Note 1. Organization and Significant Accounting Policies
Cohen & Steers Closed-End Opportunity Fund, Inc. (the Fund) was incorporated under
the laws of the State of Maryland on September 14, 2006 and is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, closed-end management investment company. The
Funds investment objective is to achieve total return, consisting of high current income and potential capital appreciation.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The Fund is an investment company and, accordingly, follows the investment company
accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 946Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the
United States of America (GAAP). The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New York Stock Exchange (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.
Securities not listed on the NYSE but listed on other domestic or foreign securities exchanges (including NASDAQ) 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. If after the close of a foreign market, but prior to the close of business on the day the securities are being valued, market conditions change significantly, certain non-U.S. equity holdings may
be fair valued pursuant to procedures established by the Board of Directors.
Readily marketable securities traded in
the OTC market, including listed securities whose primary market is believed by Cohen & Steers Capital Management, Inc. (the investment manager) 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 investment manager, pursuant to delegation by the Board of Directors, to reflect the fair value of such securities.
Short-term debt securities with 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 net asset value (NAV).
The
policies and procedures approved by the Funds Board of Directors delegate authority to make fair value determinations to the investment manager, subject to the oversight of the Board of Directors. The investment manager 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 of Directors. Among other things, these procedures allow the Fund to
16
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
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 investment manager 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 Funds Board of Directors. Circumstances in which
market prices may be unavailable include, but are not limited to, when trading in a security is suspended, the exchange on which the security is traded is subject to an unscheduled close or disruption or material events occur after the close of the
exchange on which the security is principally traded. 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 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.
Foreign equity fair value pricing procedures utilized by the Fund may cause certain
non-U.S. equity holdings to be fair valued on the basis of fair value factors provided by a pricing service to reflect any significant market movements between the time the Fund values such securities and the
earlier closing of foreign markets.
The Funds 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.
Fair value is defined as the price that the Fund would expect to receive upon the sale
of an investment or expect to pay to transfer a liability in an orderly transaction with an independent buyer in the principal market or, in the absence of a principal market, the most advantageous market for the investment or liability. The
hierarchy of inputs that are used in determining the fair value of the Funds investments is summarized below.
|
|
|
Level 1quoted prices in active markets for identical investments
|
|
|
|
Level 2other significant observable inputs (including quoted prices for similar investments,
interest rates, credit risk, etc.)
|
|
|
|
Level 3significant unobservable inputs (including the Funds own assumptions in
determining the fair value of investments)
|
The inputs or methodology used for valuing investments may
or may not be an indication of the risk associated with those investments. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
17
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
The following is a
summary of the inputs used as of June 30, 2020 in valuing the Funds investments carried at value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical
Investments
(Level 1)
|
|
|
Other
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Closed-End Funds
|
|
$
|
248,672,234
|
|
|
$
|
248,672,234
|
|
|
$
|
|
|
|
$
|
|
|
Exchange-Traded Funds
|
|
|
48,762,318
|
|
|
|
48,762,318
|
|
|
|
|
|
|
|
|
|
Short-Term Investments
|
|
|
2,432,146
|
|
|
|
|
|
|
|
2,432,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
in Securitiesa
|
|
$
|
299,866,698
|
|
|
$
|
297,434,552
|
|
|
$
|
2,432,146
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a
|
Portfolio holdings are disclosed individually on the Schedule of Investments.
|
Security Transactions and Investment Income: Security transactions are recorded on trade date.
Realized gains and losses on investments sold are recorded on the basis of identified cost. Interest income, which includes the amortization of premiums and accretion of discounts, is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date, except for certain dividends on foreign securities, which are recorded as soon as the Fund is informed after the ex-dividend date. Distributions from closed-end funds (CEFs) and exchange-traded funds (ETFs) are recorded as ordinary income, net realized capital gain or return of capital based on information reported by the CEFs and ETFs and managements
estimates of such amounts based on historical information. These estimates are adjusted when the actual source of distributions is disclosed by the CEFs and ETFs and may differ from the estimated amounts.
Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Investment securities and
other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in
foreign currencies are translated into U.S. dollars based upon prevailing exchange rates on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign
exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign currency transaction gains or losses arise from sales of foreign currencies, (excluding gains and losses on
forward foreign currency exchange contracts, which are presented separately, if any) currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest,
and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency translation gains and losses arise from changes in the values of assets and
liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates. Pursuant to U.S. federal income tax regulations, certain foreign
18
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
currency gains/losses included in
realized and unrealized gains/losses are included in or are a reduction of ordinary income for federal income tax purposes.
Dividends and Distributions to Shareholders: The Fund makes regular distributions pursuant to the Policy. Dividends from net investment income and capital gain distributions are determined in accordance with U.S. federal
income tax regulations, which may differ from GAAP. Dividends from net investment income, if any, are typically declared quarterly and paid monthly. Net realized capital gains, unless offset by any available capital loss carryforward, are typically
distributed to shareholders at least annually. Dividends and distributions to shareholders are recorded on the ex-dividend date and are automatically reinvested in full and fractional shares of the Fund in
accordance with the Funds Reinvestment Plan, unless the shareholder has elected to have them paid in cash.
Dividends from net investment income are subject to recharacterization for tax purposes. Based upon results of operations for the
six months ended June 30, 2020, the investment advisor considers it likely that a portion of the dividends will be reclassified to distributions from tax return of capital upon the final determination of the Funds taxable income after
December 31, 2020, the Funds fiscal year end.
Distributions Subsequent to June 30,
2020: The following distributions have been declared by the Funds Board of Directors and are payable subsequent to the period end of this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ex-Date
|
|
|
Record Date
|
|
|
Payable Date
|
|
|
Amount
|
|
|
7/14/20
|
|
|
|
7/15/20
|
|
|
|
7/31/20
|
|
|
$
|
0.087
|
|
|
8/18/20
|
|
|
|
8/19/20
|
|
|
|
8/31/20
|
|
|
$
|
0.087
|
|
|
9/15/20
|
|
|
|
9/16/20
|
|
|
|
9/30/20
|
|
|
$
|
0.087
|
|
Income Taxes: It is the policy of the Fund to continue to qualify as a regulated investment
company (RIC), if such qualification is in the best interest of the shareholders, by complying with the requirements of Subchapter M of the Internal Revenue Code applicable to RICs, and by distributing substantially all of its taxable earnings to
its shareholders. Also, in order to avoid the payment of any federal excise taxes, the Fund will distribute substantially all of its net investment income and net realized gains on a calendar year basis. Accordingly, no provision for federal income
or excise tax is necessary. Management has analyzed the Funds tax positions taken on federal and applicable state income tax returns as well as its tax positions in non-U.S. jurisdictions in which it
trades for all open tax years and has concluded that as of June 30, 2020, no additional provisions for income tax are required in the Funds financial statements. The Funds tax positions for the tax years for which the applicable
statutes of limitations have not expired are subject to examination by the Internal Revenue Service, state departments of revenue and by foreign tax authorities.
Note 2. Investment Management Fees and Other Transactions with Affiliates
Investment Management Fees: Cohen & Steers Capital Management, Inc. serves as the Funds investment manager
pursuant to an investment management agreement (the investment management agreement). Under the terms of the investment management agreement, the investment manager provides the Fund with day-to-day investment decisions and generally manages the Funds investments in accordance with the stated policies of the Fund, subject to the supervision of the Board of Directors.
19
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
For the services provided to the
Fund, the investment manager receives a fee, accrued daily and paid monthly, at the annual rate of 0.95% of the average daily net assets of the Fund.
The investment manager is also responsible, under the investment management agreement, for the performance of certain administrative functions for the Fund. Additionally, the investment manager pays certain expenses of the Fund,
including, but not limited to, administrative and custody fees, transfer agent fees, professional fees, and reports to shareholders.
The investment manager has contractually agreed to reimburse the Fund so that its total annual operating expenses exclusive of brokerage fees and commissions, taxes, and, upon approval of the Board of Directors, extraordinary
expenses do not exceed 0.95% of the Funds average daily net assets of the Fund. This commitment is currently expected to remain in place for the life of the Fund, can only be amended or terminated by agreement of the Funds Board of
Directors and the investment manager and will terminate automatically in the event of termination of the investment management agreement between the investment manager and the Fund. For the six months ended June 30, 2020, fees waived and/or
expenses reimbursed totaled $9,368.
