<PAGE>
<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
February 6, 1996
To Our Shareholders:
We are pleased to submit to you the annual report for the Cohen & Steers
Total Return Realty Fund, Inc. for the year ended December 31, 1995. The net
asset value per share at that date was $13.44. In addition, during the fourth
quarter three $0.08 per share monthly dividends were declared and paid.
1995 REVIEW
The year just ended can best be characterized as one in which balance
returned to nearly every aspect of the real estate and real estate securities
markets. The total investment return of REITs in 1995 was both satisfactory and
above their long-term record; for the past ten years REITs have produced average
annual total returns of 10.3%. The Fund's total return for 1995 based on income
and change in net asset value was 9.1%. In addition, returns from direct real
estate were the highest in seven years.
Many investors, however, have expressed disappointment over recent REIT
performance because it lagged, by a considerable margin, the unusually high
returns registered by the stock (+37.6%) and long-term bond (+34.2%) markets.
While many observers have gone to great lengths to try to explain the
performance of REITs relative to other financial market assets, we believe that
REIT returns were very much in line with what should be rationally expected.
Importantly, in our opinion, 1995 performance substantiated the low correlation
between REIT returns and interest rates and it further demonstrated the low
volatility that is characteristic of REITs. The low 'beta' of REITs in general,
and our portfolio in particular, would imply relative returns that are in line
with those achieved in 1995.
The performance of REITs in 1995 reflects the balanced supply/demand
situation which exists in today's real estate markets between both landlords and
tenants and buyers and sellers of property. Vacancy rates for most major
property types have declined and market rents have risen as the economy has
grown and new development has been held in check. This improvement in real
estate conditions has resulted in the return of liquidity to the real estate
markets, an increase in transactions and, therefore, a reversion of investment
returns to a more normal level. Naturally, investment returns were not uniform
among the various property sectors as shown in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1995 TOTAL INVESTMENT RETURNS OF MAJOR SECTORS*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All Equity REITs.............................. 15.3% Office REITs.................................. 38.8%
Apartment REITs............................... 12.3 Self Storage REITs............................ 34.9
Health Care REITs............................. 24.9 Shopping Center REITs......................... 5.1
Hotel REITs................................... 30.8 S&P 500 Index................................. 37.6
Industrial REITs.............................. 15.9 Long-term Treasury............................ 34.2
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Source: National Association of Real Estate Investment Trusts, Inc.
Our underperformance of the NAREIT Equity REIT Index in 1995 was a direct
result of our heavier than average weighting in owners of shopping centers. At
the beginning of the year we had expected the economy to experience moderate
growth which would translate into a good year for owners of retail properties.
Although the companies in our portfolio actually did experience healthy cash
flow growth, uncertainties surrounding the retail environment, particularly
towards year end, caused the share price performance of shopping center owners
to lag that of most other property types. We were also somewhat overweighted in
the apartment sector. Again, our companies experienced strong cash flow growth
but fears of increasing development activity suppressed the share prices of many
apartment-owning REITs.
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1
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
The better performing sectors during 1995 tended to be either somewhat less
mainstream areas or ones which have a limited number of companies available in
the public market but are enjoying extremely strong fundamentals. These include
owners of office, hotel and self-storage facilities. Of the $1.0 billion in
initial public offerings of REITs underwritten during 1995, over 80% were in the
storage and hotel sectors. Most of the balance of the $5.7 billion of common
equity raised by REITs during 1995 was in the form of secondary stock offerings,
essentially by the better-positioned companies that used the proceeds primarily
to retire debt or finance property acquisitions. Here too, on the underwriting
side, balance was restored to the REIT market as equity offerings were completed
by high-quality companies and in amounts that satisfied but did not overwhelm
demand.
In summary, 1995 represented a year of great balance with regard to real
estate fundamentals, the supply and demand for properties, and the supply and
demand for REIT shares. This, in turn, led to investment returns which were in
line with historic trends.
