<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
July 15, 1998
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Total Return
Realty Fund, Inc. for the quarter and six months ended June 30, 1998. The net
asset value per share at that date was $16.36. In addition, during the quarter,
three $0.08 per share monthly dividends were declared and paid.
INVESTMENT REVIEW
For the quarter ended June 30, 1998, Cohen & Steers Total Return Realty
Fund had a total return, based on income and change in net asset value, of
- -4.0%. This performance compares favorably to the NAREIT Equity REIT Index total
return of -4.6%. The Fund's year-to-date return of -3.9% compares favorably to
the NAREIT Equity REIT Index return of -5.1%.
The decline in REIT prices accelerated in the second quarter as investor
sentiment worsened and the gap between REIT returns and those of the stock and
bond markets widened. This sentiment reflects ongoing concern about the
overabundance of capital available for real estate in the private market, the
maturity of the real estate cycle and the potential slowing of earnings growth
for many real estate companies. While these concerns are valid, we believe that
the drop in REIT share prices more than adequately reflects these issues; 1998
is on track to be the worst year of investment performance since 1990, when REIT
prices declined by 15.4%. In that year the real estate bear market began in
earnest with declining occupancies and rental rates, plummeting property prices,
a credit crunch and an economic recession. Prior to 1990, one would have to go
back to 1974 to find a worse year of REIT share price performance. Given the
strength of the economy, rising rents and occupancy levels and only modest
construction activity, we think the market has overstated the negative case for
REITs and real estate.
The performance of REITs has resulted in an absolute and relative valuation
picture that has important implications for the entire real estate industry.
REITs are now trading at price-to-funds from operations ('FFO') ratios that are
at a multi-year low and are generating returns based on share prices that are
well above what can be earned in the private market. Considering that REIT
earnings are growing at about a 15% rate this year, any further decline in
price, over time, would place valuations at a level not seen since 1990. In
addition, the shares of many companies, both large and small, are trading at or
below the net asset values ('NAV') of their real estate. As a result, it is fair
to say that real estate today is cheaper in the public market than in the
private market.
On a relative basis the comparison of REIT valuations is extraordinary.
While the valuation of REITs approaches 1990 levels, the P/E multiple of the
stock market has expanded by nearly 30% and interest rates have declined by 33%.
It seems ironic to us that investor concern about the economic cycle and a
widely anticipated slowing of earnings growth for corporate America has resulted
in record high stock and bond valuations, while a more modest slowing of
prospective earnings growth for REITs has resulted in a near-record low earnings
multiple.
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1
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
The state of the REIT market has begun to have a material impact on the way
many public companies are operating. Most evident is that equity offerings,
after a record pace during the first quarter, have come to a near-halt, clearly
eliminating the supply pressure that existed earlier in the year. In addition,
by the end of the second quarter, and for the first time in years, the flow of
funds to real estate mutual funds turned negative. Our expectation is that,
given the poor performance and current valuation levels of REITs, neither
issuers nor investors will support continued, heavy equity issuance any time
soon because of the potentially highly dilutive impact on earnings and asset
values.
While the equity window has been closing, the debt window has never been
open wider, and this has compounded the concerns of equity investors. Long-term,
fixed rate debt at less than a 7% interest rate has become the financing vehicle
of choice in the real estate industry. This has led to a proliferation of
commercial mortgage backed securities ('CMBS'): $43 billion in CMBS was issued
in the first half of 1998, compared to only $15 billion in the first half of
1997, and $44 billion in all of 1997. The market's concern over the abundance of
debt capital began to impact the pricing of real estate debt securities towards
the end of the quarter, as spreads widened considerably. Nonetheless, the
environment remains 'borrower friendly.' Whereas the proclivity to increase
borrowing has caused concern among equity investors that the industry could fall
prey to excessive leverage, REITs have maintained their conservative balance
sheets, with debt-to-assets ratios in the 30%-50% range.
For the first time since the real estate recovery began, many companies are
materially scaling back their acquisition plans in light of limited access to
equity and the higher hurdle rate on new investment that this imposes on them.
Also for the first time, we are beginning to see REITs sell property, often to
private opportunity funds that are willing to pay high prices and finance the
acquisition mostly with debt. Several companies have announced share buyback
programs, viewing their own stock as a more attractive investment than property.
