a specific price for a specific period of time but will do so only if such
equity securities are deemed appropriate by the Advisor for inclusion in the
Fund’s portfolio.
18
●
Preferred
Stock.
Preferred stock has a preference over common stock in liquidation (and generally
as to dividends as well) but is subordinated to the liabilities of the issuer in
all respects. As a general rule, the market value of preferred stock with a
fixed dividend rate and no conversion element varies inversely with interest
rates and perceived credit risk, while the market price of convertible preferred
stock generally also reflects some element of conversion value. Because
preferred stock is junior to debt securities and other obligations of the
issuer, deterioration in the credit quality of the issuer will cause greater
changes in the value of a preferred stock than in a more senior debt security
with similarly stated yield characteristics. The market value of preferred stock
will also generally reflect whether (and if so when) the issuer may force
holders to sell their preferred shares back to the issuer and whether (and if so
when) the holders may force the issuer to buy back their preferred shares.
Generally, the right of the issuer to repurchase the preferred stock tends to
reduce any premium that the preferred stock might otherwise trade at due to
interest rate or credit factors, while the right of the holders to require the
issuer to repurchase the preferred stock tends to reduce any discount that the
preferred stock might otherwise trade at due to interest rate or credit factors.
In addition, some preferred stocks are non-cumulative, meaning that the
dividends do not accumulate and need not ever be paid. A portion of the Fund’s
portfolio may include investments in non-cumulative preferred securities,
whereby the issuer does not have an obligation to make up any arrearages to its
shareholders. There is no assurance that dividends or distributions on
non-cumulative preferred stocks in which the Fund invests will be declared or
otherwise paid. Preferred stock of certain companies offers the opportunity for
capital appreciation as well as periodic income. This may be particularly true
in the case of companies that have performed below expectations. If a company’s
performance has been poor enough, its preferred stock may trade more like common
stock than like other fixed income securities, which may result in above average
appreciation if the company’s performance improves.
●
Royalty
Trusts. A
royalty trust is a trust which controls an underlying company whose business is
the acquisition, exploitation, production and sale of oil and natural gas. These
trusts generally pay out to unitholders the majority of the cash flow that they
receive from the production and sale of underlying oil and natural gas reserves.
The amount of distributions paid on a royalty trust’s units will vary from time
to time based on production levels, commodity prices, royalty rates and certain
expenses, deductions and costs, as well as on the distribution payout ratio
policy adopted. As a result of distributing the bulk of their cash flow to
unitholders, the ability of a royalty trust to finance internal growth through
exploration is limited. Therefore, royalty trusts typically grow through
acquisition of additional oil and gas properties or producing companies with
proven reserves of oil and gas, funded through the issuance of additional equity
or, where the trust is able, additional debt.
Foreign
(Non-U.S.) Securities and Depositary Receipts
The
Fund may invest in securities of foreign issuers, or sponsored and unsponsored
depositary receipts for such securities. Depositary receipts may take the form
of American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”)
and European Depositary Receipts (“EDRs”). Generally, ADRs in registered
form are dollar-denominated securities designed for use in the U.S. securities
markets, which represent and may be converted into an underlying foreign
security. GDRs, in bearer form, are
19
designed
for use outside the United States. EDRs, in bearer form, are designed for use in
the European securities markets. The Fund may invest in foreign
issuers in both developed and emerging markets.
Derivatives
Transactions
The
Fund may, but is not required to, use, without limit (subject to applicable
law), various Derivatives Transactions described below to seek to generate
return, facilitate portfolio management and mitigate risks. Although the Advisor
may seek to use these kinds of transactions to further the Fund’s investment
objective, no assurance can be given that it will achieve this result. The Fund
may enter into (buy or sell) exchange-listed and OTC put and call options on
securities (including securities of investment companies and baskets of
securities), indices, and other financial instruments; purchase and sell
financial futures contracts and options thereon; enter into various interest
rate transactions, such as swaps, caps, floors or collars or credit
transactions; equity index, total return and credit default swaps; forward
contracts; and structured investments. In addition, the Fund may enter into
various currency transactions, such as forward currency contracts, currency
futures contracts, currency swaps or options on currency or currency futures.
The Fund also may purchase and sell derivative instruments that combine features
of these instruments. The Fund may invest in other types of derivatives,
structured and similar instruments which are not currently available but which
may be developed in the future. Collectively, all of the above are referred to
as “Derivatives Transactions.”
Options
The
Fund may write (or sell) put or call options on indexes or securities with the
intention of earning option premiums. In addition, the Fund may write call
options if it desires to exit a position when the price of the underlying
security rises to a particular level or it may write put options if it desires
to acquire an investment at a price below the market price. The Fund may also
engage in these transactions in an effort to profit from market movements. The
options that the Fund writes may be covered or uncovered. The extent to which
the Fund uses options, if at all, will be based on market conditions and will
vary from time to time. Under normal market conditions, the notional value of
the uncovered (i.e.,
naked) call options written by the Fund will not exceed 20% of the value of the
Fund’s net assets.
An
option on a security or index is a contract that gives the holder of the option,
in return for a premium, the right (but not the obligation) to buy from (in the
case of a call) or sell to (in the case of a put) the writer of the option the
security underlying the option (or the cash value of the index underlying the
option) at a specified price (the “exercise price”). Upon exercise, the writer
of an option on a security has the obligation to deliver the underlying security
upon payment of the exercise price or to pay the exercise price upon delivery of
the underlying security. Upon exercise, the writer of an option on an index is
required to pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the index option. When
the Fund writes (i.e.,
sells) a call option on a security held by the Fund (or a security that the Fund
has the right to acquire at the same or lesser price than the exercise price of
the written call), the written call option is called a “covered call.” If the
Fund does not own the security underlying the written call option, or a right to
acquire the security underlying the written call option at a price the same or
lesser than the exercise price of the written call option, the written call
option is known as a “naked call.” Similarly, when the Fund writes (i.e.,
sells) a put option, the position is considered covered if it owns a
corresponding short position in the reference security and naked if the Fund
does not own a corresponding short position in the reference security.
20
The
values of options are determined by trading activity in the broad options
markets and will be affected by, among other factors, changes in the value of
the underlying securities (including those comprising an index) in relation to
the exercise price, changes in dividend rates of underlying securities, changes
in interest or currency rates, changes in actual or perceived volatility of the
stock market and the time remaining until the expiration date.
Call
option writing will reduce the potential to benefit from any appreciation in the
portion of the Fund’s stock portfolio with respect to which call options are
written. In effect, the Fund forgoes, during the life of the option, the
opportunity to profit from increases in the market value of the underlying
security or securities held by the Fund with respect to which the option was
written above the sum of the premium and the exercise price. For index options,
this will depend, in part, on the extent of correlation of the performance of
the Fund’s portfolio securities with the performance of the relevant index. Put
option writing exposes the Fund to the risk that it may be required to purchase
the underlying security for an exercise price higher than its then-current
market price, resulting in a loss on exercise equal to the amount by which the
market price of the security is below the exercise price minus the premium
received.
When
the Fund writes a naked call option (i.e.,
without holding the underlying security or instrument), the amount of the Fund’s
potential loss would be theoretically unlimited. Put option writing exposes the
Fund to the risk that it may be required to purchase the underlying security for
an exercise price higher than its then-current market price, resulting in a loss
on exercise equal to the amount by which the market price of the security is
below the exercise price minus the premium received.
The
transaction costs of buying and selling options consist primarily of the bid-ask
spread and commissions (imposed in opening, closing, exercise and assignment
transactions). Transaction costs may be higher for transactions effected in
foreign markets than for transactions effected in U.S. markets. Transaction
costs will decrease the amount of any gain or increase the amount of any loss
the Fund realizes on an option. The Fund may seek to close out (terminate) an
option it has written by buying an offsetting option or, in the case of some OTC
options, agreeing with the option purchaser to terminate the transaction prior
to its expiration date. If the Fund terminates an option prior to its
expiration, the Fund will have to make a cash payment equal to the value of the
option and may incur additional transaction costs. There can be no assurance
that the Fund will be able to close out an option written by it at any
particular time or at a favorable price.
The
Fund generally writes options that are “at-the-money” (the exercise price of the
option is equal to the value of the underlying index or stock when the option is
written) or “close-to-the-money” (with an exercise price close to the current
cash value of the underlying index or the market value of the underlying
security when the option is written), but reserves the flexibility to write
options that are more substantially “out-of-the-money” (with an exercise price
above the current cash value of the underlying index or the market value of the
underlying security when the option is written) or are “in-the-money” (with an
exercise price below the current cash value of the underlying index or market
value of the underlying security when the option is written), based on market
conditions and other factors.
A
securities index assigns relative values to the securities included in the index
(which change periodically), and the index fluctuates with changes in the market
values of those securities. An index option typically relates to the securities
included in that index. The exercise of an index option requires
21
a cash
payment and does not involve the actual purchase or sale of securities. The Fund
may write options on “broad-based” market indexes, as well as on narrower
indexes, such as those in respect of select sectors. The Fund also may write
options on ETFs and other similar instruments designed to correlate with the
performance of an index or market segment. The Fund may write options on select
sectors and single stocks. The underlying instruments on which the Fund writes
options may be sponsored or issued by, or representative of, U.S. or foreign
(non-U.S.) indexes or entities.
The
Fund may write listed/exchange-traded options contracts, as well as unlisted OTC
options, particularly with respect to options on foreign securities or indexes.
Listed option contracts in the United States are originated and standardized by
the Options Clearing Corporation (the “OCC”). Listed call options are currently
traded on the NYSE, the Chicago Board Options Exchange and various other U.S.
exchanges, as well as on various foreign exchanges. OTC options are not
originated and standardized by the OCC or any other exchange or clearinghouse
and are not listed and traded on an options exchange, and therefore involve
increased liquidity, counterparty and other risks. See “Principal Risks—Options
Risk.”
Conventional
options have expiration dates that can generally be up to nine months from the
date the options are first listed for trading. Longer-term options can have
expiration dates up to three years from the date of listing. The options the
Fund intends to write may be either “European-style” options, which may be
exercised only during a specified period of time just prior to the expiration
date, or “American-style” options, which may be exercised at any time between
the date of purchase and the expiration date.
Natural
Resource Companies
In
selecting the Fund’s investments in natural resource companies, the Advisor
researches countries, industries, sectors and companies to identify potential
investment targets. The Advisor applies quantitative and qualitative analysis to
a universe of U.S. and non-U.S. natural resource companies of any market
capitalization, including those located in emerging market countries.
Proprietary screening tools are used to identify quantitative characteristics
such as return on capital, cash flows, balance sheet strength and ESG factors.
The Advisor conducts in depth bottom-up analysis on those companies which meet
the initial criteria. The Advisor analyzes financial statements, evaluates
management and corporate governance structures, and determines an outlook for a
particular company or industry.
Renewable
Companies
The
Fund may invest in common stocks and other equity securities, preferred
securities and income securities of U.S. and non-U.S. renewable companies.
Renewable companies are owners or operators of “clean” assets, as well as those
developing technologies, products, processes and services relating to more
efficient or cleaner, use, storage, delivery, management, conservation or
conversion of natural resources or products derived therefrom or the transition
to cleaner and more efficient use of natural resources or products derived
therefrom. This includes companies that generate significant exposure from any
of the following, among others: generation and supply of clean energy,
development and manufacturing of resource efficient materials, hardware and
equipment, sustainable production and distribution of food and water, and
protection of the environment. Specific types of renewable companies that the
Fund may invest in, include but are not limited to, owners and operators of
renewable energy production and storage facilities; electric grid operators;
smart meter manufacturers; renewable energy material suppliers; sustainable
transport manufacturers and developers; efficiency technology companies;
sustainable food and agricultural producers; water utilities; pollution control
companies; and recycling services.
22
The
Fund may invest in renewable companies of any market capitalization and in any
geographic region. The Fund may also invest in securities of renewable companies
in the form of ADRs, GDRs and EDRs. The Fund may participate in the IPO market
of securities issued by renewable companies.
Some
investments in renewable companies have similar underlying characteristics of
other asset classes, which may cause the Fund’s allocation range to such asset
class to be exceeded.
Infrastructure
Companies
The
Fund will invest in infrastructure companies primarily in developed countries,
but may invest in securities of infrastructure companies domiciled in emerging
market countries. These equity securities can consist of:
●
common
stocks;
●
rights
or warrants to purchase common stocks;
●
securities
convertible into common stocks where the conversion feature represents, in the
Advisor’s view, a significant element of the securities’ value;
●
preferred
stocks; and
●
equity
units.
Other
Investment Companies
The
Fund may invest in securities of closed-end funds, open-end funds, ETFs and
other investment companies, including funds that invest primarily in MLPs and
related companies, to the extent permitted under Section 12(d)(1) of the 1940
Act and the rules thereunder, or any exemption granted under the 1940 Act. An
investment in the shares of another fund is subject to the risks associated with
that fund’s portfolio securities. To the extent the Fund invests in shares of
another fund, Fund shareholders would indirectly pay a portion of that fund’s
expenses, including advisory fees, brokerage and other distribution expenses.
