<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
October 15, 1996
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Total Return
Realty Fund, Inc. for the quarter and nine months ended September 30, 1996. The
net asset value at that date was $14.62. In addition, during the quarter three
$0.08 per share monthly dividends were declared and paid.
INVESTMENT REVIEW
During the quarter, Cohen & Steers Total Return Realty Fund had a total
return based on income and change in net asset value of 6.4%. This was one of
the Fund's best quarterly returns on both an absolute and relative basis since
its inception in 1993. For the nine months ended September 30, 1996, the Fund's
total return was 14.6%. This performance was the result of several factors, in
our opinion. The market valuation of REITs has been very attractive for some
time, particularly relative to stocks in general which have been swept upward in
a lengthy and strong bull market. Perhaps more important, however, was that
during the abrupt stock market decline in July REITs produced positive total
returns, demonstrating the low market sensitivity and volatility that are
characteristics inherent to this asset class. While these attributes are not
necessarily desirable in a raging bull market, they are highly sought in periods
of market turbulence and uncertainty. Most recently, REITs have continued to
perform well due to the continued strength of the economy, the benign inflation
and interest rate environment, and what appears to be the accelerating recovery
of most real estate markets.
Two trends accelerated during the quarter and are worthy of discussion.
Leading companies have continued to enjoy ready access to the capital markets
for both debt and equity. The capital has been used to bolster balance sheets
and to finance substantial acquisitions of property portfolios or entire
companies. In addition, the number of REITs in existence continues to shrink due
to merger and acquisition activity among REITs and the absence of initial public
offerings.
REIT mergers and acquisitions often occur for either strategic or financial
reasons. Strategic reasons may include the desire to achieve greater geographic
reach, greater size which can yield economies of scale, or the acquisition or
enhancement of real estate capabilities (such as development or property
management) that would be more expensive to develop internally. The strongest
financial reason for consolidation is that there are many companies that have
languished in the public market and whose high cost of capital denies them the
ability to operate, finance or acquire property in an efficient manner. Managers
of these companies are finding merit to aligning with larger, more efficient
operators. In some cases a merger may represent the key to survival.
Coincidentally, this is precisely the same reason that private companies, in
growing numbers, are merging into public companies. Similarly, there is a
growing trend toward insurance companies, pension funds and other private
property owners selling their portfolios to larger REITs in exchange for either
cash or shares of the REIT.
- --------------------------------------------------------------------------------
1
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
In the process, acquiring companies are purchasing assets on favorable terms and
real estate ownership is becoming concentrated in the hands of the larger and
better-managed companies. Sellers are achieving liquidity and a more attractive
growth vehicle for ongoing real estate investment.
Whereas the public offering mechanism has provided ample capital for most
companies, there has been an unusually high level of direct placement activity
this year. A growing number of public companies are bypassing the traditional
channels of distribution and selling newly issued shares directly to one or more
institutional investors such as Cohen & Steers. The advantages of these
placements to the issuers are numerous: the cost of issuance is significantly
lower than what is traditionally charged by underwriters; there is minimal
management time lost due to the selling process (there is no 'road show'); there
is minimal disruption to the market for the company's shares before or after the
offering period; and to the extent capital is needed quickly, it may be possible
to raise it with as little as one phone call. Importantly, and almost by
definition, these same factors also benefit both existing shareholders and the
investors purchasing the new shares. Further, limiting the supply of shares for
sale in the open market can have a positive impact on a company's share price,
potentially lowering the cost of capital for future equity financing.
We believe that the institutionalization of the market for REITs has opened
the door to many more direct financing transactions which will serve to
accelerate the growth of the industry. By utilizing 'shelf registrations,' both
the company and the investor can act quickly when investment opportunities are
available. This provides the company with a significant advantage over private
market counterparts that are frequently subject to uncertainty in arranging for
financing. While underwritten offerings will continue to play an important role
in REIT capital-raising, they will be only one of several options available to
the premier publicly owned real estate companies.