Directors and Officers Fees: Certain directors and officers of
the Fund are also directors, officers, and/or employees of the investment manager. The Fund does not pay compensation to directors and officers affiliated with the investment manager except for the Chief Compliance Officer, who received compensation
from the investment manager, which was reimbursed by the Fund, in the amount of $1,220 for the six months ended June 30, 2020.
Note 3. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, for the six months ended June 30, 2020, totaled
$94,676,295 and $101,079,860, respectively.
Note 4. Income Tax Information
As of June 30, 2020, the federal tax cost and net unrealized appreciation (depreciation) in value of investments held were as
follows:
|
|
|
|
|
Cost of investments in securities for federal income tax purposes
|
|
$
|
324,894,405
|
|
|
|
|
|
|
Gross unrealized appreciation on investments
|
|
$
|
7,759,672
|
|
Gross unrealized depreciation on investments
|
|
|
(32,787,379
|
)
|
|
|
|
|
|
Net unrealized appreciation (depreciation) on investments
|
|
$
|
(25,027,707
|
)
|
|
|
|
|
|
Note 5. Capital Stock
The Fund is authorized to issue 100 million shares of common stock at a par value of $0.001 per share.
During the six months ended June 30, 2020, the Fund issued 9,801 shares of common stock at $133,302 for the reinvestment of
dividends. During the year ended December 31, 2019, the Fund issued 9,371 shares of common stock at $123,982 for the reinvestment of dividends.
20
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
On
December 10, 2019, the Board of Directors approved the continuation of the delegation of its authority to management to effect repurchases, pursuant to managements discretion and subject to market conditions and investment considerations,
of up to 10% of the Funds common shares outstanding (Share Repurchase Program) as of January 1, 2020, through the fiscal year ended December 31, 2020.
During the six months ended June 30, 2020 and the year ended December 31, 2019, the Fund did not effect any repurchases.
Note 6. Other Risks
Market Price Discount from Net Asset Value Risk: Shares of closed-end investment companies frequently trade at a discount from their NAV. This characteristic is a risk separate and distinct from the risk that NAV could
decrease as a result of investment activities. Whether investors will realize gains or losses upon the sale of the shares will depend not upon the Funds NAV but entirely upon whether the market price of the shares at the time of sale is above
or below the investors purchase price for the shares. Because the market price of the shares is determined by factors such as relative supply of and demand for shares in the market, general market and economic conditions, and other factors
beyond the control of the Fund, the shares may trade at, above or below NAV.
Risks of Investing in Other Investment
Companies: Since the Fund concentrates its assets in closed-end management investment companies, risks of investing in the Fund include the risks associated with the purchased closed-end investment companies portfolio securities, and a shareholder in the Fund will bear not only his or her proportionate share of the Funds expenses, but also indirectly the expenses of the
purchased closed-end investment companies (Portfolio Funds). Shareholders will therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. Risks associated with
investments in closed-end funds generally include market risk, leverage risk, risk of market price discount from NAV, risk of anti-takeover provisions and
non-diversification.
To the extent the Fund invests a portion of its assets in
other investment companies, including exchange-traded funds and other types of pooled investment funds, those assets will be subject 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 Funds expenses, but also indirectly the expenses of the purchased investment funds. In addition, restrictions under the 1940 Act may limit the Funds ability to invest in other investment
companies to the extent desired.
Sector Concentration Risk: Some Portfolio Funds invest substantially, or even
exclusively, in one sector or industry group and therefore carry risk of the particular sector or industry group. To the extent a Portfolio Fund focuses its investments in a specific sector, such as real estate, energy or utilities, the Portfolio
Fund will be susceptible to adverse conditions and economic or regulatory occurrences affecting the sector or industry group, which tends to increase volatility and result in higher risk.