These fees and expenses are in addition to the direct expenses of the Fund’s own
operations. Shareholders would therefore be subject to duplicative expenses to
the extent the Fund invests in other investment companies. The securities of
other investment companies may also be leveraged. The NAV and market value of
leveraged shares will be more volatile and the yield to shareholders will tend
to fluctuate more than the yield generated by unleveraged shares. Investment
companies may have investment policies that differ from those of the Fund. In
addition, to the extent the Fund invests in other investment companies, the Fund
will be dependent upon the investment and research abilities of persons other
than the Advisor. The Fund’s investments in other investment companies may be
limited by tax considerations. Investments in investment companies that invest
primarily in MLPs will generally have different tax characteristics than equity
securities of MLPs.
Master
Limited Partnerships
The
Fund may invest in Energy and Energy-Related Companies organized as MLPs and
their affiliates. MLPs are generally publicly traded entities that are organized
under state law as limited partnerships or limited liability companies and
receive partnership or C corporation taxation treatment under the Code. MLPs may
derive income and gains from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas, oil,
or products thereof), or the marketing of any mineral or natural resources. MLPs
generally have two classes of owners, the
23
general
partner and limited partners. The general partner of an MLP is typically owned
by one or more of the following: a major energy company, an investment fund, or
the direct management of the MLP. The general partner may be structured as a
private or publicly traded corporation or other entity. The general partner
typically controls the operations and management of the MLP through and up to 2%
equity interest in the MLP plus, in many cases, ownership of common units and
subordinated units. Limited partners own the remainder of the partnership,
through ownership of common units, and have a limited role in the partnership’s
operations and management. The Fund may also participate in the IPO market of
MLPs and securities issued by midstream energy companies.
In
addition to the principal investment strategies described above, the Fund has
other investment practices that are described here and in the SAI. These
investment practices may subject the Fund to additional risks. Please review
this section and the SAI for more information about the additional investment
practices and their associated risks.
Illiquid
Securities
Illiquid
investments are generally investments that a Fund cannot reasonably expect to be
sold or disposed of in current market conditions in seven (7) calendar days or
less without the sale or disposition significantly changing the market value of
the instrument. The Fund will not invest more than 15% of its net assets in
illiquid securities. Restricted securities, which are securities that may not be
resold to the public without an effective registration statement under the
Securities Act, or, if they are unregistered, may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration, may be
illiquid. Such investments may include private investments in public equity and
private placements.
Defensive
Position
When
the Advisor or a Subadvisor believes that market or general economic conditions
justify a temporary defensive position, the Fund may deviate from its investment
objectives and invest all or any portion of its assets in short-term debt
instruments, government securities, cash or cash equivalents. When and to the
extent the Fund assumes a temporary defensive position, it may not pursue or
achieve its investment objectives. In addition, the Fund may be required to hold
more cash than anticipated to support its derivative positions, which could have
a negative impact on returns.
Investment
Restrictions
Except
as otherwise stated, all percentage restrictions referenced in this Prospectus
or the SAI are measured at the time of investment. If a percentage restriction
is adhered to at the time a transaction is effected, a later increase or
decrease in such percentage resulting from market movements will not be
considered a violation of the restriction.
Portfolio
Holdings
A
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio securities is available in the Fund’s SAI. The Fund
files its complete schedule of portfolio holdings with the SEC for the first and
third quarters of each fiscal year as an exhibit to its reports on Form N-PORT,
which is available to the public 60 days after the end of the quarter. The
Fund’s Form N-PORT is available (i) without charge, upon request, by calling
866-737-6370 or (ii) on the SEC’s
24
website
at www.sec.gov. The Fund’s full portfolio holdings are published semi-annually
in reports filed with the SEC on Form N-CSR and such reports are made available
at www.cohenandsteers.com in the “Funds” section under “Fund Literature,”
generally within 70 days after the end of each semi-annual period.
Each
business day, the Fund also posts on its website an uncertified list of
portfolio holdings as of the close of business on the prior business day. The
Fund’s website also contains information on the Fund’s NAV, market price,
premiums/discounts, and bid-ask spreads, among other information.
Please
see the section of this Prospectus entitled “Risks of Investing in the Funds”
for more information regarding the risks of investing in the
Fund.
This
section contains a discussion of the general risks of investing in the Fund. The
principal risks of the Fund are discussed in the relevant summary section of
this Prospectus. The following section provides additional information on the
risks that apply to the Fund, which may result in a loss of your investment. The
risks applicable to the Fund are presented below in alphabetical order, and not
in the order of importance or potential exposure. As with any fund, there can be
no guarantee that the Fund will meet its investment objective or that the Fund’s
performance will be positive for any period of time. An investment in the Fund
is not a deposit in any bank and is not insured or guaranteed by the FDIC or by
any bank or governmental agency.
Active
Management Risk
As an
actively managed portfolio, the value of the Fund’s investments could decline
because the financial condition of an issuer may change (due to such factors as
management performance, reduced demand or overall market changes), financial
markets may fluctuate or overall prices may decline, or the Advisor’s or, if
applicable, a Subadvisor’s, investment techniques could fail to achieve the
Fund’s investment objective or negatively affect the Fund’s investment
performance.
Authorized
Participant Concentration Risk
Only an
Authorized Participant may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number of institutions that may
act as Authorized Participants, none of which are or will be obligated to engage
in creation or redemption transactions. To the extent that these institutions
exit the business or are unable or unwilling to proceed with creation and/or
redemption orders with respect to the Fund and no other Authorized Participant
is able or willing to step forward to create or redeem Creation Units, Fund
shares may trade at a greater premium or discount between the market price and
the NAV of the Fund’s shares and/or wider bid/ask spreads than those experienced
by other ETFs. Additionally, the Fund could possibly face trading halts and/or
delisting from the Exchange. This risk is heightened in times of market stress,
including at both the Fund share level and at the Fund holdings
level.
Below
Investment Grade Securities Risk
Below
investment grade securities, or equivalent unrated securities, generally involve
greater volatility of price and risk of loss of income and principal, and may be
more susceptible to real or perceived adverse economic and competitive industry
conditions than higher grade securities. It is reasonable to expect that any
adverse economic condition could disrupt the market for below investment grade
securities, have an adverse impact on the value of those securities and
adversely affect the ability of the issuers of those securities to repay
principal and interest on those securities.
25
Clean
Energy Risk
Many
clean energy companies are involved in the development and commercialization of
new technologies, which may be subject to delays resulting from budget
constraints, technological difficulties, or public and regulatory opposition.
Clean energy companies may be highly dependent upon government subsidies,
contracts with government entities, and the successful development of new and
proprietary technologies. In addition, seasonal weather conditions, fluctuations
in the supply of and demand for clean energy products, changes in energy prices,
and international political events may cause fluctuations in the performance of
clean energy companies and the prices of their securities.
Common
Stock Risk
Common
stocks are subject to special risks. Although common stocks have historically
generated higher average returns than fixed-income securities over the
long-term, common stocks also have experienced significantly more volatility in
returns. Common stocks may be more susceptible to adverse changes in market
value due to issuer specific events or general movements in the equities
markets. A drop in the stock market may depress the price of common stocks held
by the Fund. Common stock prices fluctuate for many reasons, including changes
to investors’ perceptions of the financial condition of an issuer or the general
condition of the relevant stock market, or the occurrence of political or
economic events affecting issuers. For example, an adverse event, such as an
unfavorable earnings report, may depress the value of common stock in which the
Fund has invested; the price of common stock of an issuer may be particularly
sensitive to general movements in the stock market; or a drop in the stock
market may depress the price of most or all of the common stocks held by the
Fund. Also, common stock of an issuer in the Fund’s portfolio may decline in
price if the issuer fails to make anticipated dividend payments because, among
other reasons, the issuer of the security experiences a decline in its financial
condition. The common stocks in which the Fund will invest are typically
subordinated to preferred securities, bonds and other debt instruments in a
company’s capital structure in terms of priority to corporate income and assets,
and, therefore, will be subject to greater risk than the preferred securities or
debt instruments of such issuers. In addition, common stock prices may be
sensitive to rising interest rates as the costs of capital rise and borrowing
costs increase.
Convertible
Securities Risk
Although
to a lesser extent than with non-convertible fixed-income securities, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same
issuer.
Cyber
Security Risk
With
the increased use of technologies such as the Internet and AI Technologies, and
the dependence on computer systems to perform necessary business functions, the
Fund and its service providers (including the Advisor and Subadvisors (defined
below)), and their own service providers, may be
26
susceptible
to operational and information security risks resulting from cyber-attacks
and/or other technological malfunctions. In general, cyber-attacks are
deliberate, but unintentional events may have similar effects. Cyber-attacks
include, among others, stealing or corrupting data maintained online or
digitally, preventing legitimate users from accessing information or services on
a website or company system, misappropriating or releasing confidential
information without authorization (including personal data), gaining
unauthorized access to digital systems for purposes of misappropriating assets
and causing operational disruption. Cyber-attacks may also be carried out in a
manner that does not require gaining unauthorized access, such as causing
denial-of-service. New ways to carry out cyber-attacks continue to develop.
There may be an increased risk of cyber-attacks during periods of geopolitical
or military conflict, and geopolitical tensions may increase the scale and
sophistication of deliberate cyber security attacks, particularly those from
nation-states or from entities with nation-state backing. Successful
cyber-attacks against, or security breakdowns of, the Fund, the Advisor, a
Subadvisor, or a custodian, transfer agent, or other affiliated or third-party
service provider may adversely affect the Fund or its shareholders.
Each of
the Fund, the Advisor and the Subadvisors may have limited ability to detect,
prevent or mitigate cyber-attacks or security or technology breakdowns affecting
the Fund’s third-party service providers. While the Fund has established
business continuity plans and systems designed to detect, prevent or reduce the
impact of cyber-attacks, such plans and systems are subject to inherent
limitations.
Derivatives
and Hedging Transactions Risk
Many of
the risks applicable to trading the underlying asset are also applicable to
derivatives trading. However, there are a number of additional risks associated
with derivatives trading. Transactions in certain derivatives are subject to
clearance on a U.S. national exchange and to regulatory oversight, while other
derivatives are subject to risks of trading in the OTC markets or on non-U.S.
exchanges.
Additional
risks associated with derivatives trading include:
●
Counterparty
Risk.
Because derivative transactions in which the Fund may engage may involve
instruments that are not traded on an exchange but are instead traded between
counterparties based on contractual relationships, the Fund is subject to
enhanced risk that a counterparty will not perform its obligations under the
related contracts. Although the Fund intends to enter into transactions only
with counterparties which the Advisor and, if applicable, the Subadvisors,
believe to be creditworthy, there can be no assurance that a counterparty will
not default and that the Fund will not sustain a loss on a transaction as a
result. This risk will be heightened to the extent the Fund enters into
derivative transactions with a single counterparty (or affiliated counterparties
that are part of the same organization), causing the Fund to have significant
exposure to such counterparty.
Some
types of cleared derivatives are required to be (or are capable of being)
executed on an exchange or on a swap execution facility. A swap execution
facility is a trading platform where multiple market participants can execute
derivatives by accepting bids and offers made by multiple other participants in
the platform. While trading on a swap execution facility can increase
transparency and liquidity in the cleared derivatives market, trading on a swap
execution facility can create additional costs and risks for the
Fund.
For
centrally cleared derivatives, such as cleared swaps, futures and many options,
the primary credit/counterparty risk is the creditworthiness of the Fund’s
clearing broker and the central
27
clearing
house itself. In the event of the counterparty’s bankruptcy or insolvency, the
Fund’s collateral may be subject to the conflicting claims of the counterparty’s
creditors, and the Fund may be exposed to the risk of a court treating the Fund
as a general unsecured creditor of the counterparty, rather than as the owner of
the collateral.
The Fund is subject to
the risk that the counterparties to its derivative transactions and the issuers
of the instruments in which it invests and trades may default on their
obligations under those instruments, and that certain events may occur that have
an immediate and significant adverse effect on the value of those instruments.
There can be no assurance that a counterparty to the Fund’s derivative
transactions or an issuer of an instrument in which the Fund invests will not
default, or that an event that has an immediate and significant adverse effect
on the value of an instrument will not occur, and that the Fund will not sustain
a loss on a transaction as a result.
●
Liquidity
Risk.
Derivative instruments, especially when traded in large amounts, may not be
liquid in all circumstances, so that in volatile markets the Fund may not be
able to close out a position without incurring a loss. In addition, daily limits
on price fluctuations and speculative position limits on exchanges on which the
Fund may conduct its transactions in derivative instruments may prevent
profitable liquidation of positions, subjecting the Fund to the potential of
greater losses.
●
Financial
Leverage Risk. Trading
in derivative instruments can result in large amounts of financial leverage.
Thus, the leverage offered by trading in derivative instruments will magnify the
gains and losses experienced by the Fund and could cause the value of the Fund’s
net assets to be subject to wider fluctuations than would be the case if the
Fund did not use the leverage feature of derivative instruments.
●
Over-the-Counter
Trading Risk.
Derivative instruments, such as swap agreements, that may be entered into by the
Fund may include instruments not traded on an exchange. The risk of
nonperformance by the counterparty to an instrument may be greater than, and the
ease with which the Fund can dispose of or enter into closing transactions with
respect to an instrument may be less than, the risk associated with an exchange
traded instrument. In addition, significant disparities may exist between “bid”
and “ask” prices for derivative instruments that are not traded on an exchange.
Derivative instruments not traded on exchanges also are not subject to the same
type of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with the transactions.