OUTLOOK
The strong performance of REITs this year and the heightened level of
investor interest has raised valuations to a level which, for the first time in
over two years, is allowing new companies to come to the market with initial
public offerings. There has already been one successful large offering for an
office REIT in 1996 and we expect several more REIT offerings to come to market
before year end. The strong recovery of shopping center REITs is enabling
several companies to raise equity capital for the first time in two years. If
current valuations hold, we would expect to see IPOs in this property sector, as
well as others, before too long. In short, we expect to experience a near-record
amount of capital-raising for public real estate companies in the next several
months. As we learned in the 1993-94 REIT underwriting cycle, this can have both
positive and negative consequences.
On the positive side, we believe an expansion of the industry is inevitable
due to the establishment of the public market as the primary source of capital
for real estate. Growth in market capitalization, liquidity and choices of
property types and individual companies are, in our opinion, critical to the
continued evolution of this
- --------------------------------------------------------------------------------
2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
industry. To the extent that the market does not exercise investment discipline,
however, a shake-out resulting in large investor losses could set the industry
back at a crucial point. We are cautiously optimistic that this will not occur
because the industry's infrastructure has vastly changed since 1993-94. We
believe that the number of analysts and the quality of their analysis on both
the investment banking and money management sides have improved dramatically.
The establishment of better industry standards of financial reporting and
disclosure now provides real estate investors with what we perceive to be a flow
of accurate data that is unparalleled in the history of an industry notorious
for its lack of such information. This has served to place a governor on the
flow of capital to various property markets and attenuate the cyclical nature of
the real estate business.
Evidence of this discipline is already abundant. In the apartment sector,
for example, a surge in building permits in a particular market has often had a
negative impact on the share prices of the companies operating in that market.
The resulting increase in the cost of capital has almost instantaneously
discouraged further development, enabling the market to maintain equilibrium.
There has been a similar occurrence in the case of factory outlet centers. When
their share prices declined due to the prospect of overbuilding, all of the
companies' development plans were scaled back considerably. This averted what in
another era would have likely resulted in significant excess capacity. We are
seeing similar signs in the market for assisted living facilities, which until
recently has been a hot investment area that attracted a near-flood of capital.
It is our belief that in the coming months the market will undergo its
strongest test of discipline yet, as the growing demand for shares of
publicly-traded real estate companies will be met with supply from both existing
and new issuers. This is an exciting prospect for us because we foresee many new
investment opportunities. As always, however, we will maintain our strongest
quality and valuation standards, understanding that these are the keys to
superior long-term investment performance.
Sincerely,
<TABLE>
<S> <C>
/s/ Martin Cohen /s/ Robert H. Steers
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------- -----------
<S> <C> <C>
EQUITIES 94.54%
APARTMENT/RESIDENTIAL 26.81%
Amli Residential Properties Trust....................... 100,000 $ 2,087,500
Associated Estates Realty Corp.......................... 165,300 3,388,650
Avalon Properties....................................... 109,700 2,550,525
Camden Property Trust................................... 106,000 2,716,250
Charles E. Smith Residential Realty..................... 89,400 2,156,775
Colonial Properties Trust............................... 170,700 4,480,875
Columbus Realty Trust................................... 105,000 2,139,375
Oasis Residential....................................... 39,300 859,688
Oasis Residential -- Preferred.......................... 4,000 96,000
Pacific Gulf Properties................................. 124,000 2,309,500
Summit Properties....................................... 164,700 3,252,825
Wellsford Residential Property Trust.................... 134,300 2,954,600
-----------
28,992,563
-----------
HEALTH CARE 8.47%
American Health Properties.............................. 154,900 3,388,437
Health Care REIT........................................ 144,900 3,368,925
Omega Healthcare Investors.............................. 80,000 2,400,000
-----------
9,157,362
-----------
OFFICE 9.13%
