<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
July 20, 1999
To Our Shareholders:
We are pleased to submit to you the semi-annual report for Cohen & Steers
Total Return Realty Fund for the quarter and six months ended June 30, 1999. The
net asset value at that date was $12.54. In addition, during the quarter, three
$0.08 per share monthly dividends were declared and paid.
MIDYEAR REVIEW
For the three months ended June 30, 1999, Cohen & Steers Total Return
Realty Fund had a total return, based on income and change in net asset value,
of 11.4%. This performance compares favorably to the NAREIT Equity REIT Index
total return of 10.1%. The Fund's total return for the six months ended
June 30, 1999 was 5.7%, compared to the NAREIT Equity REIT Index return of 4.8%.
In the second quarter of 1999 real estate securities posted their strongest
quarterly returns in nearly two years. Following what was a 15-month bear market
that produced a price decline of nearly 28%, REIT share prices appear to have
bottomed out. We believe that their recovery was brought about by renewed
strength in the U.S economy, solid real estate fundamentals and compelling
valuations. In addition, unlike the prevailing fears last year with respect to
the potential for a global economic recession accompanied by price deflation,
concern has shifted in 1999 to the potential for runaway growth in the economy,
rekindling fears of price inflation.
There were a number of other important developments during the quarter and
first half of this year, which represent a complete reversal of the trends that
prevailed in 1998. For example, last year the Treasury Department pushed for
Congress to adopt several legislative proposals which, if enacted, could have
reigned in the growth rates for REITs. Although the only element to pass was the
elimination of the 'paired share' structure that affected only a handful of
companies, this created a great deal of negative investor sentiment. In
contrast, this year's regulatory environment is extremely accommodative.
Legislation recently proposed in both houses of Congress, and which seems to
have a strong probability of passing, would significantly expand the ability of
REITs to engage in related service businesses. This would enable REITs to
exercise greater control of their operations as well as pursue new avenues of
growth. There are, in addition, a number of other proposals attached to this
legislation that, at the margin, are positive for the REIT industry.
As a result of the bear market as well as the continued rise in property
values, the property acquisition activity by REITs has declined dramatically.
For example, as reported by NAREIT, REIT property acquisitions in the first
quarter of 1999 totaled $4.0 billion, an 80% decline from last year's first
quarter, when REITs acquired $20.1 billion worth of property. In the second
quarter, REIT acquisitions of $2.4 billion represent an 82% decline from last
year's second quarter acquisition pace of $13.3 billion. We also believe that
approximately $4 billion of property sales by REITs took place in the first half
of the year, with more targeted to close in the second half of the year. This
record amount of dispositions by REITs was facilitated by the exceptionally
strong pricing and demand in the private market.
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1
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
This dramatically reduced acquisition activity has concurrently reduced
REITs' need for capital. According to NAREIT statistics, REITs issued only $2.6
billion in equity in the first half of the year, an 84% decline from the $16.1
billion raised in the first half of 1998. These statistics do not take into
account the actual retirement of stock that took place in the first half of the
year, as approximately 20 companies announced share repurchase programs
encompassing the potential purchase of $500 million of their equity. Unlike a
year ago when most REIT shares were trading at a premium to their net asset
values (NAVs), today they are trading at a discount and most REIT managements
believe that their stock is the most compelling investment opportunity available
to them. So far this year, four companies believe this so strongly that they
have proposed plans to go private.
On the debt side, borrowing by REITs also declined in the first half.
Issuance of secured and unsecured debt declined 57% to $6.9 billion from $12.2
billion in the first half of 1998. Much of this borrowing was used to replace
bank debt or to refinance maturing obligations. Issuance of CMBS (commercial
mortgage backed securities), by both public and private companies in the first
half declined by 20% to $34.8 billion from $43.4 billion a year ago.
Importantly, in both the unsecured debt and CMBS markets, issuance in the second
quarter was considerably slower than in the first quarter, the result of
drastically reduced borrowing needs, the uptick in interest rates, and less
investor demand.
Finally, the debate about the interest rate-sensitivity of REITs
intensified in the first half of the year. Whereas last year's precipitous
decline in interest rates was accompanied by a dramatic decline in REIT share
prices, this year's rise in interest rates seems to have had the opposite
effect. Although statistical evidence supports a low correlation of interest
rates to REIT share prices, many observers view this year's rise in rates to
have negative implications. We believe that the interest rate picture is
reflective of, not the cause of, current and prospective economic and
fundamental conditions. Those fundamental conditions are currently exceptionally
good for both real estate and REITs, and this should remain the strongest
influence on share prices.