●
Tracking
Risk. The
value of the derivatives that the Fund uses to gain exposure to an underlying
instrument, such as a commodity, may not correlate to the values of the
underlying instrument. When used for hedging purposes, an imperfect or variable
degree of correlation between price or rate movements of the derivative
instrument and the underlying investment sought to be hedged may prevent the
Fund from achieving the intended hedging effect or expose the Fund to risk of
loss.
Rule
18f-4 under the 1940 Act requires that, among other things, the Fund limit its
use of derivatives to maintain its status as a “limited derivatives user.” If
the Fund were not able to maintain such status, it would be required to apply a
value-at-risk based limit to its use of derivative instruments and financing
transactions, comply with other requirements, and adopt and implement a
derivatives risk management program. Rule 18f-4 may curtail the Fund’s ability
to use derivative instruments as part of the Fund’s investment
strategy.
28
Energy
Sector Risks
Because
the Fund will invest at least 80% of its net assets in Energy and Energy-Related
Companies, the Fund will be subject to more risks related to the energy sector
than if the Fund were more broadly diversified over numerous sectors of the
economy. A downturn in the energy sector of the economy could have a larger
impact on the Fund than on an investment company that does not concentrate in
the sector. At times, the performance of securities of companies in the sector
has lagged the performance of other sectors or the broader market as a whole.
Recent uncertainty in the energy markets has had an adverse effect on
energy-related securities, and it is unclear when these markets may stabilize.
In addition, there are several specific risks associated with investments in the
energy sector, including the following:
●
Risks
of Counterparty Financial Distress. Issues
in the energy sector may directly affect the Fund’s MLP investments. In
addition, the Fund’s MLP investments are themselves exposed to the fortunes of
the energy companies with which they do business. For example, energy companies
suffering financial distress may be able to abrogate contracts with MLPs,
decreasing or eliminating sources of revenue.
●
Commodity
Price Risk. Energy
and Energy-Related Companies operating in the energy sector may be affected by
fluctuations in the prices of energy commodities, including, for example,
natural gas, natural gas liquids, crude oil and coal, in the short- and
long-term. Fluctuations in energy commodity prices would impact directly
companies that own such energy commodities and could impact indirectly companies
that engage in transportation, storage, processing, distribution or marketing of
such energy commodities. Fluctuations in energy commodity prices can result from
changes in general economic conditions or political circumstances (especially of
key energy producing and consuming countries); market conditions; weather
patterns; domestic production levels; volume of imports; energy conservation;
domestic and foreign governmental regulation; any changes in policy caused by a
change in the U.S. presidential administration; international politics; policies
of the Organization of the Petroleum Exporting Countries (“OPEC”); taxation;
tariffs; and the availability and costs of local, intrastate and interstate
transportation methods. The energy sector as a whole may also be impacted by the
perception that the performance of energy sector companies is directly linked to
commodity prices. High commodity prices may drive further energy conservation
efforts, and a slowing economy may adversely impact energy consumption, which
may adversely affect the performance of MLPs and other companies operating in
the energy sector.
●
Depletion
Risk. Energy
and Energy-Related Companies engaged in the exploration, development, management
or production of energy commodities face the risk that commodity reserves are
depleted over time. Such companies seek to increase their reserves through
expansion of their current businesses, acquisitions, further development of
their existing sources of energy commodities, exploration of new sources of
energy commodities or by entering into long-term contracts for additional
reserves; however, there are risks associated with each of these potential
strategies. If such companies fail to acquire additional reserves in a
cost-effective manner and at a rate at least equal to the rate at which their
existing reserves decline, their financial performance may suffer. Additionally,
failure to replenish reserves could reduce the amount and affect the tax
characterization of the distributions paid by such companies.
29
●
Supply
and Demand Risk. Energy
and Energy-Related Companies operating in the energy sector could be adversely
affected by increases or decreases in the supply of or demand for energy
commodities. The volume of production of energy commodities and the volume of
energy commodities available for transportation, storage, processing or
distribution could be affected by a variety of factors, including depletion of
resources; depressed commodity prices; catastrophic events; labor relations;
increased environmental or other governmental regulation; equipment malfunctions
and maintenance difficulties; import volumes; international politics, policies
of OPEC; and increased competition from alternative energy sources.
Alternatively, an excess supply of energy commodities could depress energy
commodities’ prices and indirectly have an adverse effect on the Fund. In
addition, a decline in demand for energy commodities could negatively impact the
energy sector; shortages may occur as a result from factors such as adverse
economic conditions (especially in key energy-consuming countries); increased
taxation; increased environmental or other governmental regulation; increased
fuel economy; increased energy conservation or use of alternative energy
sources; legislation intended to promote the use of alternative energy sources;
or increased commodity prices.
●
Regulatory
Risk. The
energy sector is highly regulated. Energy and Energy-Related Companies operating
in the energy sector are subject to significant regulation of nearly every
aspect of their operations by federal, state and local governmental agencies.
Such regulation can change over time in both scope and intensity. For example, a
particular input or by-product may be declared hazardous by a regulatory agency
and unexpectedly increase production costs. Various governmental authorities
have the power to enforce compliance with these regulations and the permits
issued under them, and violators are subject to administrative, civil and
criminal penalties, including civil fines, injunctions or both. Stricter laws,
regulations or enforcement policies could be enacted in the future which would
likely increase compliance costs and may adversely affect the financial
performance of MLPs. Specifically, the operations of wells, gathering systems,
pipelines, refineries and other facilities are subject to stringent and complex
federal, state and local environmental laws and regulations. These include, for
example:
●
the
federal Clean Air Act and comparable state laws and regulations that impose
obligations related to air emissions;
●
the
federal Clean Water Act and comparable state laws and regulations that impose
obligations related to discharges of pollutants into regulated bodies of
water;
●
the
federal Resource Conservation and Recovery Act (“RCRA”) and comparable state
laws and regulations that impose requirements for the handling and disposal of
waste from facilities; and
●
the
federal Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (“CERCLA”), also known as “Superfund,” and comparable state laws and
regulations that regulate the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated by MLPs or at
locations to which they have sent waste for disposal.
Failure
to comply with these laws and regulations may trigger a variety of
administrative, civil and criminal enforcement measures, including the
assessment of monetary penalties, the imposition of
30
remedial
requirements, and the issuance of orders enjoining future operations. Certain
environmental statutes, including RCRA, CERCLA, the federal Oil Pollution Act
and analogous state laws and regulations, impose strict, joint and several
liability for costs required to clean up and restore sites where hazardous
substances have been disposed of or otherwise released. Moreover, it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the release of hazardous
substances or other waste products into the environment.
There
is an inherent risk that Energy and Energy-Related Companies operating in the
energy sector may incur environmental costs and liabilities due to the nature of
their businesses and the substances they handle. For example, an accidental
release from wells or gathering pipelines could subject them to substantial
liabilities for environmental cleanup and restoration costs, claims made by
neighboring landowners and other third parties for personal injury and property
damage, and fines or penalties for related violations of environmental laws or
regulations. Moreover, the possibility exists that stricter laws, regulations or
enforcement policies could significantly increase the compliance costs of Energy
and Energy-Related Companies operating in the energy sector, and the cost of any
remediation that may become necessary. Energy and Energy-Related Companies
operating in the energy sector may not be able to recover these costs from
insurance.
Voluntary
initiatives and mandatory controls have been adopted or are being discussed both
in the United States and worldwide to reduce emissions of “greenhouse gases”
such as carbon dioxide, a by-product of burning fossil fuels, and methane, the
major constituent of natural gas, which many scientists and policymakers believe
contribute to global climate change. These measures and future measures could
result in increased costs to certain companies in which the Fund may invest to
operate and maintain facilities and administer and manage a greenhouse gas
emissions program and may reduce demand for fuels that generate greenhouse gases
and that are managed or produced by companies in which the Fund may
invest.
In the
wake of a Supreme Court decision holding that the EPA has some legal authority
to deal with climate change under the Clean Air Act, the EPA and the Department
of Transportation jointly wrote regulations to cut gasoline use and control
greenhouse gas emissions from cars and trucks. These measures, and other
programs addressing greenhouse gas emissions, could reduce demand for energy or
raise prices, which may adversely affect the total return of certain of the
Fund’s investments.
●
Acquisition
Risk. MLPs
may depend on their ability to make acquisitions that increase adjusted
operating surplus per unit in order to increase distributions to unit holders.
The ability of MLPs to make future acquisitions is dependent on their ability to
identify suitable targets, negotiate favorable purchase contracts, obtain
acceptable financing and outbid competing potential acquirers. To the extent
that MLPs are unable to make future acquisitions, or such future acquisitions
fail to increase the adjusted operating surplus per unit, their growth and
ability to make distributions to investors will be limited. There are risks
inherent in any acquisition, including erroneous assumptions regarding revenues,
acquisition expenses, operating expenses, cost savings and synergies; assumption
of liabilities; indemnification; customer losses; key employee defections;
distraction from other business operations; and unanticipated difficulties in
operating or integrating new product areas and geographic regions. Other
companies operating in the energy sector may be subject to similar
risks.
31
●
Weather
Risks.
Weather plays a role in the seasonality of some MLPs’ cash flows. MLPs in the
propane industry, for example, rely on the winter season to generate almost all
of their earnings. In an unusually warm winter season, propane MLPs experience
decreased demand for their product. Although most MLPs can reasonably predict
seasonal weather demand based on normal weather patterns, extreme weather
conditions, such as the hurricanes that severely damaged cities along the U.S.
Gulf Coast in recent years, demonstrate that no amount of preparation can
protect an MLP from the unpredictability of the weather or possible climate
change. The damage done by extreme weather also may serve to increase many MLPs’
insurance premiums and could adversely affect such companies’ financial
condition and ability to pay distributions to shareholders. Other companies
operating in the energy sector may be subject to similar risks.
●
Catastrophic
Event Risk. Energy
and Energy-Related Companies operating in the energy sector are subject to many
dangers inherent in the production, exploration, management, transportation,
processing and distribution of natural gas, natural gas liquids, crude oil,
refined petroleum and petroleum products and other hydrocarbons. These dangers
include leaks, fires, explosions, damage to facilities and equipment resulting
from natural disasters, inadvertent damage to facilities and equipment and
terrorist acts. Since the September 11th terrorist attacks, the U.S. government
has issued warnings that energy assets, specifically U.S. pipeline
infrastructure, may be targeted in future terrorist attacks. These dangers give
rise to risks of substantial losses as a result of loss or destruction of
commodity reserves; damage to or destruction of property, facilities and
equipment; pollution and environmental damage; and personal injury or loss of
life. Any occurrence of such catastrophic events could bring about a limitation,
suspension or discontinuation of the operations of Energy and Energy-Related
Companies operating in the energy sector. Energy and Energy-Related Companies
operating in the energy sector may not be fully insured against all risks
inherent in their business operations and therefore accidents and catastrophic
events could adversely affect such companies’ financial condition and ability to
pay distributions to shareholders.
Exchange-Traded
Notes (ETNs) Risk
The
value of an ETN may be influenced by, among other things, time to maturity,
level of supply and demand for the ETN, volatility and lack of liquidity in
underlying markets, changes in the applicable interest rates, the performance of
the reference instrument, changes in the issuer’s credit rating and economic,
legal, political or geographic events that affect the reference instrument. An
ETN that is tied to a reference instrument may not replicate the performance of
the reference instrument. ETNs also incur certain expenses not incurred by their
applicable reference instrument. Some ETNs can, at times, be relatively illiquid
and, thus, they may be difficult to purchase or sell at a fair price. Levered
ETNs are subject to the same risk as other instruments that use leverage in any
form. While leverage allows for greater potential return, the potential for loss
is also greater (including the likelihood of greater volatility of the Fund’s
NAV).
Because
the return on the ETN is dependent on the issuer’s ability or willingness to
meet its obligations, the value of the ETN may change due to factors impacting
the issuer (such as changes in the issuer’s credit rating) even if there are no
changes in the underlying reference instrument. The market value of ETN shares
may differ from the value of the reference instrument. This difference in
32
price
may be due to the fact that the supply and demand in the market for ETN shares
at any point in time is not always identical to the supply and demand in the
market for the assets underlying the reference instrument that the ETN seeks to
track.
There
may be restrictions on the Fund’s right to redeem its investment in an ETN,
which are generally meant to be held until maturity. The Fund’s decision to sell
its ETN holdings may be limited by the availability of a secondary market. An
investor in an ETN could lose some or all of the amount
invested.
Foreign
(Non-U.S.) Securities and Emerging Markets Risk
Investing in foreign
securities involves certain risks not involved in domestic investments,
including, but not limited to:
●
foreign economic,
financial, political and social developments, such as, international wars or
conflicts, instability in regions such as Asia, Eastern Europe and the Middle
East, terrorism, natural disasters and public health emergencies (including
epidemics and pandemics);
●
different
legal systems;
●
the
possible imposition of exchange controls or other foreign governmental laws or
restrictions;
●
less
governmental supervision;
●
regulation
changes;
●
less
publicly available information about foreign companies due to less rigorous
disclosure and accounting standards or regulatory practices;
●
high and
volatile rates of inflation;
●
foreign
currency devaluation;
●
fluctuating
interest rates; and
●
different
accounting, auditing and financial record-keeping standards and
requirements.