Since the private market seems to be willing to pay a higher price for property
than the public market, many companies are accessing institutional sources of
low cost capital to fund acquisition programs via joint ventures.
Finally we have begun to see some evidence of at least a stabilization, if
not an increase, in capitalization rates being reported in transactions in many
property markets. This may be indicating that the upward spiral of property
prices is coming to an end. In short, it appears to us that at this juncture,
the public market is enforcing the type of discipline that many had desired.
Further, many companies are adopting rational strategies that should enable them
to continue to produce positive results for their shareholders despite what
appear to be temporarily adverse market conditions.
- --------------------------------------------------------------------------------
2
<PAGE>
<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
INVESTMENT OUTLOOK
The absolute and relative valuations of REITs have placed them in a
position from which positive relative returns should be achievable in the second
half of the year. In the long run, real estate performance is affected by the
same variables as any other asset class, such as economic growth and fiscal and
monetary policies. Accordingly, a continued widening of the gap between REIT
valuations and other assets would not be logical. We expect that the appeal of
REIT investment attributes, such as high and secure current yield, low
volatility and good defense in uncertain market conditions, will become more
widely appreciated by the investment community.
The Fund is advantageously positioned with its emphasis on above-average
dividend yielding real estate securities. The universe of attractive investments
for the Fund continues to grow, from security issuance and from share price
declines. Preferred stock issuance was heavy in the second quarter, over $1
billion, and many of these issues were hastily distributed thereby creating
after-market investment opportunities for the Fund. The near universal decline
in REIT common stock prices has increased the number of attractive dividend
yielding securities available to the Fund: at mid-year the dividend yield on the
NAREIT Equity REIT Index was 6.1%, up 65 basis points versus year-end 1997. This
will allow the Fund to maintain its yield discipline while most likely
increasing the growth component of the portfolio. Current holdings in the Fund
reflect this abundance of investment choices. REIT common stocks make up 84% of
the portfolio and convertible preferred stocks and perpetual preferred stocks
comprise 12% and 4%, respectively.
The Fund is well-positioned for the balance of the year as a result of a
number of important property sector changes during the quarter. The Office and
Office/Industrial sector weightings were increased while Apartment/Residential
and Community Center sector weightings were reduced. The Office sector had the
highest price-to-earnings multiple at the beginning of the year and was the
hardest hit by the REIT correction. Therefore, a number of strong Office and
Office/Industrial companies have become attractive on a current yield
basis -- the first opportunity for attractive yield in this high growth sector
in several years. Our investment positions in SL Green Realty Corp. and Reckson
Associates Realty Corp. were materially increased as a result of after-market
opportunities in their recently issued convertible preferred securities. We
believe both should deliver solid earnings growth over the next two years, which
should translate to dividend growth and capital appreciation.
We reduced our weighting in the Apartment sector, from 13% to 9%. This
action reflected the Fund capturing price appreciation in several securities
that defended well this year. Avalon Properties (now known as Avalon Bay
Communities as a result of a merger) was sold, as was Colonial Properties. The
reduction in the Community Center sector also reflects price targets being met.
Bradley Real Estate and Western Investment Real Estate Trust were sold during
the quarter. Another company in which the Fund has a position, Mid-America
Realty Investments, agreed to be acquired by another REIT during the second
quarter. We remain optimistic about additional consolidation activity in the
Community Center and the Apartment sectors.
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3
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<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
The Fund, which was fully invested at quarter end, will continue to seek
outstanding income opportunities in the current volatile real estate securities
market. We remain confident that the Fund's focus on above-average current
income, consistent earnings growth and attractive relative valuation should
result in both solid relative and absolute investment returns. Though the first
half of this year has been difficult for real estate securities, the strength of
the economy, the health of many real estate markets and very attractive real
estate stock valuations give us optimism about improved performance through the
balance of the year.
Sincerely,
<TABLE>
<S> <C>
/s/ MARTIN COHEN /s/ ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
COHEN & STEERS IS NOW ONLINE AT WWW.COHENANDSTEERS.COM. VISIT OUR WEBSITE FOR
WEEKLY NAVS, PORTFOLIO INFORMATION, PERFORMANCE INFORMATION, RECENT NEWS
ARTICLES, LITERATURE AND INSIGHTS ON THE REIT MARKET.