1996 OUTLOOK
While we have maintained that interest rates alone do not exert the most
influence on REIT share prices, we believe that as we start 1996, the single
most important element in both the real estate and REIT picture is the
prevailing level of interest rates. With long-term treasury bond rates at around
the 6% level and credit readily available, we believe the real estate industry
is faced with a financing opportunity not seen in decades. Whereas the last time
interest rates were at this level (more than two years ago) REITs began a period
of below-average performance, the financial market and valuation conditions were
considerably different than they are today, as shown in the following table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OCTOBER 1993 DECEMBER 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
30-year Treasury Yield............................................................... 5.96% 5.96%
10-year Treasury Yield............................................................... 5.43% 5.58%
S&P 500 Dividend Yield............................................................... 2.68% 2.24%
Equity REIT Dividend Yield........................................................... 6.16% 7.37%
divided by 30-year Treasury Yield............................................... 1.04 1.24
divided by 10-year Treasury Yield............................................... 1.13 1.32
divided by S&P 500 Yield........................................................ 2.30 3.29
S&P 500 P/E Ratio.................................................................... 24.20 17.51
Equity REIT Market Capitalization.................................................... $27.6 billion $46.7 billion
Assets in Real Estate Mutual Funds................................................... $1.0 billion $2.2 billion
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The last time long-term interest rates were at today's level equity REITs
had completed almost three years of exceptional returns and were trading at
valuation levels, based on dividend yields, which were unsustainably high on an
absolute basis, albeit still attractive relative to the stock and bond markets.
In contrast, at the end of 1995 equity REIT yields were considerably higher on
an absolute basis; relative to stocks and bonds REITs were trading at an
historically low valuation level. In our opinion, one important difference is
that although interest rates were quite low in 1993, there was not a great
amount of mortgage debt available to the real estate industry. In addition,
because many REITs were newly formed, the credit markets were not yet fully open
to these companies. Currently, because of the return to health of the real
estate industry, mortgage lenders are once again actively making loans and the
commercial mortgage-backed securities market is enjoying significant growth.
Further, the maturation of the REIT industry over the past several years has
opened the credit
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2
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
markets to many companies for a wide spectrum of corporate debt instruments. In
1995, REITs raised approximately $2.6 billion in such capital, nearly double
what was raised in 1994.
With income returns (or 'capitalization rates') on property purchases
higher today than they were in 1993 and debt financing now more readily
available, we believe that the current environment for acquisitions is the most
advantageous in a generation. We believe that a continuation of the present low
interest rate environment is likely to precipitate a great deal of acquisition
activity and eventually cause property values to rise. Low interest rates are of
particular benefit to the REIT industry today which, unlike in 1993, is much
larger, more mature, dominated by strong and proven companies and better
accepted by investors at large. While the cost of equity financing may vary
based on the way it is computed, we believe that there is no calculation which
can show that cost to be less expensive than the cost of debt capital. It is
therefore our belief that those companies which either fail to take advantage of
today's borrowing opportunity or choose to sell equity in anything but a
judicious manner will find that their stock prices suffer as a result.
In summary, in our opinion, there are three important underpinnings that
the current low interest rate environment provides to the REIT industry.
Mortgage interest rates, which are influenced by long-term bond yields, and are
well below the income returns available in the property markets, provide an
exceptional financing opportunity for acquisitions and therefore a strong
foundation for property values. Second, those companies that properly take
advantage of current financing opportunities may be expected to enjoy an
increase in their growth rates and share prices. And third, because REIT
dividend yields are currently significantly higher than other financial market
yields this should attract investors and provide strong support for REIT share
prices.
Our investment strategy for 1996 will focus on our ability to invest in
those sectors that we believe show the strongest fundamentals along with those
companies whose valuations have declined to what we consider unwarranted levels.
We anticipate a continuation of moderate economic growth due to what appears to
be a bias towards monetary stimulus by the Federal Reserve and a lack of
excesses in the economy. As a result, we believe that our holdings in the
shopping center sector are likely to achieve healthy profit growth. In addition,
consolidation of the retail industry may well provide the stronger companies
with uncommon re-leasing, upgrading and acquisition opportunities. Further, with
Wall Street almost unanimously negative on the shopping center sector, we
believe that nearly all bad news may be adequately factored into share prices.