INVESTMENT OUTLOOK
Our focus on the nation's leading real estate companies, which we call our
'Realty Majors' strategy, enabled us to outpace the broader stock market for the
quarter, and to once again perform far better than general real estate
benchmarks so far this year. The vital signs of this REIT recovery remain very
strong:
1. ECONOMIC GROWTH. A healthy U.S. economy and recovering foreign
economies bode well for continued demand for goods, services and,
importantly, space in nearly every form of real estate.
2. NEW CONSTRUCTION. While there are increases in the supply of space
due to new development, it does not appear to be significantly
greater, if at all, than demand in most major markets.
3. EARNINGS GROWTH. REIT industry earnings are growing at approximately
a 10% annual rate, and this compares well with most other industries
in America.
4. VALUATION. Compared to most other public companies, REITs remain
undervalued from a price-to-earnings multiple, dividend yield and
price-to-asset value standpoint.
The prospect of a strong economy and rising inflation, while upsetting to
fixed-income and other investors, is a major plus for owners of real estate.
Particularly in light of the prevailing tight markets and low vacancy
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2
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
rates, real estate seems poised to resume its role as a prime hedge against
inflation. Increasing rental income and replacement cost is further enhancing
the asset values of all property owners. To the extent that underlying asset
values at all influence REIT share prices -- and we believe that they do -- the
current investment environment is nearly ideal.
We believe that one of the wild cards in the supply/demand picture for REIT
shares, at least for the remainder of the year, is a continued lack of equity
issuance. Conventional wisdom is that once share prices recover, companies will
rush to sell stock, and that supply will once again depress prices. To the
contrary, we expect that most of the major companies will refrain from competing
with the private market for property acquisitions and, therefore, will not find
it necessary to expand their equity capital bases. Most managements today lament
to us the lack of investment opportunities rather than their depressed stock
prices. Thus, 1999 may be a year in which opportunistic investing is out of
favor simply because there is a shortage of opportunities. As a result, we
believe that managements will work hard to rationalize and digest the
acquisitions made over the past several years and focus more heavily on
improving internal growth. Unlike so-called 'financial buyers', who are willing
to use a high degree of leverage to achieve acceptable returns, the public
market discipline prevents REITs from employing such strategies.
We trust that astute management understands that improving earnings and a
rising NAV, without the threat of dilutive equity offerings, is a formula for
producing above-average investment returns. Further, maintaining a strong
balance sheet for a period when greater opportunities surface is perhaps the
wisest financial strategy. These are, in fact, our most important investment
selection criteria and form the foundation of our investment strategy. With this
framework in place, we will continue to pursue satisfactory investment returns.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN 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.
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3
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
EQUITIES 98.42%
COMMON STOCK 81.50%
APARTMENT/RESIDENTIAL 8.98%
Apartment Investment & Management
Co. -- Class A...................... 33,800 $ 1,444,950
Charles E. Smith Residential Realty.... 40,400 1,371,075
Essex Property Trust................... 44,100 1,560,037
Home Properties of New York............ 27,600 762,450
Summit Properties...................... 161,800 3,195,550
-----------
8,334,062
-----------
DIVERSIFIED 2.70%
Anthracite Capital..................... 382,100 2,507,531
-----------
HEALTH CARE 13.24%
ElderTrust............................. 109,600 1,116,550
Health Care Property Investors......... 103,700 2,994,338
Healthcare Realty Trust................ 111,800 2,347,800
Nationwide Health Properties........... 144,200 2,748,813
Omega Healthcare Investors............. 72,100 1,861,081
*Ventas................................ 225,000 1,209,375
-----------
12,277,957
-----------
HOTEL 1.69%
FelCor Lodging Trust................... 75,300 1,562,475
-----------
INDUSTRIAL 10.05%
AMB Property Corp...................... 86,000 2,021,000
First Industrial Realty Trust.......... 128,200 3,517,487
Pacific Gulf Properties................ 167,300 3,785,163
-----------
9,323,650
-----------
OFFICE 21.29%
Arden Realty Group..................... 131,400 3,235,725
Brandywine Realty Trust................ 162,100 3,211,606
CarrAmerica Realty Corp. .............. 99,000 2,475,000
Cornerstone Properties ................ 57,400 911,226
Crescent Real Estate Equities Co. ..... 65,200 1,548,500
Highwoods Properties .................. 139,700 3,833,019
Mack-Cali Realty Corp. ................ 125,400 3,879,562
SL Green Realty Corp. ................. 32,000 654,000
-----------
19,748,638
-----------
</TABLE>
See accompanying notes to financial statements.