Investments
in foreign securities, especially in emerging market countries, will expose the
Fund to the direct or indirect consequences of political, social or economic
changes in the countries that issue the securities or in which the issuers are
located. Political developments in foreign countries or the United States may at
times subject such countries to sanctions from the U.S. government, foreign
governments and/or international institutions that could negatively affect the
Fund’s investments in issuers located in, doing business in or with assets in
such countries. Certain countries in which the Fund may invest, especially
emerging market countries, have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Many of these countries are
also characterized by political uncertainty and instability. The cost of
servicing external debt will generally be adversely affected by rising
international interest rates because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates. In
addition, with respect to certain foreign countries, there is a risk
of:
●
the
possibility of expropriation of assets;
33
●
confiscatory
taxation;
●
difficulty
in obtaining or enforcing a court judgment;
●
economic,
political or social instability; and
●
diplomatic
developments that could affect investments in those countries.
In
addition, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as:
●
growth
of gross domestic product;
●
rates of
inflation;
●
capital
reinvestment;
●
resources;
●
self-sufficiency;
and
●
balance
of payments position.
To the
extent the Fund’s investments are focused in a geographic region or country, the
Fund will be subject, to a greater extent than if the Fund’s assets were less
geographically focused, to the risks of adverse changes in that region or
country. In addition, certain investments in foreign securities also may be
subject to foreign withholding or other taxes, which would reduce the Fund’s
return on those securities.
Securities
of companies in emerging markets may be more volatile than those of companies in
more developed markets. Emerging market countries generally have less developed
markets and economies and, in some countries, less mature governments and
governmental institutions. Investing in securities of companies in emerging
markets may entail special risks relating to potential economic, political or
social instability and the risks of expropriation, nationalization,
confiscation, trade sanctions or embargoes or the imposition of restrictions on
foreign investment, the lack of hedging instruments, and repatriation of capital
invested. The securities and real estate markets of some emerging market
countries have in the past sometimes experienced substantial market disruptions
and, accordingly, may do so in the future. The Public Company Accounting
Oversight Board, which regulates auditors of U.S. public companies, is unable to
inspect audit work papers in certain foreign countries. Investors in foreign
countries often have limited rights and few practical remedies to pursue
shareholder claims, including class actions or fraud claims, and the ability of
the SEC, the U.S. Department of Justice and other authorities to bring and
enforce actions against foreign issuers or foreign persons is limited. The
economies of many emerging market countries may be heavily dependent on
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, foreign exchange controls and other
protectionist measures imposed or negotiated by the countries with which they
wish to trade. These economies also have been and may continue to be adversely
affected by economic conditions of their international trading partners
(including the United States). The reduction of foreign investment in the local
economies or general declines in the international securities markets could have
a significant adverse effect upon the securities markets of certain emerging
market
34
countries.
In addition, the relatively high level of indebtedness of many emerging market
countries and dependence on foreign borrowing also adds to the level of
macroeconomic risk.
Certain
non-U.S. companies in which the Fund invests may constitute “passive foreign
investment companies.” See “Additional Information—Tax Considerations” in this
Prospectus and “Taxation” in the SAI. This may subject the Fund to U.S. federal
tax and interest charges, or may cause the Fund to recognize taxable income
without a corresponding receipt of cash. The Fund may be required to liquidate
other investments (including when it is not advantageous to do so) to meet its
distribution requirements for qualification as a RIC.
The
Fund may hold foreign securities of developed market issuers and emerging market
issuers. Investing in securities of companies in emerging markets may entail
special risks relating to potential political and economic instability and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment, the lack of hedging instruments, and on
repatriation of capital invested. Emerging securities markets are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets. The limited size of emerging securities markets and limited trading
value compared to the volume of trading in U.S. securities could cause prices to
be erratic for reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors’ perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities, especially in these
markets. Many emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates and corresponding currency devaluations
have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries.
As a
result of these potential risks, the Advisor or a Subadvisor may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including the Advisor or a
Subadvisor, have had no or limited prior experience.
Fund
Shares Liquidity Risk
Although
the Fund’s shares are listed on the Exchange, there can be no assurance that an
active, liquid or otherwise orderly trading market for shares will be
established or maintained by market makers or Authorized Participants,
particularly in times of stressed market conditions. There is no guarantee that
the Fund will be able to attract market makers and Authorized Participants.
There is no obligation for market makers to make a market in the Fund’s shares
or for Authorized Participants to submit purchase or redemption orders for
creation units. Accordingly, if such parties determine not to perform their
respective functions, this could, such as during times of market stress, in
turn, lead to variances between the market price of the Fund’s shares and the
underlying value of those shares and bid/ask spreads could widen. Trading in
Fund shares on the Exchange also may be disrupted or even halted due to market
conditions or for reasons that, in the view of the Exchange, make trading in
Fund shares inadvisable. In addition, trading in Fund shares on the Exchange may
be subject to trading halts caused by extraordinary market volatility pursuant
to the Exchange “circuit breaker” rules. There also can be no assurance that the
requirements of the Exchange necessary to maintain the listing of the Fund’s
shares will continue to be met or will remain unchanged.
35
Interest
Rate Risk to Energy and Energy-Related Companies Risk
Rising
interest rates could increase the costs of capital thereby increasing operating
costs and reducing the ability of Energy and Energy-Related Companies to carry
out acquisitions or expansions in a cost-effective manner. As a result, rising
interest rates could negatively affect the financial performance of Energy and
Energy-Related Companies. Rising interest rates may also impact the price of the
securities of Energy and Energy-Related Companies as the yields on alternative
investments increase.
Investment
Risk
An
investment in the Fund is subject to investment risk, including the possible
loss of the entire principal amount that you invest.
Large
Shareholder Risk
Certain
shareholders, including other funds advised by the Advisor or, if applicable, a
Subadvisor, may from time to time own a large amount of the Fund’s shares. In
addition, a third-party investor, the Advisor, a Subadvisor or an affiliate of
the Advisor or Subadvisor, an authorized participant, a lead market maker, seed
investor or another entity may invest in the Fund and hold its investment solely
to facilitate commencement of the Fund or to facilitate the Fund’s achieving a
specified size or scale. Any such investment may be held for a limited length of
time. There can be no assurance that any large shareholder would not redeem its
investment, that the size of the Fund would be maintained at such levels or that
the Fund would continue to meet applicable listing requirements. Redemptions by
large shareholders could have a significant negative impact on the Fund,
including on the Fund’s liquidity. In addition, transactions by large
shareholders may account for a significant percentage of the trading volume on
the Exchange and may, therefore, have a material upward or downward effect on
the market price of the Fund’s shares. The effects of taxable income and/or
gains resulting from large shareholder transactions would particularly impact
non-redeeming shareholders who do not hold their Fund shares in an IRA, 401(k)
plan or other tax-advantaged plan. To the extent that such transactions result
in short-term capital gains, such gains will generally be taxed at the ordinary
income tax rate for shareholders who hold Fund shares in a taxable
account.
Liquidity
Risk
Liquidity
risk is the risk that particular investments of the Fund may become difficult to
sell or purchase. Although the equity securities, including those of the MLPs,
in which the Fund invests generally trade on major stock exchanges, certain
securities may trade less frequently, particularly those of MLPs and other
issuers with smaller capitalizations. Securities with limited trading volumes
may display volatile or erratic price movements. The market for certain
investments may become less liquid or illiquid due to adverse changes in the
conditions of a particular issuer or due to adverse market or economic
conditions. Also, the Fund may be one of the largest investors in certain
sub-sectors of the energy or natural resource sectors. Thus, it may be more
difficult for the Fund to buy and sell significant amounts of such securities
without an unfavorable impact on prevailing market prices. Larger purchases or
sales of these securities by the Fund in a short period of time may cause
abnormal movements in the market price of these securities. As a result, these
securities may be difficult to dispose of at a fair price at the times when the
Advisor believes it is desirable to do so.
Market
Disruption and Geopolitical Risk
Geopolitical events,
such as war (including ongoing conflicts in Ukraine and the Middle East,
including the Iranian conflict that began in February 2026, and recent political
and military developments in Venezuela), terrorist attacks, natural or
environmental disasters (including
36
hurricanes,
wildfires and flooding), country instability, public health emergencies
(including epidemics and pandemics), market instability, debt crises and
downgrades, embargoes, tariffs, sanctions and other trade barriers and other
governmental trade or market control programs, the potential exit of a country
from its respective union and related geopolitical events, have led and may in
the future lead to market volatility and may have long-lasting impacts on U.S.
and global economies and financial markets. Supply chain disruptions or
significant changes in the supply or prices of commodities or other economic
inputs may have material and unexpected effects on both global securities
markets and individual countries, regions, sectors, companies or industries.
Events occurring in one region of the world may negatively impact industries and
regions that are not otherwise directly impacted by the events. Additionally,
those events, as well as other changes in foreign and domestic political and
economic conditions, could adversely affect individual issuers or related groups
of issuers, securities markets, interest rates, secondary trading, credit
ratings, inflation, investor sentiment and other factors affecting the value of
the Fund’s investments.
Russia’s
military invasion of Ukraine significantly amplified already existing
geopolitical tensions. The United States and many other countries have
instituted various economic sanctions against Russia, Russian individuals and
entities and Belarus. The extent and duration of the military action, sanctions
imposed and other punitive actions taken (including any Russian retaliatory
responses to such sanctions and actions), and resulting disruptions in Europe
and globally cannot be predicted, but could be significant and have a severe
adverse effect on the global economy, securities markets and commodities markets
globally, including through global supply chain disruptions, increased
inflationary pressures and reduced economic activity.
Ongoing
conflicts in the Middle East could have similar negative impacts. The
possibility of a prolonged conflict and the potential expansion of the conflict
in the surrounding areas and the involvement of other nations in such conflict
could further destabilize the Middle East region and introduce new uncertainties
in global markets, including the oil and natural gas markets.
Systemic
risk events in the financial sectors and/or resulting government actions can
negatively impact investments held by the Fund. For example, issues with certain
regional U.S. banks and other financial institutions in March 2023 raised
economic concerns over disruption in the U.S. banking system. These risks also
may adversely affect financial intermediaries, such as clearing agencies,
clearing houses, banks, securities firms, and exchanges, with which the Fund
interacts. There can be no certainty that any actions taken by the U.S.
government to strengthen public confidence in the U.S. banking system or
financial markets will be effective in mitigating the effects of financial
institution failures on the economy and restoring or maintaining public
confidence. In addition, raising the U.S. Government debt ceiling has become
increasingly politicized. Any failure to increase the total amount that the U.S.
Government is authorized to borrow could lead to a default on U.S. Government
obligations. A default or a threat of default by the U.S. Government would be
highly disruptive to the U.S. and global securities markets and could
significantly reduce the value of the Fund’s investments.
The
strengthening or weakening of the U.S. dollar relative to other currencies may,
among other things, adversely affect the Fund’s investments denominated in
non-U.S. dollar currencies. It is difficult to predict when similar events
affecting the U.S. or global financial markets may occur, the effects that such
events may have, and the duration of those effects.
The
rapid development and increasingly widespread use and regulation of AI
Technologies may pose risks to the Fund. For instance, the rapid advanced
development of AI Technologies and efforts to regulate or control its use and
advancement may have significant positive or negative impacts on a
37
wide
range of different industries and the global economy. It is not possible to
predict which companies, sectors, or economies may benefit or be disadvantaged
by such developments, or is it possible to determine the full extent of current
or future risks related thereto.
Some
political leaders around the world (including in the U.S. and certain European
nations) have been and may be elected on protectionist platforms, raising
questions about the future of global free trade. Global trade disruption,
significant introductions of trade barriers and bilateral trade frictions,
together with any future downturns in the global economy resulting therefrom,
could adversely affect the financial performance of the Fund and its
investments.
Market
Price Relative to NAV Risk
Shares
of the Fund may trade at prices that vary from Fund NAV. Shares of the Fund are
listed for trading on the Exchange and are bought and sold in the secondary
market at market prices that may differ, in some cases significantly, from their
NAV. The NAV of the Fund will generally fluctuate with changes in the market
value of the Fund’s holdings. The market prices of shares, however, will
generally fluctuate in response to changes in NAV, as well as the relative
supply of, and demand for, Fund shares on the Exchange. Fund shares may trade at
a greater premium or discount between the market price and the NAV of the Fund’s
shares and/or wider bid/ask spreads than those experienced by other ETFs. The
Advisor cannot predict whether Fund shares will trade below, at or above their
NAV. Price differences may result because of, among other factors, supply and
demand forces in the secondary trading market for Fund shares. It is expected
that these forces generally will be closely related to, but not identical to,
the same forces influencing the prices of the Fund’s holdings. In this regard,
if a shareholder purchases Fund shares at a time when the market price is at a
premium to the NAV or sells shares at a time when the market price is at a
discount to the NAV, the shareholder may sustain losses. Different investment
strategies or techniques, including those intended to be defensive in nature,
including, for example, stop loss orders to sell an ETF’s shares in the
secondary market during negative market events or conditions, such as a “flash
crash” or other market disruptions, may not work as intended and may produce
significant losses to investors. Investors should consult their financial
intermediary prior to using any such investment strategies or techniques, or
before investing in the Fund.