Similarly, apartments are likely to be our next highest weighting due to the
continuing improvement that we expect to see in rental rates. Although there is
some apartment construction taking place, it is at a rate which we believe
cannot meet the underlying demand for rental housing. We are increasingly
attracted to the office sector, which has been the last major property type to
stage a recovery and where high-quality acquisition opportunities may still be
plentiful. We also expect both occupancy and rent growth to accelerate in the
next five years in the office sector.
While a return to normal and stable conditions in the real estate industry
is welcomed by most, it has resulted in a market environment which is more
competitive and efficient. We nonetheless remain confident in our investment
strategy and security selection criteria. Ultimately, we expect this to result
in superior investment results.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
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3
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------- -----------
<S> <C> <C>
EQUITIES 97.42%
APARTMENT 27.28%
Amli Residential Properties Trust..................... 100,000 $ 2,000,000
Associated Estates Realty Corp........................ 165,300 3,553,950
Avalon Properties..................................... 98,200 2,111,300
Camden Property Trust................................. 106,000 2,530,750
Charles E. Smith Residential Realty................... 89,400 2,112,075
Colonial Properties Trust............................. 124,200 3,167,100
Columbus Realty Trust................................. 105,000 2,034,375
Equity Residential Properties Trust................... 25,900 793,188
Oasis Residential..................................... 86,400 1,965,600
Summit Properties..................................... 189,500 3,766,312
Wellsford Residential Property Trust.................. 134,300 3,088,900
-----------
27,123,550
-----------
HEALTH CARE 8.13%
American Health Properties............................ 87,200 1,874,800
Nationwide Health Properties.......................... 97,100 4,078,200
Omega Healthcare Investors............................ 80,000 2,130,000
-----------
8,083,000
-----------
HOTELS 1.54%
Patriot American Hospitality.......................... 59,400 1,529,550
-----------
INDUSTRIAL 2.05%
Liberty Property Trust................................ 98,100 2,035,575
-----------
OFFICE 8.06%
Beacon Properties Corp. .............................. 45,000 1,035,000
Cali Realty Corp. .................................... 99,600 2,178,750
Carr Realty Corp. .................................... 127,400 3,105,375
Reckson Associates Realty Corp. ...................... 57,800 1,697,875
-----------
8,017,000
-----------
</TABLE>
See notes to financial statements.
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4
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------- -----------
<S> <C> <C>
SHOPPING CENTER 50.36%
Community Center: 19.75%
Bradley Real Estate................................... 114,000 $ 1,539,000
Developers Diversified Realty Corp.................... 70,800 2,124,000
Federal Realty Investment Trust....................... 133,300 3,032,575
Mid-America Realty Investments........................ 128,300 1,010,363
Pennsylvania Real Estate Investment Trust............. 165,500 3,434,125
Price REIT, Series B.................................. 120,100 3,332,775
Regency Realty Corp................................... 55,000 948,750
Sizeler Property Investors............................ 103,800 921,225
Vornado Realty Trust.................................. 87,700 3,288,750
-----------
19,631,563
-----------
Factory Outlet Center: 3.45%
HGI Realty............................................ 86,000 1,967,250
Tanger Factory Outlet Centers......................... 58,700 1,467,500
-----------
3,434,750
-----------
Regional Mall: 27.16%
CBL & Associates Properties........................... 86,700 1,885,725
DeBartolo Realty Corp. ............................... 370,900 4,821,700
Glimcher Realty Trust................................. 297,600 5,133,600
J.P. Realty........................................... 132,800 2,905,000
Macerich Company...................................... 153,000 3,060,000
Simon Property Group.................................. 78,800 1,920,750
Taubman Centers....................................... 345,900 3,459,000
The Mills Corp........................................ 81,300 1,382,100
Urban Shopping Centers................................ 114,000 2,436,750
-----------
27,004,625
-----------
TOTAL SHOPPING CENTER.............................. 50,070,938
-----------
TOTAL EQUITIES (Identified cost -- $96,827,590).... 96,859,613
-----------
</TABLE>
See notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------- -----------
<S> <C> <C>
CORPORATE BONDS 1.88%
Trizec Finance, Ltd. 10.875%, 10/15/05
(Identified cost -- $1,786,518).................... $1,800,000 $ 1,869,750
-----------
TOTAL INVESTMENTS (Identified cost -- $98,614,108) ........ 99.30% 98,729,363
OTHER ASSETS, LESS LIABILITIES ............................ 0.70% 695,932
-----------
NET ASSETS (Equivalent to $13.44 per share
based on 7,399,100 shares of capital
stock outstanding) ........................ 100.00% $99,425,295
--------- -----------
--------- -----------
</TABLE>
See notes to financial statements.