- --------------------------------------------------------------------------------
4
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<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
EQUITIES 95.45%
APARTMENT/RESIDENTIAL 8.49%
Camden Property Trust, $2.25, Series A
(Convertible Preferred)................................... 210,200 $ 5,570,300
Charles E. Smith Residential Realty ......................... 49,700 1,590,400
Summit Properties ........................................... 164,700 3,119,006
------------
10,279,706
------------
DIVERSIFIED 4.70%
Pacific Gulf Properties...................................... 262,200 5,588,138
Reckson Services Industries.................................. 33,200 109,975
------------
5,698,113
------------
HEALTH CARE 22.06%
American Health Properties................................... 154,900 3,872,500
ElderTrust................................................... 222,900 3,831,094
Health Care Property Investors............................... 68,300 2,463,069
Health Care REIT............................................. 140,700 3,587,850
Healthcare Realty Trust...................................... 32,800 893,800
Meditrust Corp. ............................................. 113,600 3,173,700
Nationwide Health Properties................................. 120,700 2,881,713
Omega Healthcare Investors................................... 170,800 5,999,350
------------
26,703,076
------------
INDUSTRIAL 4.48%
EastGroup Properties......................................... 63,700 1,277,981
First Industrial Realty Trust................................ 130,600 4,146,550
------------
5,424,531
------------
OFFICE 6.01%
Brandywine Realty Trust...................................... 100,000 2,237,500
SL Green Realty Corp. ....................................... 32,000 720,000
SL Green Realty Corp., 8.00%, Series A
(Convertible Preferred)................................... 116,600 2,973,300
Tower Realty Trust........................................... 60,100 1,344,737
------------
7,275,537
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- ------------
<S> <C> <C>
OFFICE/INDUSTRIAL 12.71%
Prime Group Realty Trust..................................... 130,000 $ 2,226,250
Reckson Associates Realty Corp............................... 83,000 1,960,875
Reckson Associates Realty Corp., 7.625%, Series A
(Convertible Preferred)................................... 154,000 3,628,625
TriNet Corporate Realty Trust................................ 222,800 7,575,200
------------
15,390,950
------------
SHOPPING CENTER 35.03%
COMMUNITY CENTER 17.98%
Alexander Haagen Properties.................................. 220,100 3,315,256
Glimcher Realty Trust........................................ 271,800 5,283,113
Mid-America Realty Investments............................... 128,300 1,283,000
Pan Pacific Retail Properties................................ 173,400 3,359,625
Pennsylvania REIT............................................ 214,700 4,763,656
Saul Centers................................................. 156,600 2,711,137
Sizeler Property Investors................................... 103,800 1,044,487
------------
21,760,274
------------
FACTORY OUTLET CENTER 6.01%
Prime Retail................................................. 282,978 3,378,050
Prime Retail, 8.50%, Series B (Convertible Preferred)........ 94,800 1,943,400
Tanger Factory Outlet Centers................................ 61,600 1,951,950
------------
7,273,400
------------
REGIONAL MALL 11.04%
CBL & Associates Properties.................................. 101,600 2,463,800
Crown American Realty Trust, 11.00%, Series A (Preferred).... 84,000 4,504,500
JP Realty.................................................... 130,900 3,084,331
Macerich Co. ................................................ 91,800 2,690,888
The Mills Corp............................................... 26,000 624,000
------------
13,367,519
------------
TOTAL SHOPPING CENTER..................................... 42,401,193
------------
SPECIALTY 1.97%
Entertainment Properties Trust............................... 130,500 2,381,625
------------
TOTAL EQUITIES (Identified cost -- $111,516,991)....... 115,554,731
------------
</TABLE>
See accompanying notes to financial statements.