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4
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
OFFICE/INDUSTRIAL 6.58%
Liberty Property Trust................. 116,300 $ 2,892,963
Prime Group Realty Trust............... 123,500 2,122,656
Reckson Associates Realty
Corp. -- Class B.................... 45,570 1,087,984
-----------
6,103,603
-----------
SHOPPING CENTER 15.57%
COMMUNITY CENTER 9.46%
Developers Diversified Realty Corp. ... 55,600 924,350
Federal Realty Investment Trust........ 67,100 1,539,106
Pan Pacific Retail Properties ......... 118,700 2,299,813
Philips International Realty Corp. .... 125,000 2,109,375
Regency Realty Corp.................... 86,700 1,901,981
-----------
8,774,625
-----------
REGIONAL MALL 6.11%
JP Realty.............................. 133,700 2,749,206
Simon Property Group................... 51,200 1,299,200
Taubman Centers........................ 52,100 687,069
Macerich Company....................... 35,600 934,500
-----------
5,669,975
-----------
TOTAL SHOPPING CENTER.................. 14,444,600
-----------
SPECIALTY 1.40%
Entertainment Properties Trust......... 73,900 1,302,487
-----------
TOTAL COMMON STOCK (Identified
cost -- $76,835,965).......... 75,605,003
-----------
PREFERRED STOCK 16.92%
Apartment Investment & Management Co.,
9.375%, Series G.................... 125,100 3,041,494
Bradley Real Estate, 8.40%, Series A
(Convertible)....................... 40,026 925,601
Camden Property Trust, $2.25, Series A
(Convertible)....................... 108,000 2,706,750
Crown American Realty Trust, 11.00%,
Series A............................ 44,300 2,087,637
Prime Retail, 8.50%, Series B
(Convertible)....................... 94,800 1,516,800
Reckson Associates Realty Corp.,
7.625%, Series A (Convertible)...... 124,000 2,828,750
SL Green Realty Corp., 8.00%, Series A
(Convertible)....................... 114,200 2,590,913
-----------
TOTAL PREFERRED STOCK (Identified
cost -- $16,389,187).......... 15,697,945
-----------
TOTAL EQUITIES (Identified
cost -- $93,225,152).......... 91,302,948
-----------
</TABLE>
See accompanying notes to financial statements.
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5
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- -----------
<S> <C> <C>
COMMERCIAL PAPER 0.84%
American Express Credit Corp., 5.00%, due
7/1/99 (Identified cost -- $780,060)...... $780,000 $ 780,000
-----------
TOTAL INVESTMENTS (Identified
cost -- $94,005,212)..................... 99.26% 92,082,948
OTHER ASSETS IN EXCESS OF LIABILITIES........ 0.74% 684,495
-----
-----------
NET ASSETS (Equivalent to $12.54 per share based on
7,399,100 shares of capital stock
outstanding)............................ 100.00% $92,767,443
------ -----------
------ -----------
</TABLE>
- ------------
* Non-income producing security.