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6
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $98,614,108) (Note 1)................ $ 98,729,363
Receivable for investment securities sold.................................................... 462,844
Dividends receivable......................................................................... 1,003,656
Interest receivable.......................................................................... 40,102
Unamortized organization costs and other assets (Note 1)..................................... 41,175
------------
Total Assets........................................................................... 100,277,140
------------
LIABILITIES:
Loan payable (Notes 1 and 7)................................................................. 383,580
Payable for investment securities purchased.................................................. 138,088
Payable for dividends declared............................................................... 187,282
Investment advisory fees payable (Note 2).................................................... 56,533
Administrative fees payable (Note 2)......................................................... 16,152
Interest payable (Notes 1 and 7)............................................................. 3,060
Accrued expenses and other liabilities....................................................... 67,150
------------
Total Liabilities...................................................................... 851,845
------------
NET ASSETS applicable to 7,399,100 shares of $.001 par value common stock outstanding (Note 4)..... $ 99,425,295
------------
------------
NET ASSET VALUE PER SHARE:
($99,425,295[div]7,399,100 shares of common stock outstanding).................................. $ 13.44
------------
------------
MARKET PRICE PER SHARE:............................................................................ $ 13.375
------------
------------
MARKET PRICE PREMIUM (DISCOUNT) TO NET ASSET VALUE PER SHARE....................................... (0.48%)
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4).............................................................. $ 97,455,675
Accumulated net realized gain on investments sold............................................ 1,854,365
Net unrealized appreciation on investments................................................... 115,255
------------
$ 99,425,295
------------
------------
</TABLE>
See notes to financial statements.
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7
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income................................................................................ $ 7,500,330
Interest income................................................................................ 158,258
-----------
Total Income............................................................................. 7,658,588
-----------
Expenses:
Investment advisory fees (Note 2).............................................................. 668,143
Administrative fees (Note 2)................................................................... 190,896
Professional fees (Note 6)..................................................................... 76,760
Custodian fees................................................................................. 55,156
Interest expense (Notes 1 and 7)............................................................... 54,141
Transfer agent fees............................................................................ 52,731
Directors' fees and expenses (Note 2).......................................................... 24,200
Registration fees.............................................................................. 16,170
Amortization of organization expenses (Note 1)................................................. 12,804
Reports to shareholders........................................................................ 12,232
Miscellaneous.................................................................................. 28,621
-----------
Total Expenses........................................................................... 1,191,854
Reduction of Expenses (Note 6)........................................................... (16,456)
-----------
Net Expenses............................................................................. 1,175,398
-----------
Net Investment Income................................................................................ 6,483,190
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments............................................................... (355,997)
Net change in unrealized appreciation or depreciation on investments........................... 2,265,610
-----------
Net realized and unrealized gain on investments.......................................... 1,909,613
-----------
Net increase in net assets resulting from operations................................................. $ 8,392,803
-----------
-----------
</TABLE>
See notes to financial statements.
