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Preferred Securities Preferred Securities: A Tax-Advantaged Alternative to Muni Bonds Preferred securities currently offer among the highest after-tax yields in the fixed income universe—even better than municipal bonds, regardless of tax bracket. High income before and after taxes. In the search for taxefficient income, preferred securities are an often-overlooked option. These securities sit higher in the capital structure than common stock but below bonds—and therefore tend to pay higher income rates than similarly rated fixed income securities. Adding to their appeal, distributions from many preferreds are treated as qualified dividend income (QDI), currently taxed at about half the rate of interest income. This combination of high coupons and favorable tax treatment offers the potential for attractive after-tax income. As shown to the right, preferred securities currently offer an after-tax yield of 3.9% for investors making less than $415K per year, conservatively assuming that half of the securities pay QDI-eligible distributions. This is more than municipal bonds at 3.0% or 10-year Treasuries at 1.4% after taxes. For those earning more than $415K, the yield advantage is also meaningful. The bottom chart represents lowduration indexes for investors with an emphasis on capital preservation over appreciation. Preferreds and munis complement each other. In our view, investors who already own municipal bonds should consider shifting some of their allocation to preferred securities. This can broaden a portfolio’s diversification—spreading risk across a wider range of issuers—while potentially boosting take-home income. Comparing Yield Before Taxes After Taxes (Income <$415K) Fixed Income Yields 6% 5.4 Many preferreds pay QDI-eligible income 3.9 4% 3.6 3.0 3.0 3.0 3.2 2.0 2% Preferred Securities Municipal Bonds 1.8 Corporate Bonds 2.2 1.4 1.3 10-Year Treasury Low Duration Fixed Income Yields 6% The low duration preferred market tends to have an even higher percentage of securities paying QDI-eligible income 4.5 4% 3.4 3.2 2.3 2% 1.1 1.1 1.1 Preferred securities tend to pay relatively high income rates before taxes—and many also offer tax-advantaged distributions. After Taxes (Income >$415K) Low Duration Low Duration Preferred Securities Municipal Bonds 1.4 1.3 Low Duration Corporate Bonds 1.8 1.1 1.0 5-Year Treasury At May 31, 2017. Source: Cohen & Steers, BofA Merrill Lynch. Data quoted represents past performance, which is no guarantee of future results. The information presented above does not reflect the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. See back page for index representations and definitions and additional disclosures. Yields shown on a yield-to-maturity basis. After-tax calculations do not include state and local taxes and conservatively assume preferred securities are taxed at the QDI rate and marginal tax rate on a 50/50 basis (75/25 basis for low-duration preferred securities), with all other securities taxed at the full marginal tax rate based on income. Tax rates used: Income less than $415K—QDI: 18.8%, marginal rate: 38.8%; income greater than $415K—QDI: 23.8%, marginal rate: 43.4%. All tax rates include the Medicare surcharge of 3.8%. Preferred Securities Our Investment Team William Scapell, CFA, and Elaine Zaharis-Nikas, CFA, lead the preferred securities team, bringing a combined 45 years of industry experience. They are joined by a team of analysts whose proprietary analysis is supported by extensive contacts in the industry, and leverages the global research capabilities of Cohen & Steers’ infrastructure, large cap value and global real estate securities professionals. As of March 31, 2017, the team managed $11.6 billion in preferred securities across all the firm’s strategies for individual investors and pension funds around the world. Cohen & Steers’ Actively Managed Preferred Securities Open-End Mutual Funds Cohen & Steers Preferred Securities and Income Fund Cohen & Steers Low Duration Preferred and Income Fund CPXAX—Class A CPXCX—Class C CPXIX—Class I LPXAX—Class A LPXCX—Class C LPXIX—Class I CPXRX—Class R CPXZX—Class Z LPXRX—Class R LPXZX—Class Z Cohen & Steers U.S.-registered open-end funds are distributed by Cohen & Steers Securities, LLC, and are available only to U.S. residents. Index Definitions An investor cannot invest directly in an index, and index performance does not reflect the deduction of any fees, expenses or taxes. Preferred Securities: BofA Merrill Lynch Fixed Rate Preferred Securities Index (Credit quality: BBB) tracks the performance of fixed-rate U.S. dollar-denominated preferred securities issued in the U.S. domestic market. Municipal Bonds: BofA Merrill Lynch Municipal Master Index (Credit quality: AA-) tracks the performance of U.S. dollar-denominated investment-grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions, in the U.S. domestic market. Corporate Bonds: BofA Merrill Lynch Corporate Master Index (Credit quality: A-) tracks the performance of U.S. dollar-denominated investment-grade corporate debt publicly issued in the U.S. domestic market. Low Duration Preferred Securities: BofA Merrill Lynch 8% Constrained Developed Markets Low Duration