See accompanying 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
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified
cost -- $94,005,212) (Note 1)........................ $92,082,948
Cash.................................................. 609
Dividends and interest receivable..................... 892,010
Receivable for investment securities sold............. 20,369
Other assets.......................................... 1,272
-----------
Total Assets.................................... 92,997,208
-----------
LIABILITIES:
Payable for dividends declared........................ 76,428
Payable to investment advisor......................... 54,061
Payable to administrator.............................. 12,500
Other liabilities..................................... 86,776
-----------
Total Liabilities............................... 229,765
-----------
NET ASSETS applicable to 7,399,100 shares of $0.001 par
value common stock outstanding
(Note 4)................................................. $92,767,443
-----------
-----------
NET ASSET VALUE PER SHARE:
($92,767,443[div]7,399,100 shares outstanding)........ $ 12.54
-----------
-----------
MARKET PRICE PER SHARE...................................... $ 13.125
-----------
-----------
MARKET PRICE PREMIUM TO NET ASSET VALUE PER SHARE........... 4.67%
-----------
-----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)....................... $96,061,507
Undistributed net investment income................... 50,533
Accumulated net realized loss on investments sold..... (1,422,333)
Net unrealized depreciation on investments............ (1,922,264)
-----------
$92,767,443
-----------
-----------
</TABLE>
See accompanying 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 SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income....................................... $ 4,024,081
Interest income....................................... 66,444
-----------
Total Income.................................... 4,090,525
-----------
Expenses:
Investment advisory fees (Note 2)..................... 311,588
Administration fees (Note 2).......................... 73,806
Transfer agent fees................................... 44,211
Custodian fees and expenses........................... 26,535
Professional fees..................................... 15,054
Directors' fees and expenses (Note 2)................. 14,398
Reports to shareholders............................... 20,724
Registration and filing fees.......................... 7,402
Insurance............................................. 1,164
Interest expense (Notes 1 and 7)...................... 102
Miscellaneous......................................... 2,544
-----------
Total Expenses.................................. 517,528
Reduction of Expenses (Note 6)........................ (28,505)
-----------
Net Expenses.................................... 489,023
-----------
Net Investment Income....................................... 3,601,502
-----------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized loss on investments...................... (3,611,356)
Net change in unrealized appreciation/(depreciation)
on investments....................................... 4,941,998
-----------
Net realized and unrealized gain/(loss) on
investments.......................................... 1,330,642
-----------
Net Increase in Net Assets Resulting from Operations........ $ 4,932,144
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
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8
<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, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income................ $ 3,601,502 $ 8,681,907
Net realized gain/(loss) on
investments....................... (3,611,356) 9,196,571
Net change in unrealized
appreciation/(depreciation)
on investments.................... 4,941,998 (34,059,788)
----------- ------------
Net increase/(decrease) in net
assets resulting
from operations............. 4,932,144 (16,181,310)
----------- ------------
Dividends and Distributions to shareholders
from (Note 1):
Net investment income................ (3,550,969) (5,466,924)
Net realized gain on investments..... -- (15,192,513)
Tax return of capital................ -- (1,325,146)
----------- ------------
Total dividends and distributions to
shareholders...................... (3,550,969) (21,984,583)
----------- ------------
Total increase/(decrease) in
net assets.................. 1,381,175 (38,165,893)
Net Assets:
Beginning of period.................. 91,386,268 129,552,161
----------- ------------
End of period (including
undistributed net investment
income of $50,533 at June 30,
1999)............................. $92,767,443 $ 91,386,268
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to financial statements.
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9
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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 year 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, 1999 --------------------------------------------------
PER SHARE OPERATING PERFORMANCE (UNAUDITED) 1998 1997 1996 1995 1994
- ------------------------------- ----------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 12.35 $ 17.51 $ 16.87 $ 13.44 $ 13.26 $ 13.30
------- ------- -------- -------- -------- -------
Income from investment operations:
Net investment income......................... 0.49 1.17 1.10 1.02 0.88 0.83
Net realized and unrealized gain/(loss) on
investments................................. 0.18 (3.36) 2.38 3.42 0.26 0.01
------- ------- -------- -------- -------- -------
Total from investment operations......... 0.67 (2.19) 3.48 4.44 1.14 0.84
------- ------- -------- -------- -------- -------
Less dividends and distributions to shareholders
from:
Net investment income......................... (0.48) (0.74) (0.96) (0.96) (0.67) (0.47)
Net realized gain on investments.............. -- (2.05) (1.88) (0.05) -- --
Tax return of capital......................... -- (0.18) -- -- (0.29) (0.41)
------- ------- -------- -------- -------- -------
Total dividends and distributions to
shareholders........................... (0.48) (2.97) (2.84) (1.01) (0.96) (0.88)
------- ------- -------- -------- -------- -------
Net increase/(decrease) in net asset
value.................................. 0.19 (5.16) 0.64 3.43 0.18 (0.04)
------- ------- -------- -------- -------- -------
Net asset value, end of period.................... $ 12.54 $ 12.35 $ 17.51 $ 16.87 $ 13.44 $ 13.26
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Market value, end of period....................... $13.125 $ 12.81 $ 17.75 $ 16.50 $ 13.375 $12.375
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
- -------------------------------------------------------------------------------------------------------------------------
Total market value return(1)...................... 6.36% - 12.20% +24.96% +32.37% +16.38% - 2.32%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Total net asset value return(1)................... 5.68% - 14.21% +20.57% +34.68% +9.14% +6.45%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------------------
Net assets, end of period (in millions)....... $ 92.8 $ 91.4 $ 129.6 $ 124.8 $ 99.4 $ 98.1
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Ratio of expenses to average net assets
(before expense reduction).................. 1.17%(2) 1.14% 1.22% 1.20% 1.25% 1.35%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Ratio of expenses to average net assets (net
of expense reduction)....................... 1.11%(2) 1.12% 1.17% 1.16% 1.23% 1.31%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Ratio of net investment income to average net
assets (before expense reduction)........... 8.09%(2) 7.35% 6.12% 7.16% 6.78% 6.14%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Ratio of net investment income to average net
assets (net of expense reduction)........... 8.16%(2) 7.37% 6.17% 7.21% 6.79% 6.19%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
Portfolio turnover rate....................... 37%(3) 76% 41% 31% 51% 65%
------- ------- -------- -------- -------- -------
------- ------- -------- -------- -------- -------
</TABLE>
- ------------------------
(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 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 reinvested
dividends.