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8
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income................................. $ 6,483,190 $ 6,186,632
Net realized loss on investments...................... (355,997) (2,314,756)
Net change in unrealized appreciation on invest-
ments.............................................. 2,265,610 2,386,804
------------ -----------
Net increase in net assets resulting from opera-
tions........................................ 8,392,803 6,258,680
------------ -----------
Dividends and Distributions from (Note 1):
Net investment income................................. (5,200,915) (3,505,268)
Tax return of capital................................. (1,902,118) (3,005,869)
------------ -----------
Total dividends and distributions............... (7,103,033) (6,511,137)
------------ -----------
Total increase (decrease) in net assets......... 1,289,770 (252,457)
Net Assets:
Beginning of year..................................... 98,135,525 98,387,982
------------ -----------
End of year........................................... $ 99,425,295 $98,135,525
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the For the For the Period
Year Ended Year Ended September 27, 1993*
PER SHARE OPERATING PERFORMANCE: December 31, 1995 December, 31, 1994 to December 31, 1993
- ------------------------------------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period............. $ 13.26 $ 13.30 $ 13.96`D'
---------- -------- --------
Net investment income...................... 0.88 0.83 0.18
Net realized and unrealized gain (loss) on
investments............................. 0.26 0.01 (0.60)
---------- -------- --------
Total from investment operations..... 1.14 0.84 (0.42)
---------- -------- --------
Less dividends and distributions from:
Net investment income...................... (0.70) (0.47) (0.18)
Distributions in excess of net investment
income.................................. (0.00) (0.00) (0.03)
Tax return of capital distribution......... (0.26) (0.41) (0.03)
---------- -------- --------
Total from dividends and
distributions..................... (0.96) (0.88) (0.24)
---------- -------- --------
Net increase (decrease) in net asset
value............................. 0.18 (0.04) (0.66)
---------- -------- --------
Net asset value, end of period................... $ 13.44 $ 13.26 $ 13.30
---------- -------- --------
---------- -------- --------
Market value, end of period...................... $ 13.375 $ 12.375 $ 13.50
---------- -------- --------
---------- -------- --------
TOTAL MARKET VALUE RETURN(1)..................... +16.38% -2.32% -8.48%
---------- -------- --------
---------- -------- --------
TOTAL NET ASSET VALUE RETURN(1).................. +9.14% +6.45% -4.26%`D'
---------- -------- --------
---------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)... $ 99,425 $ 98,136 $ 98,388
---------- -------- --------
---------- -------- --------
Ratio of expenses to average net
assets(2)............................... 1.23% 1.31% 1.15%**
---------- -------- --------
---------- -------- --------
Ratio of net investment income to average
net assets(2)........................... 6.79% 6.19% 5.21%**
---------- -------- --------
---------- -------- --------
Portfolio turnover rate.................... 51% 65% 16%
---------- -------- --------
---------- -------- --------
</TABLE>
- ------------
* Commencement of Operations
** Annualized
`D' Net of offering costs of $0.14 per share.
(1) Total market value return is computed based upon the New York Stock
Exchange market price of the Fund's shares and excludes the effects of
sales loads or brokerage commissions. Dividends and distributions, if any,
are assumed for purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Total net asset value
return measures the change in value over the period indicated, taking into
account dividends as reinvested.
(2) Net of expense reduction. Had the reduction not occurred, the expense ratio
and net investment income ratio would have amounted to 1.25% and 6.78%,
respectively, for the year ended December 31, 1995, 1.35% and 6.14%,
respectively, for the year ended December 31, 1994 and 1.22% and 5.14%,
respectively, for the period September 27, 1993 (Commencement of
Operations) to December 31, 1993. See Note 6 in the notes to financial
statements.
See notes to financial statements.
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10
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Total Return Realty Fund, Inc. (the 'Fund') was incorporated
under the laws of the State of Maryland on September 4, 1992 and is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified management investment company. The Fund had no operations until
September 13, 1993 when it sold 7,100 shares of common stock for $100,110 to
Cohen & Steers Capital Management, Inc. (the 'Adviser'). Investment operations
commenced on September 27, 1993. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The preparation of the financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures on
the financial statements. Actual results could differ from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there have been no sales on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. ('NASDAQ') National
Market System are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ, the National Quotations Bureau or such other comparable
sources as the Board of Directors deems appropriate to reflect their fair market
value. Where securities are traded on more than one exchange and also
over-the-counter, the securities will generally be valued using the quotations
the Board of Directors believes reflect most closely the value of such
securities.
Short-term debt securities, which have a maturity of 60 days or less, are
valued at amortized cost which approximates value.