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6
<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ------------
<S> <C> <C>
COMMERCIAL PAPER 2.25%
Household Finance Corp., 6.00%, 7/01/98
(Identified cost -- $2,720,060)................................. $2,720,000 $ 2,720,000
------------
TOTAL INVESTMENTS (Identified cost -- $114,237,051).............97.70% 118,274,731
OTHER ASSETS IN EXCESS OF LIABILITIES............................2.30% 2,784,011
------ ------------
NET ASSETS (Equivalent to $16.36 per share based on 7,399,100
shares of capital stock outstanding)........................100.00% $121,058,742
----- ------------
----- ------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $114,237,051) (Note 1)............... $118,274,731
Cash......................................................................................... 456
Receivable for investment securities sold.................................................... 2,571,133
Dividends receivable......................................................................... 1,046,870
Interest receivable.......................................................................... 453
Unamortized organization costs and other assets (Note 1)..................................... 5,752
------------
Total Assets........................................................................... 121,899,395
------------
LIABILITIES:
Payable for investment securities purchased.................................................. 590,512
Payable for dividends declared............................................................... 90,138
Payable to investment adviser................................................................ 70,624
Payable to administrator..................................................................... 15,134
Other liabilities............................................................................ 74,245
------------
Total Liabilities...................................................................... 840,653
------------
NET ASSETS applicable to 7,399,100 shares of $0.001 par value common stock outstanding
(Note 4)..................................................................................... $121,058,742
------------
------------
NET ASSET VALUE PER SHARE:
($121,058,742[div]7,399,100 shares of common stock outstanding).............................. $ 16.36
------------
------------
MARKET PRICE PER SHARE............................................................................. $ 15.44
------------
------------
MARKET PRICE DISCOUNT TO NET ASSET VALUE PER SHARE................................................. (5.64)%
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4).............................................................. $ 97,386,653
Undistributed net investment income.......................................................... 1,181,715
Accumulated net realized gain on investments sold............................................ 18,452,694
Net unrealized appreciation on investments................................................... 4,037,680
------------
$121,058,742
------------
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income.............................................................................. $ 5,381,149
Interest income.............................................................................. 62,420
------------
Total Income........................................................................... 5,443,569
------------
Expenses:
Investment advisory fees (Note 2)............................................................ 441,443
Administration fees (Note 2)................................................................. 94,594
Transfer agent fees.......................................................................... 33,083
Custodian fees and expenses.................................................................. 28,125
Reports to shareholders...................................................................... 28,096
Professional fees............................................................................ 22,905
Interest expense (Notes 1 and 5)............................................................. 16,950
Directors' fees and expenses (Note 2)........................................................ 15,611
Registration fees............................................................................ 8,019
Amortization of organization expenses (Note 1)............................................... 6,349
Miscellaneous................................................................................ 5,709
------------
Total Expenses......................................................................... 700,884
------------
Net Investment Income.............................................................................. 4,742,685
------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments............................................................. 13,482,712
Net change in unrealized appreciation on investments......................................... (23,157,846)
------------
Net realized and unrealized gain (loss) on investments....................................... (9,675,134)
------------
Net Decrease in Net Assets Resulting from Operations............................................... $ (4,932,449)
------------
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income....................................... $ 4,742,685 $ 8,109,310
Net realized gain on investments............................ 13,482,712 13,726,253
Net change in unrealized appreciation
on investments........................................... (23,157,846) 3,923,679
------------- -----------------
Net increase (decrease) in net assets resulting
from operations.................................... (4,932,449) 25,759,242
------------- -----------------
Dividends and Distributions to shareholders from (Note 1):
Net investment income....................................... (3,560,970) (7,695,064)
Net realized gain on investments............................ -- (13,318,139)
------------- -----------------
Total dividends and distributions to shareholders..... (3,560,970) (21,013,203)
------------- -----------------
Total increase (decrease) in net assets............... (8,493,419) 4,746,039
Net Assets:
Beginning of period......................................... 129,552,161 124,806,122
------------- -----------------
End of period (including undistributed net investment
income of $1,181,715 at June 30, 1998)................... $121,058,742 $ 129,552,161
------------- -----------------
------------- -----------------
</TABLE>
See accompanying notes to financial statements.