(2) Annualized.
(3) Not annualized.
See accompanying notes to financial statements.
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10
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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 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 Cohen &
Steers Capital Management, Inc. 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 market 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 from net investment
income are declared and paid monthly. A portion of the Fund's dividend may
consist of amount in excess of net investment income derived from non-taxable
components of the dividends from the Fund's portfolio investments. Net realized
capital gains, unless
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11
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 return of capital and capital gains 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.
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
'Advisor') serves as the investment adviser to the Fund, pursuant to an Advisory
Agreement (the 'Advisory Agreement'). The Advisor 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 ended June
30, 1999, the Fund incurred investment advisory fees of $311,588.
Administrative 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 daily, 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 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, 1999, the Fund incurred administrative fees of
$73,806.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Director's 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. For the six
months ended June 30, 1999, fees and related expenses accrued for non-affiliated
directors totaled $14,398.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the six months ended June 30, 1999, totaled $32,445,869 and $40,474,353,
respectively.
At June 30, 1999, the cost and unrealized appreciation/(depreciation) in
value of the investments owned by the Fund are as follows:
<TABLE>
<S> <C>
Aggregated cost................................... $ 94,005,212
------------
------------
Gross unrealized appreciation..................... $ 3,764,063
Gross unrealized depreciation..................... (5,686,327)
------------
Net unrealized depreciation....................... $ (1,922,264)
------------
------------
</TABLE>
NOTE 4. COMMON STOCK
At June 30, 1999, 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 12,998 shares.
NOTE 5. SUBSEQUENT EVENTS
On July 1, 1999 the Board of Directors on the Fund declared a dividend of
$0.08 per share payable on July 30, 1999 to shareholders of record on July 15,
1999.
NOTE 6. DIRECTED BROKERAGE ARRANGEMENT
The Adviser directed certain portfolio trades to brokers who paid a portion
of the Fund's expenses. For the six months ended June 30, 1998, the Fund's
expenses were reduced by $28,505 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 June 30, 1999, there were no loans
outstanding. During the six months ended June 30, 1999, the average daily
balance of loans outstanding was $629,875 at a weighted average interest rate of
5.8125%. The maximum amount of loans outstanding at any time during the six
months ended June 30,1999 was $629,875 on March 16, 1999, which was 0.73% of
total assets. The loan is collateralized by the Fund's portfolio to the extent
of the loan outstanding.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Total Net
Investment Investment
Quarterly Period Income Income
- ------------------- -------------------- --------------------
Per Per
Fiscal 1999 Amount Share Amount Share
- ------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
March 31........... $2,129,342 $ 0.29 $1,873,539 $ 0.25
June 30............ 1,961,183 0.27 1,727,962 0.23
---------- --------- ---------- --------
$4,090,525 $ 0.56 $3,601,501 $ 0.48
---------- --------- ---------- --------
---------- --------- ---------- --------
Per Per
Fiscal 1998 Amount Share Amount Share
- ------------------- --------- --------- --------- ---------
March 31........... $ 2,241,503 $ 0.30 $1,899,558 $ 0.26
June 30............ 3,202,066 0.43 2,843,127 0.38
September 30....... 2,228,505 0.30 1,910,803 0.26
December 31........ 2,331,357 0.32 2,028,419 0.27
--------- --------- ---------- --------
$10,003,431 $ 1.35 $8,681,907 $ 1.17
----------- --------- ---------- --------
----------- --------- ---------- --------
Per Per
Fiscal 1997 Amount Share Amount Share
- ------------------- --------- --------- --------- ---------
September 30....... $2,388,834 $ 0.32 $2,023,699 $ 0.27