Security Transactions and Investment Income: Security transactions are
recorded on a trade date basis. Realized gains and losses on investments sold
are recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Dividends and Distributions to Shareholders: Dividends from investment
company taxable income are declared and paid monthly. A portion of the Fund's
dividends may consist of amounts in excess of investment company taxable income
derived from non-taxable components of the dividends from the Fund's portfolio
investments. As a result, the Fund had a tax return of capital of $1,902,118
($0.26 per share) for the year ended December 31, 1995 and $3,005,871 ($0.41 per
share) for the year ended December 31, 1994 which has been deducted from paid-in
capital. Net realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders annually. Distributions to
shareholders are recorded on the ex-dividend date.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
generally accepted accounting principles. During the year ended December 31,
1995, the Fund decreased paid-in capital by $2,721,547, increased undistributed
net investment income by $619,843 and increased accumulated net realized gain on
investment securities sold by $2,101,704. These differences are primarily due to
return of capital distributions received by the Fund on portfolio securities.
Federal Income Taxes: It is the policy of the Fund to qualify as a
regulated investment company, 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 regulated investment companies, and by
distributing substantially all of its taxable earnings to its shareholders.
Accordingly, no provision for Federal income or excise tax is necessary. At
December 31, 1995, the Fund had, for Federal income tax purposes, an unused
capital loss carryforward of $960,869 to be applied against future realized
gains, if any. If not applied, the capital loss carryforward will expire in
2002.
Organization Costs: All costs incurred in connection with organizing and
establishing the Fund are being amortized on the straight-line basis over a
period of five years from the date on which the Fund commenced operations.
Borrowings and Leverage: The Fund may borrow for leveraging purposes when
an investment opportunity arises but the Adviser believes that it is not
appropriate to liquidate any existing investments. The Fund will only borrow
when the Adviser believes that the cost of borrowing to carry the assets to be
acquired through leverage will be lower than the return earned by the Fund on
its longer-term portfolio investments. Should the differential between interest
rates on borrowed funds and the return from investment assets purchased with
such funds narrow, the Fund would realize less of a positive return, with the
additional risk that, during periods of adverse market conditions, the market
value of the Fund's entire portfolio holdings (including those acquired through
leverage) may decline far in excess of incremental returns the Fund may have
achieved in the interim.
NOTE 2. INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. serves as
the investment adviser to the Fund (the 'Adviser'). The Adviser is responsible
for the actual management of the Fund's portfolio. The
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12
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
responsibility for making decisions to buy, sell or hold a particular investment
rests with the Adviser, subject to review by the Board of Directors and the
applicable provisions of the Act. For the services provided pursuant to the
Advisory Agreement, the Adviser is entitled to receive a fee, computed weekly
and payable monthly at an annual rate of 0.70% of the Fund's average weekly net
assets. For the year ended December 31, 1995, the Fund incurred investment
advisory fees of $668,143.
Administrative Fees: Princeton Administrators, L.P. serves as the
administrator (the 'Administrator') pursuant to an Administration Agreement with
the Fund. Under such Agreement, the Administrator generally assists in certain
aspects of the Fund's operations, other than providing investment advice,
subject to the overall authority of the Fund's Board of Directors. The
Administrator determines the Fund's net asset value weekly, prepares such
figures for publication on a weekly basis, maintains certain books and records
that are not maintained by the Adviser, custodian or transfer agent, assists in
the preparation of financial information for the Fund's income tax returns,
proxy statements, and stockholder reports.
Under the terms of the Administration Agreement, the Fund has agreed to pay
a fee computed weekly and payable monthly, at an annual rate of 0.20% of the
Fund's average weekly net assets subject to a monthly minimum of $12,500. For
the year ended December 31, 1995, the Fund incurred administrative fees of
$190,896.
Director's Fees: Certain directors of the Fund are also directors, officers
and/or employees of the Adviser. None of the directors so affiliated received
compensation for their services. Similarly, none of the Fund's officers received
compensation from the Fund. For the year ended December 31, 1995, the Fund
incurred directors' fees of $24,200.
NOTE 3. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1995, purchases and sales of securities,
excluding short-term investments, aggregated $49,173,894 and $51,468,339,
respectively.