Market
Risk
Your
investment in Fund shares represents an indirect investment in the securities
owned by the Fund. The value of these securities, like other investments, may
move up or down, sometimes rapidly and unpredictably. Your Fund shares at any
point in time may be worth less than what you invested, even after taking into
account any reinvestment of Fund dividends and distributions.
Market
Volatility Risk
The
Fund’s strategy of focusing its investments in Energy and Energy-Related
Companies means that the performance of the Fund will be closely tied to the
performance of the energy infrastructure industry. Recent market volatility in
the energy markets has significantly affected the performance of the energy
infrastructure industry, as well as the performance of the Energy and
Energy-Related companies in which the Fund invests. In addition, volatility in
the energy markets may affect the ability of Energy and Energy-Related Companies
to finance capital expenditures and new acquisitions and to maintain or increase
distributions to investors due to a lack of access to
capital.
Master
Limited Partnership Risk
An
investment in MLP units involves some risks that differ from an investment in
the common stock of a corporation. Holders of MLP units have limited control on
matters affecting the partnership.
38
Investing
in MLPs involves certain risks related to investing in the underlying assets of
the MLPs and risks associated with pooled investment vehicles. MLPs holding
credit-related investments are subject to interest rate risk and the risk of
default on payment obligations by debt issuers. MLPs that concentrate in a
particular industry or industry sector (for example, the energy sector) or a
particular geographic region are subject to risks associated with such industry,
sector or region. The benefit derived from the Fund’s investment in MLPs is
largely dependent on the MLPs being treated as partnerships for federal income
tax purposes.
Natural
Resources Risk
The
Fund’s investments in securities of natural resource companies involve risks.
The market value of securities of natural resource companies may be affected by
numerous factors, including events occurring in nature, inflationary pressures
and international politics. Because the Fund invests significantly in natural
resource companies, there is the risk that the Fund will perform poorly during a
downturn in the natural resource sector. For example, events occurring in nature
(such as earthquakes or fires in prime natural resource areas) and political
events (such as coups, military confrontations or acts of terrorism or
sanctions) can affect the overall supply of a natural resource and the value of
companies involved in such natural resource. Political risks and the other risks
to which foreign securities are subject may also affect domestic natural
resource companies if they have significant operations or investments in foreign
countries. In particular Russia’s military invasion of Ukraine has increased the
volatility of many natural resources investments. Rising interest rates and
general economic conditions may also affect the demand for natural
resources.
New
Fund Risk
The
Fund is a newly formed ETF. Accordingly, investors in the Fund bear the risk
that the Fund may not be successful, which could result in the Fund being
liquidated at any time without shareholder approval and/or at a time that may
not be favorable to shareholders. Such liquidation could have negative tax
consequences for shareholders.
Non-Diversification
Risk
As a
“non-diversified” investment company, the Fund can invest in fewer individual
companies than a diversified investment company. As a result, the Fund is more
susceptible to any single political, regulatory or economic occurrence and to
the financial condition of individual issuers in which it invests. The Fund’s
relative lack of diversity may subject investors to greater risk of loss than a
fund that has a diversified portfolio.
Options
Risk
There
are various risks associated with the Fund’s use of options. When the Fund
writes a covered call option, the Fund forgoes, during the life of the option,
the opportunity to profit from increases in the market value of the underlying
security or securities held by the Fund with respect to which the option was
written above the sum of the premium and the exercise price. For index options,
this will depend, in part, on the extent of correlation of the performance of
the Fund’s portfolio securities with the performance of the relevant index.
Writing covered call options will generally limit the Fund’s ability to benefit
from the full appreciation potential of its stock investments underlying the
options, and the Fund retains the risk of loss (less premiums received) if the
value of the underlying stock investment declines. This combination of
potentially limited appreciation and full depreciation over time may lead to
erosion in the value of the Fund’s portfolio, and the Fund’s performance may be
lower than it otherwise would have been if it did not write covered call
options.
39
Writing
naked calls is riskier than writing covered calls because there is no underlying
security held by the Fund that can act as either a full or a partial hedge.
Naked calls have speculative characteristics and the potential for loss is
unlimited. When a naked call is exercised, the Fund must purchase the underlying
security to meet its call obligation. There is also a risk, especially with less
liquid preferred and debt securities, that the securities may not be available
for purchase. If the purchase price exceeds the exercise price of an exercised
naked call, the Fund will lose the difference minus any premium received (for
writing the call option).
Put
option writing exposes the Fund to the risk that it may be required to purchase
the underlying security for an exercise price higher than its then-current
market price, resulting in a loss on exercise equal to the amount by which the
market price of the security is below the exercise price minus the premium
received.
The
Fund’s ability to use options as part of its investment program depends on the
liquidity of the markets in those instruments. In addition, there can be no
assurance that a liquid market will exist when the Fund seeks to close out an
option position. If the Fund were unable to close out an option that it had
purchased on a security, it would have to exercise the option in order to
realize any profit or the option may expire worthless.
There
are significant differences between the securities and options markets that
could result in an imperfect correlation between these markets. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. In the case of index
options, the Advisor will attempt to maintain for the Fund written call option
positions on equity indexes whose price movements, taken in the aggregate, are
closely correlated with the price movements of securities held in the Fund’s
stock portfolio. However, this strategy involves significant risk that the
changes in value of the indexes underlying the Fund’s written call option
positions will not correlate closely with changes in the market value of the
corresponding securities held by the Fund. To the extent that there is a lack of
correlation, movements in the indexes underlying the options positions may
result in net losses to the Fund (including at times when the market values of
securities held by the Fund are declining) that exceed option premiums received
and any increase in value of the Fund’s corresponding portfolio
securities.
When
the Fund writes listed or exchange-traded options, a liquid secondary market may
not exist on an exchange when the Fund seeks to close out an option position.
The value of options written by the Fund may be adversely affected if the market
for the option is reduced or becomes illiquid. If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist.
The
Fund may write unlisted OTC options, particularly with respect to foreign
securities and indexes. OTC options differ from listed or exchange-traded
options in that they are two-party contracts, with price and other terms
negotiated between buyer and seller, and generally do not have as much market
liquidity as exchange-traded options. In addition, the Fund’s ability to
terminate OTC options may be more limited than with exchange-traded options. In
the event of default or insolvency of the counterparty, the Fund may be unable
to liquidate an OTC option position.
Other
Investment Companies Risk
To the
extent the Fund invests a portion of its assets in investment companies,
including open-end funds, closed-end funds, ETFs and other types of pooled
investment funds, those assets will be subject
40
to the
risks of the purchased investment funds’ portfolio securities, and a shareholder
in the Fund will bear not only his or her proportionate share of the Fund’s
expenses, but also indirectly the expenses of the purchased investment funds.
Shareholders would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment funds. Risks associated with investments in
closed-end funds also generally include market risk, leverage risk, risk of
market price discount from NAV, risk of anti-takeover provisions, risk of a
premature liquidity event initiated by activist shareholders and
non-diversification risk. In addition, restrictions under the 1940 Act may limit
the Fund’s ability to invest in other investment companies to the extent
desired. The Fund may invest in exchange-traded derivative products that are not
registered under the 1940 Act.
Rule
12d1-4 under the 1940 Act and other applicable rules under Section 12(d)(1)
permit an investment company to invest in other investment companies beyond the
statutory limits, subject to certain conditions. Reliance on these conditions
could affect the Fund’s ability to redeem its investments in other investment
companies, make such investments less attractive, cause the Fund to incur
losses, realize taxable gains distributable to shareholders, incur greater or
unexpected expenses or experience other adverse consequences.
In
addition, investments in other investment companies may be subject to the
following risks:
●
Manager
Risk. The
Fund’s investments in other funds are subject to the ability of the managers of
those funds to achieve the funds’ investment objectives.
●
ETF
Risk. An ETF
that is based on a specific index, whether securities, commodities or a
combination of the two, may not be able to replicate and maintain exactly the
composition and relative weighting of securities in the index. An ETF also
incurs certain expenses not incurred by its applicable index. The market value
of an ETF share may differ from its NAV; the share may trade at a premium or
discount to its NAV, which may be due to, among other things, differences in the
supply and demand in the market for the share and the supply and demand in the
market for the underlying assets of the ETF. In addition, certain securities
that are part of the index tracked by an ETF may, at times, be unavailable,
which may impede the ETF’s ability to track its index. An ETF that utilizes
leverage can, at times, be relatively illiquid, which can affect whether its
share price approximates NAV. As a result of using leverage, an ETF is subject
to the risk of failure in the futures and options markets it uses to obtain
leverage and the risk that a counterparty will default on its obligations, which
can result in a loss to the Fund.
Preferred
Securities Risk
There
are various risks associated with investing in preferred securities. These risks
include deferral and omission of distributions; credit risk; subordination to
bonds and other debt securities in a company’s capital structure; interest rate
risk; prepayment and extension risk; call, reinvestment and income risk;
liquidity risk; limited voting rights; special redemption rights and regulatory
risk.
●
Deferral
and Omission Risk.
Preferred securities may include provisions that permit the issuer, at its
discretion, to defer or omit distributions for a stated period without any
adverse consequences to the issuer. In certain cases, deferring or omitting
distributions may be mandatory. If the Fund owns a preferred security that is
deferring its distributions, the Fund may be required to report income for tax
purposes although it has not yet received such income. In addition, recent
changes in bank regulations may increase the likelihood for issuers to defer or
omit distributions.
41
●
Credit
and Subordination Risk. Credit
risk is the risk that a preferred security in the Fund’s portfolio will decline
in price or the issuer of the security will fail to make dividend, interest or
principal payments when due because the issuer experiences a decline in its
financial status. Preferred securities are generally subordinated to bonds and
other debt instruments in a company’s capital structure in terms of having
priority to corporate income, claims to corporate assets and liquidation
payments, and therefore will be subject to greater credit risk than more senior
debt instruments.
●
Interest
Rate Risk.
Interest rate risk is the risk that preferred securities will decline in value
because of changes in market interest rates. When market interest rates rise,
the market value of such securities generally will fall, and therefore the Fund
may underperform during periods of rising interest rates. Interest rates may
change frequently and drastically as a result of various factors, including
unexpected shifts in the domestic or global economy (or expectations that
domestic or global economic policies will change). Preferred securities with
longer periods before maturity may be more sensitive to interest rate
changes.
●
Prepayment
and Extension Risk. Prepayment
risk is the risk that changes in interest rates, credit spreads or other factors
will result in the call (repayment) of a preferred security more quickly than
expected, such that the Fund may have to invest the proceeds in lower yielding
securities, or that expectations of such early call will negatively impact the
market price of the security. Extension risk is the risk that changes in the
interest rates or credit spreads may result in diminishing call expectations,
which can cause prices to fall.
●
Call,
Reinvestment and Income Risk. During
periods of declining interest rates, an issuer may be able to exercise an option
to redeem its issue at par earlier than scheduled which is generally known as
call risk. Recent regulatory changes may increase call risk with respect to
certain types of preferred securities. If this occurs, the Fund may be forced to
reinvest in lower yielding securities. This is known as reinvestment risk.
Preferred securities frequently have call features that allow the issuer to
repurchase the security prior to its stated maturity. An issuer may redeem
preferred securities if the issuer can refinance the preferred securities at a
lower cost due to declining interest rates or an improvement in the credit
standing of the issuer, or in the event of regulatory changes affecting the
capital treatment of a security. Another risk associated with a declining
interest rate environment is that the income from the Fund’s portfolio may
decline over time when the Fund invests the proceeds from new share sales at
market rates that are below the portfolio’s current earnings rate.
●
Liquidity
Risk.
Certain preferred securities may be substantially less liquid than many other
securities, such as common stocks or U.S. government securities. Illiquid
securities involve the risk that the securities will not be able to be sold at
the time desired by the Fund or at prices approximating the value at which the
Fund is carrying the securities on its books. During periods of high volatility,
the Fund may experience increased redemptions, requiring it to liquidate
securities when it is difficult to do so.
●
Limited
Voting Rights Risk.
Generally, traditional preferred securities offer no voting rights with respect
to the issuer unless preferred dividends have been in arrears for a specified
number of
42
periods,
at which time the preferred security holders may elect a number of directors to
the issuer’s board of directors. Generally, once all the arrearages have been
paid, the preferred security holders no longer have voting rights.
Hybrid-preferred security holders generally have no voting rights.
●
Special
Redemption Rights. In
certain varying circumstances, an issuer of preferred securities may redeem the
securities prior to a specified date. For instance, for certain types of
preferred securities, a redemption may be triggered by a change in U.S. federal
income tax or securities laws. As with call provisions, a redemption by the
issuer may have a negative impact on the return of the security held by the
Fund. See “Preferred Securities Risk—Call, Reinvestment and Income Risk” above
and “Regulatory Risk” below.
●
New
Types of Securities. From
time to time, preferred securities, including hybrid-preferred securities, have
been, and may in the future be, offered having features other than those
described herein. The Fund reserves the right to invest in these securities if
the Advisor or, if applicable, a Subadvisor believes that doing so would be
consistent with the Fund’s investment objective and policies. Since the market
for these instruments would be new, the Fund may have difficulty disposing of
them at a suitable price and time. In addition to limited liquidity, these
instruments may present other risks, such as high price
volatility.