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10
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<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
Financial Statements. It should be read in conjunction with the Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ------------------------------------------
PER SHARE OPERATING PERFORMANCE (UNAUDITED) 1997 1996 1995 1994
- --------------------------------------------------- ---------------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 17.51 $ 16.87 $ 13.44 $ 13.26 $ 13.30
------ -------- -------- ------- -------
Income from investment operations:
Net investment income.......................... 0.64 1.10 1.02 0.88 0.83
Net realized and unrealized gain (loss) on
investments.................................. (1.31) 2.38 3.42 0.26 0.01
------ -------- -------- ------- -------
Total from investment operations........... (0.67) 3.48 4.44 1.14 0.84
------ -------- -------- ------- -------
Less dividends and distributions to shareholders
from:
Net investment income.......................... (0.48) (0.96) (0.96) (0.67) (0.47)
Distributions in excess of net investment
income....................................... -- -- -- -- --
Net realized gain on investments............... -- (1.88) (0.05) -- --
Tax return of capital.......................... -- -- -- (0.29) (0.41)
------ -------- -------- ------- -------
Total dividends and distributions to
shareholders............................. (0.48) (2.84) (1.01) (0.96) (0.88)
------ -------- -------- ------- -------
Net asset value, end of period..................... $ 16.36 $ 17.51 $ 16.87 $ 13.44 $ 13.26
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Market value, end of period........................ $15.4375 $ 17.75 $ 16.50 $13.375 $12.375
------ -------- -------- ------- -------
------ -------- -------- ------- -------
- -----------------------------------------------------------------------------------------------------------------
Total market value return(3)....................... (10.50)% 24.96% 32.37% 16.38% (2.32)%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Total net asset value return(3).................... (3.90)% 20.57% 34.68% 9.14% 6.45%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
- -----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands)....... $121,058 $129,552 $124,806 $99,425 $98,136
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Ratio of expenses to average weekly net assets
(before expense reduction)................... 1.12%(4) 1.22% 1.20% 1.25% 1.35%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Ratio of expenses to average weekly net assets
(net of expense reduction)................... 1.12%(4) 1.17% 1.16% 1.23% 1.31%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Ratio of net investment income to average
weekly net assets (before expense
reduction)................................... 7.58%(4) 6.12% 7.16% 6.78% 6.14%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Ratio of net investment income to average
weekly net assets (net of expense
reduction)................................... 7.58%(4) 6.17% 7.21% 6.79% 6.19%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
Portfolio turnover rate........................ 35% 41% 31% 51% 65%
------ -------- -------- ------- -------
------ -------- -------- ------- -------
<CAPTION>
FOR THE PERIOD
SEPTEMBER 27, 1993(1)
THROUGH
PER SHARE OPERATING PERFORMANCE DECEMBER 31, 1993
- --------------------------------------------------- ---------------------
<S> <C>
Net asset value, beginning of period............... $ 13.96(2)
------
Income from investment operations:
Net investment income.......................... 0.18
Net realized and unrealized gain (loss) on
investments.................................. (0.60)
------
Total from investment operations........... (0.42)
------
Less dividends and distributions to shareholders
from:
Net investment income.......................... (0.18)
Distributions in excess of net investment
income....................................... (0.03)
Net realized gain on investments............... --
Tax return of capital.......................... (0.03)
------
Total dividends and distributions to
shareholders............................. (0.24)
------
Net asset value, end of period..................... $ 13.30
------
------
Market value, end of period........................ $ 13.50
------
------
- ------------------------------------------------------------------------------------------------
Total market value return(3)....................... (8.48)%
------
------
Total net asset value return(3).................... (4.26)%(2)
------
------
- -----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands)....... $98,388
------
------
Ratio of expenses to average weekly net assets
(before expense reduction)................... 1.22%(4)
------
------
Ratio of expenses to average weekly net assets
(net of expense reduction)................... 1.15%(4)
------
------
Ratio of net investment income to average
weekly net assets (before expense
reduction)................................... 5.14%(4)
------
------
Ratio of net investment income to average
weekly net assets (net of expense
reduction)................................... 5.21%(4)
------
------
Portfolio turnover rate........................ 16%
------
------
</TABLE>
- ------------------------
(1) Commencement of investment operations.
(2) Net of offering costs of $0.14 per share.
(3) 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
changes in value over the period indicated, taking into account dividends
and distributions as reinvested.
(4) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 (the 'Act'), 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 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 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 has been no sale 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 trade date. 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.
Dividends and Distributions to Shareholders: Dividends net from investment
income are declared and paid monthly. A portion of the Fund's dividend may
consist of amounts in excess of net investment income derived
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
from non-taxable components of the dividends from the Fund's portfolio
investments. 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 investment income and capital gain distributions are
determined in accordance with U.S. Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to payment of distributions subject to capital loss carryforward.
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.
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. For
the six months ended June 30, 1998, the Fund amortized $6,349 in organization
costs.