At December 31, 1995, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a Federal income
tax basis, are as follows:
<TABLE>
<S> <C>
Aggregated cost............................................................. $95,794,752
-----------
Gross unrealized appreciation............................................... $ 7,459,446
Gross unrealized depreciation............................................... (4,524,835)
-----------
Net unrealized appreciation................................................. $ 2,934,611
-----------
-----------
</TABLE>
NOTE 4. COMMON STOCK
There are 100,000,000 shares of $0.001 per value common stock authorized.
Of the 7,399,100 shares of common stock outstanding at December 31, 1995, Cohen
& Steers Capital Management, Inc. owned 8,284 shares.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. SUBSEQUENT EVENTS
On January 2, 1996, the Board of Directors of the Fund declared a dividend
of $0.08 per share payable on January 31, 1996, to shareholders of record on
January 16, 1996.
NOTE 6. DIRECTED BROKERAGE ARRANGEMENT
The Adviser directed certain portfolio trades to brokers who paid a portion
of the Fund's expenses. For the year ended December 31, 1995, the Fund's
expenses were reduced by $16,456 under this agreement.
NOTE 7. BORROWINGS
The Fund has entered into a Line of Credit Agreement with State Street Bank
& Trust Company for $15,000,000. At December 31, 1995, the par value of loans
outstanding was $383,580 at an interest rate of 6.875%. During the year ended
December 31, 1995, the average daily balance of loans outstanding was $1,238,385
at a weighted average interest rate of 6.84%. The maximum amount of loans
outstanding at any time during the year was $4,790,392 as of October 4, 1995,
which was 4.78% of total assets. The loan is collateralized by the Fund's
portfolio.
NOTE 8. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED AND (DECREASE)
TOTAL NET UNREALIZED GAIN IN NET ASSETS
INVESTMENT INVESTMENT (LOSS) RESULTING DIVIDENDS AND
QUARTERLY PERIOD INCOME INCOME ON INVESTMENTS FROM OPERATIONS DISTRIBUTIONS
- ----------------- ---------------- ------------------ -------------------- -------------------- ------------------
PER PER PER PER PER
FISCAL 1995 AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ----------------- --------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31......... $1,667,686 $0.23 $1,362,753 $0.19 $(4,071,089) ($0.55) $(2,708,336) ($0.36) $1,775,751 $0.24
June 30.......... 1,808,803 0.24 1,522,730 0.20 2,302,462 0.31 3,825,192 0.51 1,775,768 0.24
September 30..... 1,818,584 0.25 1,520,958 0.21 3,607,617 0.49 5,128,575 0.70 1,775,764 0.24
December 31...... 2,363,515 0.32 2,076,749 0.28 70,623 0.01 2,147,372 0.29 1,775,750 0.24
--------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
$7,658,588 $1.04 $6,483,190 $0.88 $ 1,909,613 $ 0.26 $ 8,392,803 $ 1.14 $7,103,033 $0.96
--------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
--------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
<CAPTION>
NET ASSETS AT
QUARTERLY PERIOD END OF PERIOD
- ----------------- ---------------------
PER
FISCAL 1995 AMOUNT SHARE
- ----------------- ------------ ------
<S> <C> <C>
March 31......... $ 93,651,438 $12.66
June 30.......... 95,700,862 12.93
September 30..... 99,053,673 13.39
December 31...... 99,425,295 13.44
<CAPTION>
PER PER PER PER PER
FISCAL 1994 AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ----------------- --------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31......... $1,680,031 $0.23 $1,392,535 $0.19 $ 4,667,133 $ 0.63 $ 6,059,668 $ 0.82 $1,183,835 $0.16
June 30.......... 1,855,613 0.25 1,567,297 0.21 (349,470) (0.05) 1,217,827 0.16 1,775,763 0.24
September 30..... 1,836,747 0.25 1,468,997 0.20 (4,003,614) (0.54) (2,534,617) (0.34) 1,775,775 0.24
December 31...... 2,122,241 0.29 1,757,803 0.23 (242,001) (0.03) 1,515,802 0.20 1,775,764 0.24
--------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
$7,494,632 $1.02 $6,186,632 $0.83 $ 72,048 $ 0.01 $ 6,258,680 $ 0.84 $6,511,137 $0.88
--------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
--------- ----- ---------- ----- ----------- ------ ----------- ------ ---------- -----
<CAPTION>
PER
FISCAL 1994 AMOUNT SHARE
- ----------------- ------------ ------
<S> <C> <C>
March 31......... $103,263,814 $13.96
June 30.......... 102,705,879 13.88
September 30..... 98,395,487 13.30
December 31...... 98,135,525 13.26
</TABLE>
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Cohen & Steers Total Return Realty Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Cohen & Steers Total Return Realty
Fund, Inc. as of December 31, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the two
years in the period then ended and for the period September 27, 1993