December 31........ 2,554,452 0.35 $2,197,699 0.30
---------- -------- ---------- --------
$4,943,286 $ 0.67 $4,221,398 $ 0.57
---------- -------- ---------- --------
---------- -------- ---------- --------
Net Realized and Net Increase/
Unrealized (Decrease) in Net
Gain/(Loss) Assets Resulting
Quarterly Period on Investments From Operations
- ------------------- ---------------------- --------------------
Per Per
Fiscal 1999 Amount Share Amount Share
- ------------------- ----------- --------- --------- ---------
March 31........... $(6,579,081) $ (0.89) $(4,705,542) $ (0.64)
June 30............ 7,909,724 1.07 9,637,686 1.30
----------- --------- ----------- ---------
$ 1,330,643 $ 0.18 $ 4,932,144 $ 0.66
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Per Per
Fiscal 1998 Amount Share Amount Share
- ------------------- ----------- --------- --------- ---------
March 31........... $ (1,841,313) $ (0.25) $ 58,245 $ 0.01
June 30............ (7,833,821) (1.06) (4,990,694) (0.68)
September 30....... (9,818,779) (1.33) (7,907,976) (1.07)
December 31........ (5,369,304) (0.72) (3,340,885) (0.45)
------------ --------- ------------ ---------
$(24,863,217) $ (3.36) $(16,181,310) $ (2.19)
------------ --------- ------------ ---------
------------ --------- ------------ ---------
Per Per
Fiscal 1997 Amount Share Amount Share
- ------------------- ----------- --------- --------- ---------
September 30....... $10,357,370 $ 1.40 $12,381,069 $ 1.67
December 31........ 1,349,433 0.18 3,547,132 0.48
----------- --------- ----------- ---------
$11,706,803 $ 1.58 $15,928,201 $ 2.15
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Dividends and Net Assets at
Distributions End of Period
Quarterly Period ---------------------- --------------------
- ------------------- Per Per
Fiscal 1999 Amount Share Amount Share
- ------------------- ----------- --------- --------- ---------
March 31........... $(1,775,248) $ (0.24) $84,905,478 $ 11.48
June 30............ (1,775,721) (0.24) 92,767,443 12.54
----------- ---------
$(3,550,969) $ (0.48)
----------- ---------
----------- ---------
Per Per
Fiscal 1998 Amount Share Amount Share
- ------------------- ----------- --------- --------- -------
March 31........... $ (1,785,258) $ (0.24) $127,825,148 $ 17.28
June 30............ (1,775,712) (0.24) 121,058,742 16.36
September 30....... (1,775,716) (0.24) 111,375,051 15.05
December 31........ (16,647,897) (2.25) 91,386,268 12.35
------------ ---------
$(21,984,583) $ (2.97)
------------ ---------
------------ ---------
Per Per
Fiscal 1997 Amount Share Amount Share
- ------------------- ----------- --------- --------- ---------
September 30....... $ 1,775,716 $ 0.24 $141,691,079 $ 19.15
December 31........ 15,686,049 2.12 129,552,161 17.51
----------- ---------
$17,461,765 $ 2.36
----------- ---------
----------- ---------
</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.
PROXY RESULTS
During the six month period ended June 30, 1999, Cohen & Steers Total
Return Realty Fund, Inc. shareholders voted on the following proposals at the
annual meeting held on April 28, 1999. 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
Greg C. Clark............................................. 6,966,705 81,342
Willard H. Smith, Jr...................................... 6,966,404 81,643
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
2. To ratify PricewaterhouseCoopers LLP as the
Fund's certified public accountants............. 6,941,963 51,556 54,528
- -----------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
14
<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, Jr.
Director
Elizabeth O. Reagan
Vice President
Adam Derechin
Vice President and Assistant
Treasurer
Lawrence B. Stoller
Assistant Secretary
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) 543-6217
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
New York Stock Exchange Symbol: RFI
Website: www.cohenandsteers.com
This report is for shareholder
information. This is not
a prospectus intended for use in the
purchase or sale
of Fund shares. Past performance is of
course no
guarantee of future results and your
investment may
be worth more or less at the time you
sell.
- --------------------------------------------------------------------------------
15
<PAGE>
[LOGO]
COHEN & STEERS
TOTAL RETURN REALTY FUND
SEMI-ANNUAL REPORT
JUNE 30, 1999
COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
STATEMENT OF DIFFERENCES
------------------------
The division sign shall be expressed as.................................. [div]