Regulatory
Risk
Legal
and regulatory developments may adversely affect the Fund. The regulatory
environment for the Fund is evolving, and changes in the regulation of
investment funds and other financial institutions or products (such as banking
or insurance products), and their trading activities and capital markets, or a
regulator’s disagreement with the Fund’s interpretation of the application of
certain regulations, may adversely affect the ability of the Fund to pursue its
investment strategy, its ability to obtain leverage and financing, and the value
of investments held by the Fund. The U.S. government has proposed and adopted
multiple regulations that could have a long-lasting impact on the Fund and on
the fund industry in general. These regulations or any laws and regulations that
may be adopted in the future may restrict the Fund’s ability to engage in
transactions or raise additional capital and/or increase overall expenses of the
Fund.
Additional
legislative or regulatory actions may alter or impair certain market
participants’ ability to utilize certain investment strategies and techniques.
The
Fund and the instruments in which it invests may be subject to new or additional
regulatory constraints in the future. These regulations and actions may
adversely affect both the Fund and the instruments in which the Fund invests and
its ability to execute its investment strategy. For example, climate change
regulation (such as decarbonization legislation, other mandatory controls to
reduce emissions of greenhouse gases, or related disclosure requirements) could
significantly affect the Fund or its investments by, among other things,
increasing compliance costs or underlying companies’ operating costs and capital
expenditures. Similarly, regulatory developments in other countries may have an
unpredictable and adverse impact on the Fund.
Renewable
Companies Risk
Renewable
companies may be subject to a variety of factors that may adversely affect their
business or operations, including costs and losses associated with environmental
and other regulations and enforcement policies or changes thereto, obsolescence
of its existing offerings, the effects of economic slowdown, short production
cycles, increased competition from other providers of services, the effects of
energy conservation policies and other factors.
43
Because
many renewable companies may be concentrated in a particular industry or
industry sector (for example, the energy sector), they are subject to risks
associated with such industry or sector. Renewable energy companies may be more
volatile than companies operating in more established industries. Renewable
energy companies and other companies operating in the renewable energy group of
industries are subject to specific risks, including, among others: fluctuations
in commodity prices and/or interest rates; the success of research or
exploration projects, changes in governmental or environmental regulation;
reduced availability of renewable energy sources or other commodities for
transporting, processing, storing or delivering resources; slowdowns in new
construction; seasonal weather conditions, extreme weather or other natural
disasters; and threats of attack by terrorists on certain clean energy assets.
Additionally, the industry also can be significantly affected by the supply of
and demand for specific products or services, including the supply of and demand
and price of traditional energy sources (e.g., oil
and gas).
Restricted
and Illiquid Securities Risk
The
Fund may invest in investments that may be illiquid (i.e.,
securities that may be difficult to sell at a desirable time or price). Such
securities may include MLPs and related companies and non-MLPs and related
companies. Illiquid securities are securities that are not readily marketable
and may include some restricted securities, which are securities that may not be
resold to the public without an effective registration statement under the
Securities Act of 1933 or, if they are unregistered, may be sold only in a
privately negotiated transaction or pursuant to an exemption from registration.
Illiquid investments involve the risk that the securities will not be able to be
sold at the time desired by the Fund or at prices approximating the value at
which the Fund is carrying the securities on its books. Restricted securities
and illiquid securities are often more difficult to value and the sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the OTC markets.
Contractual restrictions on the resale of securities result from negotiations
between the issuer and purchaser of such securities and therefore vary
substantially in length and scope. To dispose of a restricted security that the
Fund has a contractual right to sell, the Fund may first be required to cause
the security to be registered. A considerable period may elapse between a
decision to sell the securities and the time when the Fund would be permitted to
sell, during which time the Fund would bear market risks.
Secondary
Market Trading Risk
Investors
buying or selling Fund shares will pay brokerage commissions or other charges
imposed by brokers as determined by that broker. Brokerage commissions are often
a fixed amount and may be a significant proportional cost for investors seeking
to buy or sell relatively small amounts of Fund shares. In addition, secondary
market investors will also incur the cost of the difference between the price
that an investor is willing to pay for Fund shares (the bid price) and the price
at which an investor is willing to sell Fund shares (the ask price). This
difference in bid and ask prices is often referred to as the “spread” or
“bid/ask spread.” The bid/ask spread varies over time for Fund shares based on
trading volume and market liquidity, and is generally lower if the Fund’s shares
have more trading volume and market liquidity and higher if the Fund’s shares
have little trading volume and market liquidity. Further, increased market
volatility may cause widening of bid/ask spreads.
Tax
Risk
The
Fund intends to qualify each year as a RIC for U.S. federal income tax purposes
under Subchapter M of the Code.For any year in which the Fund so qualifies, it
will not be subject to U.S. federal income
44
tax on
income or gain that it timely distributes to shareholders as dividends. In order
to qualify as a RIC, the Fund must meet, among other things, certain asset
diversification requirements at the close of each quarter of its taxable year.
The treatment of certain of the Fund’s investments for purposes of this test may
be unclear, and it is possible that the IRS or a court could recharacterize one
or more such investments in a manner bearing adversely on the Fund’s ability to
meet this requirement.
In order to qualify as
a RIC, the Fund must also derive at least 90% of its gross income for each
taxable year from sources treated as “qualifying income” under the Code. Certain
of the Fund’s investments
may not
give rise to qualifying income. If the Fund were to treat income or gain from a
particular investment as qualifying income and the income or gain were later
determined not to constitute qualifying income and, together with any other
nonqualifying income, caused the Fund’s nonqualifying income to exceed 10% of
its gross income in any taxable year, the Fund would not satisfy the 90% gross
income test.
If the
Fund were to fail to meet the diversification or income test described above,
the Fund could in some cases cure such failure, including by paying a Fund-level
tax or disposing of certain assets. If the Fund were ineligible to or otherwise
did not cure such failure for any year, the Fund would be subject to tax on its
taxable income at corporate rates, and all distributions from earnings and
profits would generally be taxable to Fund shareholders as ordinary
income.
Changes
in tax laws or regulations, or future interpretations of such laws or
regulations, could adversely affect the Fund.
For
more information about U.S. federal income tax consequences of an investment in
the Fund, see “Additional Information—Tax Considerations.”
Utilities
Sector Risk
Companies
in the utilities sector are subject to a variety of factors that may adversely
affect their business or operations, including high interest costs associated
with capital construction and improvement programs; difficulty in raising
adequate capital in periods of high inflation and unsettled capital markets;
governmental regulation of rates the issuer can charge to customers; costs
associated with compliance with environmental and other regulations; effects of
economic slowdowns and surplus capacity; the potential impact of natural
disasters, terrorist attacks on the utility industry and its customers;
increased competition; potential losses resulting from changes in regulations;
and liabilities for environmental damage and general civil
liabilities.
45
Redeemability
Traditional
mutual fund shares may be bought from, and redeemed with, the issuing fund for
cash at NAV, typically calculated once at the end of each business day. Shares
of an ETF, by contrast, cannot be purchased from or redeemed with the ETF except
by or through Authorized Participants. Except when aggregated in Creation Units,
the shares of the Fund are not redeemable securities of the Fund. In addition,
ETFs issue and redeem shares, generally on a continuous basis, only in large
blocks of shares called Creation Units.
Exchange
Listing
Unlike
traditional mutual fund shares, the Fund’s shares are listed for trading on the
Exchange. Investors can purchase and sell shares on the secondary market through
a broker or other financial intermediary (collectively, “financial
intermediary(ies)”). There can be no assurance that the Fund’s shares will
continue to trade on the Exchange or that the Fund’s shares will continue to
meet the requirements for listing or trading on the Exchange. Investors
purchasing shares in the secondary market through a brokerage account or with
the assistance of a financial intermediary may be subject to brokerage
commissions and charges. Secondary-market transactions do not occur at NAV, but
at market prices that change throughout the day, based on the supply of, and
demand for, shares and on changes in the prices of the Fund’s portfolio
holdings. The market price of shares may differ from the NAV of the Fund. The
difference between market price of shares and the NAV of the Fund is called a
premium when the market price is above the reported NAV and called a discount
when the market price is below the reported NAV. The market price of the Fund’s
shares may deviate significantly from the NAV of the shares, for example, in
times of extreme market volatility or other conditions.
Tax
Treatment
To the
extent the Fund redeems its shares in kind, the distribution of portfolio
securities to meet such redemption requests may mitigate certain adverse tax
consequences associated with traditional mutual funds to continuing Fund
shareholders. This is because traditional mutual funds typically sell portfolio
securities to obtain cash to meet redemptions and, as necessary, may recognize
taxable gains in connection with such sales. By contrast, to the extent the Fund
redeems its shares in kind, as opposed to in cash, the Fund’s in-kind redemption
mechanism will potentially reduce, relative to a traditional mutual fund,
taxable gains resulting from redemptions. However, the Fund cannot predict to
what extent, if any, it will redeem its shares in kind rather than in cash,
particularly during the Fund’s growth stages when portfolio changes are more
likely to be implemented within the Fund rather than through the in-kind
redemption mechanism. Nor can the Fund predict the extent to which any such
in-kind redemptions will reduce the taxable gain recognized in connection
therewith.
Because
the Fund may effect redemptions partly or entirely in cash, rather than in-kind
distributions, it may be required to sell portfolio securities in order to
obtain the cash needed to distribute redemption proceeds. Such sales may cause
the Fund to recognize gains it might not otherwise have recognized, or to
recognize such gains sooner than would otherwise be required if it were to
distribute portfolio securities in-kind. The Fund generally intends to
distribute these gains to shareholders to avoid being taxed on this gains at the
Fund level and otherwise comply with the requirements for qualification as a
46
RIC
under the Code. This strategy may cause shareholders to be subject to tax on
gains they would not otherwise be subject to, or at an earlier date than, if
they had made an investment in a different ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These brokerage
fees and taxes, which will be higher than if the Fund sold and redeemed its
shares principally in-kind, will be passed on to purchasers and redeemers of
Creation Units in the form of creation and redemption transaction
fees.
The Advisor, a
registered investment advisor located at 1166 Avenue of the Americas,
30th Floor, New York, New
York 10036, was formed in 1986 and its clients include pension plans, endowment
funds and investment companies, including each of the open-end and closed-end
Cohen & Steers funds and the Cohen & Steers ETFs. As of March
31,
2026, the
Advisor managed approximately $93.1 billion in assets. The Advisor is a
wholly-owned subsidiary of Cohen & Steers, Inc. (“CNS”), a publicly traded
company whose common stock is listed on the NYSE under the symbol
“CNS.”
The
Fund is a series of Cohen & Steers ETF Trust, a Maryland statutory trust
(the “Trust”), that is overseen by the Board.
The
Advisor is responsible for the overall management of the Fund’s portfolio and
for the supervision and ongoing monitoring of the Subadvisors.
CNS
Asia, with offices located at 3301B, 33rd Floor,
The Henderson, 2 Murray Road, Central Hong Kong, is a wholly owned subsidiary of
CNS and serves as a Subadvisor to the Fund pursuant to an agreement with the
Advisor (a “Subadvisory Agreement”). CNS Asia provides investment research and
advisory services with respect to Asia Pacific real estate securities and
provides trade order execution services for the Fund. CNS Asia is a registered
investment advisor and was formed in 2005.
CNS UK,
with offices located at The Burlian, 3 Dering Street, 2nd Floor,
London W1S 1AA, United Kingdom, is a wholly owned subsidiary of CNS and serves
as a Subadvisor to the Fund pursuant to a Subadvisory Agreement. CNS UK provides
investment research and advisory services to the Advisor in connection with
managing the Fund’s investments in Europe and provides trade order execution
services for the Fund. CNS UK is a registered investment advisor and was formed
in 2006.
The fees of the
Subadvisors are paid by the Advisor (and not the Fund) out of its investment
advisory fee received from the Fund.
References
in this Prospectus to activities and responsibilities of the Advisor may be
performed by one or more of the Subadvisors, as applicable.
Under
its investment advisory agreement (the “Investment Advisory Agreement”) with the
Trust, on behalf of the Fund, the Advisor furnishes a continuous investment
program for the Fund’s portfolio, makes the day-to-day investment decisions for
the Fund and generally manages the Fund’s investments in accordance with the
stated policies of the Fund, subject to the general supervision of the Board.
The Advisor also performs certain administrative services for the Fund and
provides persons satisfactory to the Board to serve as officers of the Fund.
Such officers, as well as certain Trustees of the Trust, may also be directors,
officers, or employees of the Advisor. The Advisor and Subadvisors also select
brokers and dealers to execute the Fund’s portfolio transactions.
47
For its services under
the Investment Advisory Agreement, the Fund pays the Advisor a monthly
investment advisory fee at the annual rate, of 0.80% of the average daily net
assets of the Fund (the “Management Fee”). The Management Fee is accrued at a
daily rate and paid monthly in arrears from the assets of the Fund.
In
return for the Management Fee (which is sometimes referred to as a “unitary” or
“unified” fee), the Advisor has agreed to bear all operating costs of the Fund
other than the following expenses, which will be borne by the Fund: the
Management Fee, payments made under the Fund’s distribution and service plan
pursuant to Rule 12b-1 under the 1940 Act (if or when such fees are imposed),
brokerage commissions and other expenses connected to the execution of portfolio
transactions, interest expense, taxes, acquired fund fees and expenses,
litigation expenses, and, upon approval of the Board, extraordinary
expenses.