Covered Call Writing Risk: The Fund may invest in Portfolio Funds that engage in a strategy known as covered call
option writing, which is designed to produce income from option premiums and offset a portion of a market decline in the underlying security. The writer (seller) of a covered call option
21
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
forgoes, during the options
life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained the risk of loss should the price of the underlying security
decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in
order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
Municipal Bond Risk: The Fund may invest in Portfolio Funds that invest in municipal bonds. Municipal bonds are debt
obligations issued by states or by political subdivisions or authorities of states. Municipal bonds are typically designated as general obligation bonds, which are general obligations of a governmental entity that are backed by the taxing power of
such entity, or revenue bonds, which are payable from the income of a specific project or authority and are not supported by the issuers power to levy taxes. Municipal bonds are long-term fixed rate debt obligations that generally decline in
value with increases in interest rates, when an issuers financial condition worsens or when the rating on a bond is decreased. Many municipal bonds may be called or redeemed prior to their stated maturity. Lower quality revenue bonds and other
credit-sensitive municipal securities carry higher risks of default than general obligation bonds.
Master Limited
Partnership Risk: The Fund may invest in Portfolio Funds that invest in master limited partnerships (MLPs). 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. 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 a particular geographic region are subject to risks associated with such industry or
region. The benefit derived from the Funds investment in MLPs is largely dependent on the MLPs being treated as partnerships for federal income tax purposes. Weakening energy market fundamentals may increase counterparty risk and impact MLP
profitability. Specifically, energy companies suffering financial distress may be able to abrogate contracts with MLPs, decreasing or eliminating sources of revenue.
Senior Loans Risk: The Fund may invest in Portfolio Funds that invest in senior loans. The risks associated with senior
loans are similar to the risks of junk bonds, although senior loans are typically senior and secured, whereas junk bonds are often subordinated and unsecured. Investments in senior loans are typically below investment grade and are considered
speculative because of the credit risk of their issuers. Such companies are more likely to default on their payments of interest and principal owed, and such defaults could reduce a Portfolio Funds NAV and income distributions. An economic
downturn generally leads to a higher non-payment rate, and a senior loan may lose significant value before a default occurs. There is no assurance that the liquidation of the collateral would satisfy the
claims of the borrowers obligations in the event of the nonpayment of scheduled interest or principal, or that the collateral could be readily liquidated. Economic and other events (whether real or perceived) can reduce the demand for certain
senior loans or senior loans generally, which may reduce market prices. Senior loans and other debt securities are also subject to the risk of price declines and to increases in prevailing interest rates, although floating-rate debt instruments such
as senior loans in
22
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
which certain Portfolio Funds may
be expected to invest are substantially less exposed to this risk than fixed-rate debt instruments.
Preferred
Securities Risk: The Fund may invest in Portfolio Funds that invest in preferred securities. Preferred securities are subject to credit risk, which is the risk that a security 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 also subject to interest rate risk and may decline in value because of changes in market interest
rates. Portfolio Funds may be subject to a greater risk of rising interest rates than would normally be the case in an environment of low interest rates and the effect of potential government fiscal policy initiatives and resulting market reaction
to those initiatives. In addition, an issuer may be permitted to defer or omit distributions. Preferred securities are also generally subordinated to bonds and other debt instruments in a companys capital structure. During periods of declining
interest rates, an issuer may be able to exercise an option to redeem (call) its issue at par earlier than scheduled, and the Portfolio Fund may be forced to reinvest in lower yielding securities. Certain preferred securities may be substantially
less liquid than many other securities, such as common stocks. Generally, preferred security holders have no voting rights with respect to the issuing company unless certain events occur. Certain preferred securities may give the issuers special
redemption rights allowing the securities to be redeemed prior to a specified date if certain events occur, such as changes to tax or securities laws.
Leverage Risk: Portfolio Funds may employ the use of leverage. The use of leverage is a speculative technique and there are
special risks and costs associated with leverage. The NAV of the Portfolio Funds shares may be reduced by the issuance and ongoing costs of leverage. So long as the Portfolio Fund is able to invest in securities that produce an investment
yield that is greater than the total cost of leverage, the leverage strategy will produce higher current net investment income for the shareholders, including the Fund. On the other hand, to the extent that the total cost of leverage exceeds the
incremental income gained from employing such leverage, shareholders, including the Fund, would realize lower net investment income. In addition to the impact on net income, the use of leverage will have an effect of magnifying capital appreciation
or depreciation for shareholders. Specifically, in an up market, leverage will typically generate greater capital appreciation than if the Portfolio Fund were not employing leverage. Conversely, in down markets, the use of leverage will generally
result in greater capital depreciation than if the Portfolio Fund had been unlevered. To the extent that the Portfolio Fund is required or elects to reduce its leverage, the Portfolio Fund may need to liquidate investments, including under adverse
economic conditions which may result in capital losses potentially reducing returns to shareholders. The use of leverage also results in the investment management fees payable to the investment manager being higher than if the Fund did not use
leverage and can increase operating costs, which may reduce total return. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.