Beacon Properties Corp.................................. 45,000 1,305,000
Cali Realty Corp........................................ 83,400 2,262,225
CarrAmerica Realty Corp................................. 158,900 3,972,500
Reckson Associates Realty Corp.......................... 63,000 2,338,875
-----------
9,878,600
-----------
SELF STORAGE 0.13%
Sovran Self Storage..................................... 5,600 147,000
-----------
SHOPPING CENTER 50.00%
Community Center: 28.57%
Alexander Haagen Properties............................. 85,000 1,190,000
Bradley Real Estate..................................... 125,200 2,034,500
Developers Diversified Realty Corp...................... 86,200 2,769,175
Federal Realty Investment Trust......................... 128,800 3,026,800
Glimcher Realty Trust................................... 296,800 5,824,700
Mid-America Realty Investments.......................... 128,300 1,138,663
Pennsylvania Real Estate Investment Trust............... 235,700 5,008,625
Price REIT.............................................. 119,700 3,770,550
Regency Realty Corp..................................... 97,800 2,188,275
Sizeler Property Investors.............................. 103,800 934,200
Vornado Realty Trust.................................... 53,700 2,174,850
Western Investment Real Estate Trust.................... 66,900 844,612
-----------
30,904,950
-----------
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------------- ------------
<S> <C> <C> <C>
Factory Outlet: 4.29%
Chelsea GCA Realty..................................... 70,000 $ 2,143,750
Horizon Group.......................................... 50,800 1,047,750
Tanger Factory Outlet Centers.......................... 58,700 1,445,487
------------
4,636,987
------------
Regional Mall: 17.14%
CBL & Associates Properties............................ 100,400 2,309,200
JP Realty.............................................. 132,800 2,954,800
Macerich Company....................................... 123,400 2,761,075
Simon DeBartolo Group.................................. 194,500 4,959,750
The Mills Corp......................................... 110,100 2,174,475
Urban Shopping Centers................................. 138,400 3,373,500
------------
18,532,800
------------
TOTAL SHOPPING CENTER.................................. 54,074,737
------------
TOTAL EQUITIES (Identified cost -- $94,774,560)...... 102,250,262
------------
<CAPTION>
PAR
AMOUNT
----------------
<S> <C> <C> <C>
CORPORATE BONDS 1.79%
Trizec Finance, Ltd. 10.875% 10/15/05
(Identified cost -- $1,786,518).............. $1,800,000 1,937,250
------------
SHORT-TERM INVESTMENTS 3.37%
Associates Corp. Commercial Paper 5.68% due
10/01/96 (Identified cost -- $3,645,000)..... 3,645,000 3,645,000
------------
TOTAL INVESTMENTS (Identified cost -- $100,206,078)....... 99.70% 107,832,512
OTHER ASSETS IN EXCESS OF LIABILITIES..................... .30% 321,740
------- ------------
NET ASSETS (Equivalent to $14.62 per share
based on 7,399,100 shares of capital stock
outstanding)................................. 100.00% $108,154,252
------- ------------
------- ------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS*
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
-------------------------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period: 12/31/95............................... $ 99,425,295 $13.44
Net investment income................................. $ 5,236,865 $ 0.71
Net realized and unrealized gains from security
transactions....................................... 8,819,329 1.19
Dividends to shareholders................................... (5,327,237) (0.72)
----------- ------
Net increase in net asset value............................. 8,728,957 1.18
------------ ------
End of period: 9/30/96...................................... $108,154,252 $14.62
------------ ------
------------ ------
</TABLE>
- ------------
* Financial information included in this report has been taken from the records
of the Fund without examination by independent accountants.
- --------------------------------------------------------------------------------
KEY INFORMATION
For general information
and weekly net asset value
call: 800-688-0928
NEW YORK STOCK EXCHANGE SYMBOL:
The New York Stock Exchange Symbol is RFI
REINVESTMENT PLAN
We urge shareholders who want to take advantage of this plan and whose
shares are held in 'Street Name' to consult your broker as soon as possible to
determine if you must change registration into your own name to participate.
- --------------------------------------------------------------------------------
6
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
Willard H. Smith
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 9095
Princeton, NJ 08543-9095
(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.
- --------------------------------------------------------------------------------
7
<PAGE>
<PAGE>
COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
[LOGO]
QUARTERLY REPORT
SEPTEMBER 30, 1996