The
Advisor may bear operating fees and expenses for which the Advisor is
responsible as described above through the Fund’s payment of such fees and
expenses and a corresponding reduction in the Management Fee payable by that
Fund to the Advisor.
A discussion regarding
the Board’s basis for approving the Investment Advisory Agreement and
Subadvisory Agreements will be included in the Fund’s first Form N-CSR
filing.
The Advisor and the
Subadvisors utilize a team-based approach in managing the Funds. The portfolio
managers named below direct and supervise the execution of the Fund’s investment
strategy, and lead and guide the other members of the investment team. All of
the Fund’s portfolio managers collaborate with respect to the process for
allocating the Fund’s assets among the various sectors and
industries.
The SAI
contains additional information about the portfolio managers’ compensation,
other accounts they manage, and their ownership of securities in the
Fund.
The
Fund’s portfolio managers are:
Benjamin
Morton—Mr.
Morton joined the Advisor in 2003 and currently serves as Executive Vice
President of the Advisor. He is based in New York.
Tyler
Rosenlicht—Mr. Rosenlicht joined
the Advisor in 2012 and currently serves as Senior Vice President of the
Advisor. He is based in New York.
The
Fund calculates its NAV per share as of the close of regular trading on the
NYSE, generally 4:00 p.m. eastern time, on each day the NYSE is open for
trading.
Investments
in securities that are listed on the NYSE are valued, except as indicated below,
at the last sale price reflected at the close of the NYSE on the business day as
of which such value is being determined. If there has been no sale on such day,
the securities are valued at the mean of the closing bid and ask prices on such
day or, if no ask price is available, at the bid price. Futures contracts traded
on an exchange are valued at their settlement price at the close of trading on
their primary exchange. Forward foreign currency contracts are valued daily at
the prevailing forward exchange rate. Centrally
48
cleared
interest rate swaps are valued at the price determined by the relevant exchange
or clearinghouse. OTC interest rate swaps are valued utilizing quotes received
from a third-party pricing service. Exchange-traded options are valued at their
last sale price as of the close of options trading on applicable exchanges on
the valuation date. In the absence of a last sale price on such day, options are
valued based upon prices provided by a third-party pricing service. OTC options
are valued based upon prices provided by a third-party pricing service or
counterparty. Short-term debt securities, which have a maturity date of 60 days
or less, are valued at amortized cost, which approximates fair value.
Investments in open-end mutual funds are valued at NAV.
Securities
not listed on the NYSE but listed on other domestic or foreign securities
exchanges are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price reflected at the close of
the exchange representing the principal market for such securities on the
business day as of which such value is being determined.
Readily
marketable securities traded in the OTC market, including listed securities
whose primary market is believed by the Advisor to be OTC, are valued on the
basis of prices provided by a third-party pricing service or third-party
broker-dealers when such prices are believed by the Advisor, pursuant to
delegation by the Board, to reflect the fair value of such
securities.
Fixed-income
securities are valued on the basis of prices provided by a third-party pricing
service or third-party broker-dealers when such prices are believed by the
Advisor, pursuant to delegation by the Board, to reflect the fair value of such
securities. The pricing services or broker-dealers use multiple valuation
techniques to determine fair value. In instances where sufficient market
activity exists, the pricing services or broker-dealers may utilize a
market-based approach through which quotes from market makers are used to
determine fair value. In instances where sufficient market activity may not
exist or is limited, the pricing services or broker-dealers also utilize
proprietary valuation models which may consider market transactions in
comparable securities and the various relationships between securities in
determining fair value and/or characteristics such as benchmark yield curves,
option-adjusted spreads, credit spreads, estimated default rates, coupon rates,
anticipated timing of principal repayments, underlying collateral, and other
unique security features which are then used to calculate the fair
values.
The
Board has designated the Advisor as the Fund’s “Valuation Designee” under Rule
2a-5 under the 1940 Act. As Valuation Designee, the Advisor is authorized to
make fair valuation determinations, subject to the oversight of the Board. The
Advisor has established a valuation committee (“Valuation Committee”) to
administer, implement and oversee the fair valuation process according to the
policies and procedures approved annually by the Board. Among other things,
these procedures allow the Fund to utilize independent pricing services,
quotations from securities and financial instrument dealers and other market
sources to determine fair value.
Securities
for which market prices are unavailable, or securities for which the Advisor
determines that the bid and/or ask price or a counterparty valuation does not
reflect market value, will be valued at fair value, as determined in good faith
by the Valuation Committee, pursuant to procedures approved by the Board.
Circumstances in which market prices may be unavailable include, but are not
limited to, when trading in a security is suspended or the exchange on which the
security is traded is subject to an unscheduled closure or disruption. In these
circumstances, the Fund determines fair value in a manner that fairly reflects
the market value of the security on the valuation date based on consideration of
any
49
information
or factors it deems appropriate. These may include, but are not limited to,
recent transactions in comparable securities, information relating to the
specific security and developments in the markets.
The
Fund’s use of fair value pricing may cause the NAV of Fund shares to differ from
the NAV that would be calculated using market quotations. Fair value pricing
involves subjective judgments and it is possible that the fair value determined
for a security may be materially different than the value that could be realized
upon the sale of that security.
Since
the Fund may hold securities that are primarily listed on foreign exchanges that
trade on weekends or days when the Fund does not price its shares, the value of
securities held in the Fund may change on days when you will not be able to buy
and sell Fund shares.
The
Fund issues or redeems its shares at NAV per share only in Creation Units and
only to Authorized Participants (or APs). Most investors will buy and sell
shares in secondary market transactions through brokers or other financial
intermediaries and therefore must have an account with them to buy and sell
shares. Shares can be bought or sold through your financial intermediary
throughout the trading day like shares of any publicly traded issuer. When
buying or selling shares through a financial intermediary, you will incur
customary brokerage commissions and charges, and you may pay some or all of the
spread between the bid and the offered prices in the secondary market for
shares. The price at which you buy or sell shares (i.e., the
market price) may be more (a premium to) or less than (a discount to) the NAV of
the shares. Unless imposed by your financial intermediary, there is no minimum
dollar amount you must invest in the Fund and no minimum number of shares you
must buy. The Fund accommodates frequent purchases and redemptions of Creation
Units by Authorized Participants and does not place a limit on purchases or
redemptions of Creation Units by these investors. The Fund reserves the right,
but does not have the obligation, to reject any purchase at any
time.
Shares of the Fund are
listed and trade on Nasdaq,
Inc.
(ticker: CSEN).
The
Exchange is generally open Monday through Friday and is closed for weekends and
for the following holidays: New Year’s Day, Martin Luther King, Jr. Day,
Presidents’ Day, Good Friday, Memorial Day, Juneteenth National Independence
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
For
information about buying and selling shares on the Exchange or in the secondary
markets, please contact your financial intermediary.
Book
Entry
Shares
are held in book entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”), or its nominee, is the registered owner of
all outstanding shares of the Fund and is recognized as the owner of all shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive
50
physical
delivery of Fund share certificates or to have shares registered in your name,
and you are not considered a registered owner of shares. Therefore, to exercise
any right as an owner of shares, you must rely on the procedures of DTC and its
participants. These procedures are the same as those that apply to any stocks
that you hold in book entry or “street name” through your brokerage account.
Your account information will be maintained by your financial intermediary,
which will provide you with account statements, confirmations of your purchases
and sales of shares, and tax information. Your financial intermediary also will
be responsible for distributing income dividends and capital gain distributions
and for ensuring that you receive shareholder reports and other communications
from the Fund.
Continuous
Offering
Authorized
Participants should be aware of certain legal risks unique to investors
purchasing Creation Units directly from the Fund. Because shares may be issued
on an ongoing basis, a “distribution” of shares could occur at any time. Certain
activities that Authorized Participants perform with respect to the sale of
shares could, depending on the circumstances, result in an Authorized
Participant being deemed to be a participant in the distribution, in a manner
that could render the Authorized Participant a statutory underwriter and subject
the Authorized Participant to the prospectus delivery and liability provisions
of the Securities Act. For example, an Authorized Participant could be deemed a
statutory underwriter if the Authorized Participant purchases Creation Units
from the Fund, break them down into the constituent shares, and sell those
shares directly to customers, or if the Authorized Participant chooses to couple
the creation of a supply of new shares with an active selling effort involving
solicitation of secondary market demand for shares. Whether a person is an
underwriter for purposes of the Securities Act depends upon all of the facts and
circumstances pertaining to that person’s activities, and the examples mentioned
here should not be considered a complete description of all the activities that
could cause an Authorized Participant to be deemed an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in shares, whether or not participating in the distribution of
shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is not
available in respect of such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as opposed to engaging
in ordinary secondary market transactions), and thus dealing with shares as part
of an unsold allotment within the meaning of Section 4(a)(3)(c) of the
Securities Act will be unable to take advantage of the prospectus delivery
exemption provided by Section 4(a)(3) of the Securities Act. For delivery of
prospectuses to exchange members, the prospectus delivery mechanism of Rule 153
under the Securities Act is only available with respect to transactions on a
national exchange.
The
Board has determined not to adopt policies and procedures designed to prevent or
monitor for frequent purchases and redemptions of the Fund’s shares because
investors primarily transact in Fund shares on the secondary market. Frequent
trading of shares on the secondary market does not disrupt portfolio management,
increase the Fund’s trading costs, lead to realization of capital gains or
otherwise harm Fund shareholders because these trades do not involve the
issuance or redemption of Fund shares.
51
The
Fund sells and redeems its shares at NAV only in Creation Units pursuant to the
terms of a Participant Agreement between an Authorized Participant and the
Distributor, and accepted by State Street Bank and Trust Company, the Fund’s
transfer agent. With respect to such trades directly with the Fund to the extent
effected in-kind (i.e., for
securities), they generally would not cause the harmful effects that may result
from frequent cash trades.
The
Board recognizes that to the extent that the Fund allows or requires trades to
be effected in whole or in part in cash, those trades could result in dilution
to the Fund and increased transaction costs, which could negatively impact the
Fund’s ability to achieve its investment objective. The Board also recognizes,
however, that direct trading by Authorized Participants is critical to ensuring
that the Fund’s shares trade at or close to NAV. Moreover, the Fund may impose
transaction fees on purchases and redemptions of Creation Units reflecting the
fact that the Fund’s costs increase in those circumstances. The Fund reserves
the right to impose additional restrictions on disruptive, excessive or
short-term purchases.
The Board has approved,
and the Fund has adopted, a distribution and service plan (the “Plan”) pursuant
to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund is authorized to pay
fees to the Distributor and other firms that provide distribution and/or
shareholder services (“Service Providers”). If a Service Provider provides such
services, the Fund may pay fees at an annual rate not to exceed 0.25% of average
daily net assets, pursuant to Rule 12b-1 under the 1940 Act.
No distribution or
service fees are currently paid by any Fund, however, and there are no current
plans to impose these fees. Future payments may be made under the Plan without
any further shareholder approval. In the event Rule 12b-1 fees are charged, over
time they would increase the cost of an investment in the
Fund.
The
Advisor and the Distributor may make payments from their own resources to
dealers and other financial intermediaries for distribution, administrative or
other services. These payments may be significant to the dealers and the
financial intermediaries and may create an incentive for a dealer or financial
intermediary or their representatives to recommend or sell shares of a
particular fund over other funds. Additionally, these payments may result in the
Fund receiving certain marketing or servicing advantages that are not generally
available to funds that do not make such payments, including placement on a
sales list, such as a preferred or select sales list, or in other sales
programs. These payments, which are in addition to any amounts you may pay your
dealer or other financial intermediary, create potential conflicts of interest
between an investor and a dealer or other financial intermediary who is
recommending a particular fund over other funds. Please contact your dealer or
financial intermediary for details about payments it may receive. For further
details, please consult the SAI.
The
Fund intends to declare and pay distributions from its investment income
quarterly. The Fund intends to distribute net realized capital gains, if any, at
least once each year, normally in December.
52
Brokers
may make available to their customers who own shares the DTC book-entry dividend
reinvestment service. To determine whether the dividend reinvestment service is
available and whether there is a commission or other charge for using this
service, consult your broker. Brokers may require Fund shareholders to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and net realized gains will be
automatically reinvested in additional whole shares of the Fund purchased in the
secondary market. Without this service, investors would receive their
distributions in cash.
The
following tax discussion offers only a brief outline of the U.S. federal income
tax consequences of investing in the Fund, does not address any non-U.S., state
or local tax consequences, and is based on the federal tax laws in effect on the
date hereof. Such tax laws are subject to change by legislative, judicial or
administrative action, possibly with retroactive effect. Further, this
discussion does not address tax consequences to specific types of shareholders
such as tax-advantaged retirement plans or non-U.S. shareholders (defined
below). In the SAI, we have provided more detailed information regarding the tax
consequences of investing in the Fund. Investors should consult their own tax
advisors for more detailed information and for information regarding the impact
of state, local and non-U.S. taxes on an investment in the Fund.