Capital Securities Custom Index (Credit quality: BBB-) tracks the performance of select U.S. dollar-denominated fixed and floating-rate preferred, corporate and contingent capital securities, with remaining term to final maturity of one year or more, but less than five years. Low Duration Municipal Bonds: (1-5 Year) BofA Merrill Lynch Municipal Master Index (Credit quality: AA-) tracks the performance of U.S. dollar-denominated investment-grade tax-exempt debt (with maturities of 1-5 years) publicly issued by U.S. states and territories, and their political subdivisions, in the U.S. domestic market. Low Duration Corporate Bonds: (1-5 Year) BofA Merrill Lynch Corporate Master Index (Credit quality: A-) tracks the performance of U.S. dollar-denominated investment-grade corporate debt (with maturities of 1-5 years) publicly issued in the U.S. domestic market. Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A summary prospectus and prospectus containing this and other information may be obtained by visiting cohenandsteers.com or by calling 800 330 7348. Please read the summary prospectus and prospectus carefully before investing. Data quoted represents past performance, which is no guarantee of future results. This presentation is for informational purposes, and reflects prevailing conditions and our judgment as of this date, which are subject to change without notice. It does not constitute investment advice or a recommendation or offer. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment. There is no guarantee that any market forecast set forth in this presentation will be realized. Risks of Investing in Preferred Securities. Investing in any market exposes investors to risks. In general, the risks of investing in preferred securities are similar to those of investing in bonds, including credit risk and interest-rate risk. As nearly all preferred securities have issuer call options, call risk and reinvestment risk are also important considerations. In addition, investors face equity-like risks, such as deferral or omission of distributions, subordination to bonds and other more senior debt, and higher corporate governance risks with limited voting rights. Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt. Throughout this commentary we will make comparisons of preferred securities to corporate bonds, municipal bonds and Treasury securities. It is important to note that corporate bonds sit higher in the capital structure than preferred securities and therefore, in the event of bankruptcy, will be senior to the preferred securities. Municipal bonds are issued and backed by state and local governments and their agencies, and the interest from municipal securities is often free from both state and local income taxes. Treasury securities are issued by the U.S. government and are generally considered the safest of all bonds since they are backed by the full faith and credit of the U.S. government as to timely payment of principal and interest. Preferred funds may invest in below-investment-grade securities and unrated securities judged to be below investment grade by the Advisor. 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. The benchmarks do not contain below-investment-grade securities. Duration Risk. Duration is a mathematical calculation of the average life of a fixed-income or preferred security that serves as a measure of the security’s price risk to changes in interest rates (or yields). Securities with longer durations tend to be more sensitive to interest rate (or yield) changes than securities with shorter durations. Duration differs from maturity in that it considers potential changes to interest rates, and a security’s coupon payments, yield, price and par value and call features, in addition to the amount of time until the security matures. Various techniques may be used to shorten or lengthen the Fund’s duration. The duration of a security will be expected to change over time with changes in market factors and time to maturity. No representation or warranty is made as to the efficacy of any particular strategy or the actual returns that may be achieved. This commentary must be accompanied by the most recent Cohen & Steers fund factsheet(s) and summary prospectus if used in conjunction with the sale of mutual fund shares. Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, endowments, foundations and mutual funds. Cohen & Steers UK Limited is authorized and regulated by the Financial Conduct Authority (FRN 458459). Cohen & Steers Japan, LLC is a registered financial instruments operator (investment advisory and agency business with the Financial Services Agency of Japan and the Kanto Local Finance Bureau No. 2857) and is a member of the Japan Investment Advisers Association. About Cohen & Steers Cohen & Steers is a global investment manager specializing in liquid real assets, including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions. Founded in 1986, the firm is headquartered in New York City, with offices in London, Hong Kong, Tokyo and Seattle. Publication Date: June 2017. Copyright © 2017 Cohen & Steers, Inc. All rights reserved. cohenandsteers.com Advisors & Investors: 800 330 7348 Institutions & Consultants: 212 822 1620 MP841 RET 0617