Regulatory Risk: The U.S. government has proposed and adopted multiple regulations that could have a long-lasting impact on
the Fund and on the mutual fund industry in general. The U.S. Securities and Exchange Commissions (SEC) final rules and amendments to modernize reporting and disclosure, along with other potential upcoming regulations, could, among other
things, restrict the Funds ability to engage in transactions, and/or increase overall expenses of the Fund. In addition, the SEC, Congress,
23
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
various exchanges and regulatory
and self-regulatory authorities, both domestic and foreign, have undertaken reviews of the use of derivatives by registered investment companies, which could affect the nature and extent of instruments used by the Fund. While the full extent of all
of these regulations is still unclear, these regulations and actions may adversely affect both the Fund and the instruments in which the Fund invests as well as its ability to execute its investment strategy. Similarly, regulatory developments in
other countries may have an unpredictable and adverse impact on the Fund.
The SEC has proposed a new rule that would
replace present SEC and SEC staff regulatory guidance related to limits on a registered investment companys use of derivative instruments and certain other transactions, such as short sales and reverse repurchase agreements. There is no
assurance that the rule will be adopted. The proposed rule would, among other things, limit the ability of the Fund to enter into derivative transactions and certain other transactions, which may substantially curtail the Funds ability to use
derivative instruments as part of the Funds investment strategy and could ultimately prevent the Fund from being able to achieve its investment goals.
Foreign (Non-U.S.) and Emerging Market Securities Risk: The Fund directly purchases
securities of foreign issuers. Risks of investing in foreign securities, which can be expected to be greater for investments in emerging markets, include currency risks, future political and economic developments and possible imposition of foreign
withholding taxes on income or proceeds payable on the securities. In addition, there may be less publicly available information about a foreign issuer than about a domestic issuer, and foreign issuers may not be subject to the same accounting,
auditing and financial recordkeeping standards and requirements as domestic issuers. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than securities of comparable U.S. issuers.
Investing in securities of companies in emerging markets may entail special risks relating to potential economic,
political or social instability and the risks of expropriation, nationalization, confiscation, trade sanctions or embargoes or the imposition of restrictions on foreign investment, the lack of hedging instruments, and repatriation of capital
invested. The securities and real estate markets of some emerging market countries have in the past experienced substantial market disruptions and may do so in the future.
Geopolitical Risk: Occurrence of global events similar to those in recent years, such as war, terrorist attacks, natural or
environmental disasters, country instability, infectious disease epidemics, such as that caused by the COVID-19 virus, market instability, debt crises and down grades, embargoes, tariffs, sanctions and other
trade barriers and other governmental trade or market control programs, the potential exit of a country from its respective union and related geopolitical events, may result in market volatility and may have long-lasting impacts on both the U.S. and
global financial markets. Additionally, those events, as well as other changes in foreign and domestic political and economic conditions, could adversely affect individual issuers or related groups of issuers, securities markets, interest rates,
secondary trading, credit ratings, inflation, investor sentiment and other factors affecting the value of the Funds investments.
An outbreak of respiratory disease caused by a novel coronavirus designated as COVID-19 has resulted in, among other things, extreme volatility in the financial markets and severe losses,
reduced liquidity of many instruments, significant travel restrictions, significant disruptions to business
24
COHEN
& STEERS CLOSED-END OPPORTUNITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
operations, supply chains and
customer activity, lower consumer demand for goods and services, service and event cancellations, reductions and other changes, strained healthcare systems, as well as general concern and uncertainty. The impact of the
COVID-19 outbreak has negatively affected the global economy, the economies of individual countries, and the financial performance of individual issuers, sectors, industries, asset classes, and markets in
significant and unforeseen ways. Pandemics may also exacerbate other pre-existing political, social, economic, market and financial risks. The effects of the outbreak in developing or emerging market countries
may be greater due to less established health care systems and supply chains. The COVID-19 pandemic and its effects may be short term or, particularly in the event of a second wave of infections,
may result in a sustained economic downturn or a global recession, ongoing market volatility and/or decreased liquidity in the financial markets, exchange trading suspensions and closures, higher default rates, domestic and foreign political and
social instability and damage to diplomatic and international trade relations. There are numerous potential vaccines in development, but the scalability and effectiveness of such vaccines are unknown. Even if an effective vaccine were to become
readily available, the political, social, economic, market and financial risks of COVID-19 could persist for years to come. The foregoing could impair the Funds ability to maintain operational standards
(such as with respect to satisfying redemption requests), disrupt the operations of the Funds service providers, adversely affect the value and liquidity of the Funds investments, and negatively impact the Funds performance and
your investment in the Fund.