Dividends
paid to you out of the Fund’s investment income will generally be taxable to you
as ordinary income to the extent of the Fund’s current and accumulated earnings
and profits. Taxes on distributions of capital gains are determined by how long
the Fund owned (or is deemed to have owned) the investments that generated them,
rather than how long you have owned your shares. Distributions attributable to
the excess of net long-term capital gains from the sale of investments that the
Fund owned (or is deemed to have owned) for more than one year over net
short-term capital losses from the sale of investments that the Fund owned (or
is deemed to have owned) for one year or less, and that are properly reported by
the Fund as capital gain dividends (“Capital Gain Dividends”) generally are
taxable to you as long-term capital gains includible in net capital gain and
taxed to individuals at reduced rates. Distributions attributable to the excess
of net short-term capital gains from the sale of investments that the Fund owned
(or is deemed to have owned) for one year or less over net long-term capital
losses from the sale of investments that the Fund owned (or is deemed to have
owned) for more than one year, are taxable to you as ordinary
income.
If a
portion of the Fund’s income consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the Fund may be eligible for the corporate
dividends-received deduction for corporate shareholders. In addition,
distributions of investment income properly reported by the Fund as derived from
“qualified dividend income” (“QDI”) will be taxed in the hands of individuals at
the reduced rates applicable to net capital gain, provided certain holding
period and other requirements are met by both the shareholder and the Fund.
Dividend income that the Fund receives from U.S. REITs will generally not be
treated as QDI and will not qualify for the dividends-received deduction. It is
unclear the extent to which distributions the Fund receives from investments in
certain preferred securities will be eligible for treatment as QDI or for the
corporate dividends-received deduction. The Fund cannot predict at this time
what portion, if any, of its dividends will qualify for the corporate
dividends-received deduction or be eligible for the reduced rates of taxation
applicable to QDI.
“Qualified
REIT dividends” are treated as eligible for a 20% deduction by non-corporate
taxpayers. Qualified REIT dividends are dividends received from REITs that are
neither Capital Gain Dividends nor are eligible for treatment as QDI, and with
respect to which the REIT shareholder meets certain
53
other
requirements. The Fund is permitted to pass through qualified REIT dividends to
its shareholders, provided the shareholders meet certain holding period and
other requirements with respect to their shares.
A 3.8%
Medicare contribution tax is imposed on the net investment income of certain
individuals, trusts and estates to the extent their income exceeds certain
threshold amounts. Net investment income generally includes for this purpose
dividends paid by the Fund, including any Capital Gain Dividends, and net gains
recognized on the sale or other taxable disposition of shares of the Fund.
Shareholders are advised to consult their tax advisors regarding the possible
implications of this additional tax on their investment in the Fund.
Because
of “non-cash” expenses such as property depreciation, the cash flow of a REIT
that owns properties may exceed its taxable income. The REIT, and in turn the
Fund, may distribute this excess cash to shareholders. Such a distribution may
be classified as a return of capital. Return of capital distributions generally
are not taxable to you. Your cost basis in your Fund shares will be decreased by
the amount of any return of capital. Any return of capital distributions in
excess of your cost basis will be treated as capital gains.
The tax
treatment of your dividends and distributions will be the same regardless of
whether they were paid to you in cash or reinvested in additional Fund shares.
If you buy shares of the Fund when the Fund has realized but not yet distributed
income or capital gains, you will be “buying a dividend” by paying the full
price for the shares and then receiving a portion back in the form of a taxable
distribution. Such distributions are likely to occur in respect of shares
purchased at a time when the Fund’s NAV reflects gains that are either
unrealized or realized but not distributed.
A
distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid during January of the following
year.
Each
year, we will notify you of the tax status of dividends and other
distributions.
The
Fund intends to elect to be treated as, and intends to qualify each year to be
treated as, a RIC under Subchapter M of the Code. In order to qualify and be
treated as a RIC, the Fund must derive at least 90% of its gross income for each
taxable year from “qualifying income” as defined in the Code and meet
requirements with respect to diversification of assets and distribution of
income and gains. If the Fund does so, the Fund generally will not be required
to pay federal income taxes on any income it timely distributes to shareholders.
If the Fund were to fail to meet any one of these requirements, the Fund could
in some cases cure such failure, including by paying the Fund-level tax, paying
interest, making additional distributions, or disposing of certain assets. If
the Fund were ineligible to or otherwise did not cure such failure for any year,
the Fund would be subject to tax on its taxable income and net capital gains at
corporate rates, and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital gains, would be
taxable to shareholders as ordinary income.
Any
transaction by the Fund in non-U.S. currencies, non-U.S. currency-denominated
debt securities or certain non-U.S. currency options, futures contracts or
forward contracts (or similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the non-U.S. currency concerned. Such ordinary income treatment may accelerate
Fund distributions to shareholders and increase the distributions taxed to
shareholders as ordinary income.
54
Certain
of the Fund’s investments, including investments in certain debt instruments,
could affect the amount, timing and character of distributions you receive and
could cause the Fund to recognize taxable income in excess of the cash generated
by such investments, which may require the Fund to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirements or otherwise qualify for treatment as a RIC.
If you
sell or otherwise dispose of your Fund shares, you will generally realize a
capital gain or loss in an amount equal to the difference between your adjusted
tax basis in the shares and the amount received. Gain or loss, if any,
recognized by a shareholder on a sale or other taxable disposition of Fund
shares generally will be taxed as long-term capital gain or loss if the
shareholder held the shares for more than one year, and as short-term capital
gain or loss if the shareholder held the shares for one year or less, assuming
in each case that the shareholder held the shares as capital assets. Short-term
capital gains generally are taxed at the rates applicable to ordinary income.
Any loss realized upon a disposition of shares held for six months or less will
be treated as long-term, rather than short-term, capital loss to the extent of
any Capital Gain Dividends received by the shareholder with respect to the
shares. The deductibility of capital losses is subject to limitations.
Additionally, any loss realized on a sale or other disposition of shares of the
Fund may be disallowed under “wash sale” rules to the extent the shares disposed
of are replaced with other shares of the Fund within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition,
including pursuant to a dividend reinvestment in shares of the Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
The
Fund’s investments in non-U.S. securities may be subject to non-U.S. withholding
or other taxes. In that case, the Fund’s yield on those securities would be
decreased. If the Fund invests more than 50% of its assets in non-U.S.
securities, it generally may elect to permit shareholders to claim a credit or
deduction on their income tax returns with respect to non-U.S. taxes paid by the
Fund. In addition, the Fund’s investments in non-U.S. securities and non-U.S.
currency may be subject to special tax rules that have the effect of increasing
or accelerating the Fund’s recognition of ordinary income and may affect the
timing or amount of the Fund’s distributions to shareholders. Because the Fund
may invest in non-U.S. securities, shareholders should consult their tax
advisers about the consequences of their investments under non-U.S.
laws.
We may
be required to withhold U.S. federal income tax on all taxable distributions and
redemption proceeds payable if you:
●
fail to
provide us with your correct taxpayer identification number;
●
fail to
make required certifications; or
●
have
been notified by the IRS that you are subject to backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld may be credited
against your U.S. federal income tax liability.
Fund
distributions also may be subject to state and local taxes. You should consult
with your own tax advisor regarding the particular consequences of investing in
the Fund.
Non-resident
alien individuals, non-U.S. trusts or estates, non-U.S. corporations or non-U.S.
partnerships (non-U.S. shareholders) are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.
55
The
foregoing discussion is based on the federal tax laws in effect on the date
hereof. Such tax laws are subject to change by legislative, judicial, or
administrative action, possibly with retroactive effect. Such changes may have a
negative impact on the Fund or its investors. You should consult with your own
tax advisor regarding potential consequences of changes in tax laws for
investors in the Fund.
Please
see the SAI for more detailed tax information. You should consult your tax
adviser for more information on your own situation, including possible U.S.
federal, state, local, non-U.S. or other applicable taxes.
Authorized
Participant Taxes on Creations and Redemptions of Creation Units
Authorized
Participants should consult their tax advisors about the U.S. federal, state,
local or non-U.S. tax consequences of purchasing and redeeming Creation Units in
the Fund.
The
Trust’s SAI contains a discussion of the significant provisions of the Trust’s
Amended and Restated Declaration of Trust (the “Declaration”). By becoming a
shareholder of a Fund, each shareholder is expressly held to have agreed to be
bound by the provisions of the Declaration and any other governing instrument of
the Trust. The Declaration provides that shareholders waive the right to a jury
trial. The Declaration also provides that no provision of the Declaration will
be effective to require a waiver of compliance with any provision of the
Securities Act, the Securities Exchange Act of 1934 or the 1940 Act, or of any
valid rule, regulation or order of the SEC thereunder.
56
The Fund is new and has
not yet commenced operations as of the date of this prospectus. The Fund will
acquire all of the assets, subject to the liabilities, of the Predecessor Fund
in the Reorganization. As a result of the Reorganization, the financial
highlights for the Fund is the financial history of the Predecessor Fund’s Class
I shares. The financial highlights tables are intended to help you understand
the financial performance of the Predecessor Fund for the fiscal years shown
below. Certain information reflects financial results for a single Predecessor
Fund Class I share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in the Predecessor Fund
(assuming reinvestment of all dividends and distributions). These financial
highlights have been derived from financial statements audited by
PricewaterhouseCoopers LLP, whose report, along with the Predecessor Fund’s
audited financial statements, is included in the Predecessor Fund’s Form N-CSR
filing for the fiscal year ended November 30, 2025, which is available free of
charge upon request or by visiting www.cohenandsteers.com.
The
following tables include selected data for a share outstanding throughout each
year and other performance information derived from the financial statements.
They should be read in conjunction with the financial statements and notes
thereto.
|
|
Class
I | ||||
|
|
For
the Year Ended November 30, | ||||
|
Per
Share Operating Data: |
2025 |
2024 |
2023 |
2022 |
2021 |
|
Net
asset value, beginning of year |
$9.34 |
$8.34 |
$8.35 |
$6.59 |
$4.92 |
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss)(a) |
0.13 |
0.18 |
0.15 |
0.12 |
0.08 |
|
Net
realized and unrealized gain (loss) |
0.97 |
1.46 |
0.16 |
1.92 |
1.85 |
|
Total
from investment operations |
1.10 |
1.64 |
0.31 |
2.04 |
1.93 |
|
Less
dividends and distributions to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.12
) |
(0.64
) |
(0.32
) |
(0.15
) |
(0.10
) |
|
Tax
return of capital |
(0.36
) |
— |
— |
(0.13
) |
(0.16
) |
|
Total
dividends and distributions to shareholders |
(0.48
) |
(0.64
) |
(0.32
) |
(0.28
) |
(0.26
) |
|
Net
increase (decrease) in net asset value |
0.62 |
1.00 |
(0.01
) |
1.76 |
1.67 |
|
Net
asset value, end of year |
$9.96 |
$9.34 |
$8.34 |
$8.35 |
$6.59 |
|
|
|
|
|
|
|
|
Total
return(b) |
12.56
% |
20.60
% |
4.04
% |
31.66
% |
39.81
% |
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of year (in millions) |
$102.5 |
$96.7 |
$95.0 |
$119.9 |
$83.8 |
|
Ratios
to average daily net assets: |
|
|
|
|
|
|
Expenses
(before expense reduction) |
1.28
% |
1.37
% |
1.24
% |
1.28
% |
1.40
% |
|
Expenses
(net of expense reduction) |
0.90
% |
0.90
% |
0.90
% |
0.90
% |
0.90
% |
|
Net
investment income (loss) (before expense reduction) |
1.15
% |
1.66
% |
1.53
% |
1.14
% |
0.77
% |
|
Net
investment income (loss) (net of expense reduction) |
1.53
% |
2.13
% |
1.87
% |
1.52
% |
1.27
% |
|
Portfolio
turnover rate |
115
% |
220
% |
74
% |
58
% |
94
% |
(a)
Calculation based on
average shares outstanding.
(b)
Return assumes the
reinvestment of all dividends and distributions at net asset
value.
57
Cohen
& Steers Future of Energy Active ETF
To
Obtain Additional Information about the Fund
If you
would like additional information about Cohen & Steers Future of Energy
Active ETF, the following documents are available to you without any charge
either upon request or at www.cohenandsteers.com:
•
Annual/Semi-Annual
Reports and Financial Statements—Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders and in Form N-CSR. In the Fund’s reports
to shareholders, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund’s performance during
its most recent fiscal period. In the Fund’s Form N-CSR, you will find the
Fund’s annual and semi-annual financial statements.
•
Statement
of Additional Information—Additional
information about the Fund’s investments, structure and operations is found in
the SAI. The information presented in the SAI is incorporated by reference into
this Prospectus and is legally considered to be part of the
Prospectus.
To
request a free copy of any of the materials described above as well as other
information, or to make any other inquiries, please contact us:
By
telephone
(866)
737-6370
By mail
Cohen
& Steers ETF Trust
1166
Avenue of the Americas, 30th Floor
New
York, NY 10036
By
e-mail
On the
Internet
www.cohenandsteers.com
This
information may also be available from your broker or financial intermediary. In
addition, information about the Fund (including the Fund’s SAI) may be obtained
from the SEC:
•
By
accessing the SEC’s Internet site at http://www.sec.gov
where
you can view, download and print the information.
•
By
electronic request at the following e-mail address: [email protected]. Upon
payment of a duplicating fee, copies of the information will be sent to
you.
1166
AVENUE OF THE AMERICAS, 30TH FLOOR,
NEW YORK, NEW YORK 10036
SEC File
No. 811-22913
ETFPRO-062026