(commencement of operations) to December 31, 1993. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Cohen & Steers Total Return Realty Fund, Inc. as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the two years in the period then ended and for the period from
September 27, 1993 (commencement of operations) to December 31, 1993, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 12, 1996
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
DIVIDEND REINVESTMENT PLAN
The Fund has a Dividend Reinvestment Plan (the 'Plan'). Each shareholder
may elect to have all distributions of dividends and capital gains automatically
reinvested in additional shares by State Street Bank & Trust Company (the 'Plan
Agent'), as agent for shareholders pursuant to the Plan. The Plan Agent will
effect purchases of shares under the Plan in the open market. Shareholders who
do not participate in the Plan will receive all distributions in cash paid by
check mailed directly to the shareholder of record (or if the shares are held in
street or other nominee name, then to the nominee) by the Plan Agent, as
dividend disbursing agent. Shareholders whose shares are held in the name of a
broker or nominee should contact the broker or nominee to determine whether and
how they may participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or makes a capital gain distribution,
the Plan Agent will, as agent for the participants, receive the cash payment and
use it to buy shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. The Fund will not issue any new
shares in connection with the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole shares credited to his or her account under the Plan will be issued
and a cash payment will be made for any fraction of a share credited to such
account, or the Plan Agent will sell the participant's shares and send the
participant the proceeds less a service fee and brokerage commissions.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes written confirmations of all transactions in the accounts, including
information needed by the shareholders for personal and tax records. Shares in
the account of each Plan participant will be held by the Plan Agent on behalf of
the participant. Proxy material relating to shareholders' meetings of the Fund
will include those shares purchased as well as shares held pursuant to the Plan.
If shares are held in the name of a brokerage firm, bank, or other nominee,
shareholders should contact the nominee to see if it will participate in the
Plan on their behalf. If shareholders wish to participate in the Plan, but their
brokerage firm, bank or other nominee is unable to participate on their behalf,
they should request it to reregister shares in their own name which will enable
participation in the Plan.
The Plan Agent's fees for the handling of reinvestment of dividends and
other distributions will be paid by the Fund. Each participant will pay a pro
rata portion of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of distributions.
There are no other charges to participants for reinvesting dividends or capital
gain distributions.
The automatic reinvestment of dividends and other distributions will not
relieve participants of any income tax that may be payable or required to be
withheld on such dividends or distributions.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any distribution paid subsequent to written notice of the change sent
to all shareholders of the Fund at least 90 days before the record date for the
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent by at least 90 days' written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at State
Street Bank and Trust Co., P.O. Box 8200, Boston, MA 02266-8200 (telephone
800-426-5523).
ADDITIONAL INFORMATION
During the period, there have been no material changes in the Fund's
investment objectives or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund. There have been no changes in
the persons who are primarily responsible for the day-to-day management of the
Fund's portfolio.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
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18
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Elizabeth O. Reagan
Vice President
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
FUND ADMINISTRATOR
Princeton Administrators, L.P.
P.O. Box 9011
Princeton, NJ 08543
(800) 688-0928
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
LEGAL COUNSEL
Dechert Price & Rhoads
477 Madison Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
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COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, N.Y. 10017
COHEN & STEERS
TOTAL RETURN
REALTY FUND
ANNUAL REPORT
DECEMBER 31, 1995
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
The division sign shall be expressed as [div]