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. (the
'Adviser') serves as the investment adviser to the Fund, pursuant to an Advisory
Agreement (the 'Advisory Agreement'). The Adviser is responsible for the actual
management of the Fund's portfolio. The 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 six months June 30,
1998, the Fund incurred investment advisory fees of $441,443.
Administration Fees: Princeton Administrators, L.P., (the 'Administrator')
serves as the administrator pursuant to an Administration Agreement, as amended,
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
- --------------------------------------------------------------------------------
13
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 shareholder 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 0.15% of the
Fund's average weekly net assets subject to a monthly minimum of $12,500. For
the six months ended June 30, 1998, the Fund incurred administrative fees of
$94,594.
Directors' Fees: Certain directors and officers of the Fund are also
directors, officers and/or employees of the Adviser. None of the directors and
officers so affiliated received compensation for their services. Fees and
related expenses accrued for non-affiliated directors totaled $15,611 for the
six months ended June 30, 1998.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the six months ended June 30, 1998, totaled $43,924,566 and $57,135,868,
respectively.
At June 30, 1998, the cost and unrealized appreciation in value of the
investments owned by the Fund are as follows:
<TABLE>
<S> <C>
Aggregated cost............................................................ $114,237,051
------------
------------
Gross unrealized appreciation.............................................. $ 7,211,360
Gross unrealized depreciation.............................................. (3,173,680)
------------
Net unrealized appreciation................................................ $ 4,037,680
------------
------------
</TABLE>
NOTE 4. CAPITAL STOCK
At June 30, 1998, the Fund has one class of common stock, par value $0.001
per share, of which 100 million shares are authorized and 7,399,100 shares are
outstanding. Cohen & Steers Capital Management, Inc. owned 10,621 shares.
NOTE 5. BORROWINGS
The Fund has entered into a Line of Credit Agreement with State Street Bank
& Trust Company for $15,000,000. At June 30, 1998, there were no loans
outstanding. During the six months ended June 30, 1998, the average daily
balance of loans outstanding was $1,080,016 at a weighted average interest rate
of 6.52%. The maximum amount of loans outstanding at any time during the six
months ended was $2,961,887 on February 5, 1998, which was 2.23% of total
assets. The loan is collateralized by the Fund's portfolio.
- --------------------------------------------------------------------------------
14
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 6. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL NET
INVESTMENT INVESTMENT
QUARTERLY PERIOD INCOME INCOME
- --------------------------- ------------------ ------------------
PER PER
FISCAL 1998 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ---------- ----- ---------- -----
<S> <C> <C> <C> <C>
March 31................... $2,241,503 $0.30 $1,899,558 $0.26
June 30.................... 3,202,066 0.43 2,843,127 0.38
---------- ----- ---------- -----
$5,443,569 $0.73 $4,742,685 $0.64
---------- ----- ---------- -----
---------- ----- ---------- -----
<CAPTION>
NET REALIZED AND NET INCREASE
UNREALIZED (DECREASE) IN NET
GAIN (LOSS) ASSETS RESULTING
ON INVESTMENTS FROM OPERATIONS
QUARTERLY PERIOD ------------------- --------------------
- --------------------------- PER PER
FISCAL 1998 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
March 31................... $(1,841,313) $(0.25) $ 58,245 $ 0.01
June 30.................... (7,833,821) (1.06) (4,990,694) (0.68)
----------- ------ ----------- ------
$(9,675,134) $(1.31) $(4,932,449) $(0.67)
----------- ------ ----------- ------
----------- ------ ----------- ------
<CAPTION>
DIVIDENDS AND NET ASSETS AT
DISTRIBUTIONS END OF PERIOD
QUARTERLY PERIOD ------------------- ---------------------
- --------------------------- PER PER
FISCAL 1998 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ----------- ------ ------------ ------
<S> <C> <C> <C> <C>
March 31................... $(1,785,258) $(0.24) $127,825,148 $17.28
June 30.................... (1,775,712) (0.24) 121,058,742 16.36
----------- ------
$(3,560,970) $(0.48)
----------- ------
----------- ------
<CAPTION>
PER PER
FISCAL 1997 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ---------- ----- ---------- -----