On January 31, 2020, the United Kingdom (UK) withdrew from the European Union (EU)
(referred to as Brexit), commencing a transition period. During this period, the UK will no longer be considered a member state of the EU, but will remain subject to EU law, regulations and maintain access to the EU single market while the UK and EU
negotiate and agree on the nature of their future relationship. The transition period is expected to end December 31, 2020, subject to extension. Brexit has resulted in volatility in European and global markets and could have negative long-term
impacts on financial markets in the UK and throughout Europe. There is considerable uncertainty about the potential consequences of Brexit, how negotiations of trade agreements will proceed, and how the financial markets will react. As this process
unfolds, markets may be further disrupted. Given the size and importance of the UKs economy, uncertainty about its legal, political and economic relationship with the remaining member states of the EU may continue to be a source of
instability. In addition, if the UK and the EU are unable to agree on trade and/or other agreements by the end of the transition period, or a related extension, the economic impact resulting from Brexit may be more negative.
Growing tensions, including trade disputes, between the United States and other nations, or among foreign powers, and possible
diplomatic, trade or other sanctions could adversely impact the global economy, financial markets and the Fund. The strengthening or weakening of the U.S. dollar relative to other currencies may, among other things, adversely affect the Funds
investments denominated in non-U.S. dollar currencies. It is difficult to predict when similar events affecting the U.S. or global financial markets may occur, the effects that such events may have, and the
duration of those effects.
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)(Continued)
LIBOR Risk:
Many financial instruments are tied to the London Interbank Offered Rate, or LIBOR, to determine payment obligations, financing terms, hedging strategies, or investment value. LIBOR is the offered rate for short-term Eurodollar
deposits between major international banks. In 2017 the head of the UK Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021. Alternatives to LIBOR are in development in many major financial markets. For
example, the U.S. Federal Reserve has begun publishing a Secured Overnight Financing Rate (SOFR), a broad measure of secured overnight U.S. Treasury repo rates, as a possible replacement for U.S. dollar LIBOR. Bank working groups and regulators in
other countries have suggested other alternatives for their markets, including the Sterling Overnight Interbank Average Rate (SONIA) in England. Other countries are introducing their own local-currency-denominated alternative reference rates for
short-term lending and global consensus on alternative rates is lacking. It is likely that panel banks will cease reporting LIBOR as soon as they are able to, effectively phasing it out as of 2022; however, the LIBOR transition might be extended.
The official sector appears resistant to adjusting deadlines but there may be more pressing demands on regulators and companies stemming from COVID-19. There remains uncertainty and risk regarding the willingness and ability of issuers and lenders
to include enhanced provisions in new and existing contracts or instruments, the suitability of the proposed replacement rates, and the process for amending existing contracts and instruments remains unclear. As such, the transition away from LIBOR
may lead to increased volatility and illiquidity in markets that are tied to LIBOR, reduced values of, inaccurate valuations of, and miscalculations of payment amounts for LIBOR-related investments or investments in issuers that utilize LIBOR,
increased difficulty in borrowing or refinancing and reduced effectiveness of hedging strategies, adversely affecting the Funds performance or NAV. In addition, any alternative reference rate may be an ineffective substitute resulting in
prolonged adverse market conditions for the Fund. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021 and could extend into 2022 or beyond.
Note 7. Other
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Funds maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future
and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.
Note 8. Subsequent Events
Management has evaluated events and transactions occurring after June 30, 2020 through the date that the financial statements were issued, and has determined that no additional disclosure in the financial statements is
required.
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