<S> <C> <C> <C> <C>
March 31................... $2,311,924 $0.31 $1,846,121 $0.25
June 30.................... 2,397,020 0.33 2,041,791 0.28
September 30............... 2,388,834 0.32 2,023,699 0.27
December 31................ 2,554,452 0.35 2,197,699 0.30
---------- ----- ---------- -----
$9,652,230 $1.31 $8,109,310 $1.10
---------- ----- ---------- -----
---------- ----- ---------- -----
<CAPTION>
PER PER
FISCAL 1997 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
March 31................... $ (29,534) $(0.01) $ 1,816,587 $ 0.24
June 30.................... 5,972,663 0.81 8,014,454 1.07
September 30............... 10,357,370 1.40 12,381,069 1.67
December 31................ 1,349,433 0.18 3,547,132 0.48
----------- ------ ----------- ------
$17,649,932 $ 2.38 $25,759,242 $ 3.48
----------- ------ ----------- ------
----------- ------ ----------- ------
<CAPTION>
PER PER
FISCAL 1997 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ----------- ------ ------------ ------
<S> <C> <C> <C> <C>
March 31................... $ 1,775,726 $ 0.24 $124,846,983 $16.87
June 30.................... 1,775,712 0.24 131,085,725 17.72
September 30............... 1,775,716 0.24 141,691,079 19.15
December 31................ 15,686,049 2.12 129,552,161 17.51
----------- ------
$21,013,203 $ 2.84
----------- ------
----------- ------
<CAPTION>
PER PER
FISCAL 1996 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ---------- ----- ---------- -----
<S> <C> <C> <C> <C>
September 30............... $1,870,487 $0.25 $1,580,139 $0.22
December 31................ 2,637,159 0.36 2,282,516 0.31
---------- ----- ---------- -----
$4,507,646 $0.61 $3,862,655 $0.51
---------- ----- ---------- -----
---------- ----- ---------- -----
<CAPTION>
PER PER
FISCAL 1996 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
September 30............... $ 5,010,695 $ 0.67 $ 6,590,834 $ 0.89
December 31................ 16,515,038 2.23 18,797,554 2.54
----------- ------ ----------- ------
$21,525,733 $ 2.90 $25,388,388 $ 3.43
----------- ------ ----------- ------
----------- ------ ----------- ------
<CAPTION>
PER PER
FISCAL 1996 AMOUNT SHARE AMOUNT SHARE
- --------------------------- ----------- ------ ------------ ------
<S> <C> <C> <C> <C>
September 30............... $ 1,775,736 $ 0.24 $108,154,252 $14.62
December 31................ 2,145,684 0.29 124,806,122 16.87
----------- ------
$ 3,921,420 $ 0.53
----------- ------
----------- ------
</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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15
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
PROXY RESULTS
During the six month period ended June 30, 1998, Cohen & Steers Total
Return Realty Fund, Inc. shareholders voted on the following proposals at the
annual meeting held on April 23, 1998. The description of each proposal and
number of shares voted are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR AUTHORITY WITHHELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect Directors
Martin Cohen........................................................... 6,816,117 107,474
Jeffrey H. Lynford..................................................... 6,813,304 110,287
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify PricewaterhouseCoopers as the Fund's certified
public accountants........................................... 6,814,654 37,070 71,867
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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16
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark FUND ADMINISTRATOR
Director Princeton Administrators, L.P.
P.O. Box 9095
George Grossman Princeton, NJ 08543-9095
Director 1-800-543-6217
Jeffrey H. Lynford CUSTODIAN AND TRANSFER AGENT
Director State Street Bank and Trust Company
P.O. Box 8200
Willard H. Smith Boston, MA 02266-8200
Director
LEGAL COUNSEL
Elizabeth O. Reagan Dechert Price & Rhoads
Vice President 30 Rockefeller Plaza
New York, NY 10112
Adam Derechin
Vice President and Assistant Treasurer New York Stock Exchange Symbol: RFI
William Goodwin Website: www.cohenandsteers.com
Assistant Secretary
This report is for shareholder information. This is not a
prospectus intended for use in the purchase or sale of
Fund shares.
</TABLE>
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17
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<PAGE>
[LOGO]
COHEN & STEERS
TOTAL RETURN REALTY FUND
SEMI-ANNUAL REPORT
JUNE 30, 1998
COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
- ----------------
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
- ----------------
STATEMENT OF DIFFERENCES
------------------------
The division sign shall be expressed as ....................... [div]
