<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
February 3, 2000
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Total Return
Realty Fund for the quarter and the year ended December 31, 1999. The net asset
value per share at that date was $10.63. During the quarter, three $0.08 per
share monthly dividends were declared and paid. In addition, a special income
dividend of $0.03 per share was declared for shareholders of record on
December 21, 1999 and was paid on January 14, 2000.
1999 INVESTMENT REVIEW
For the year ended December 31, 1999, Cohen & Steers Total Return Realty
Fund had a total return, based on income and change in net asset value, of
- 6.77%. This performance compares to the NAREIT Equity REIT Index* total
return of - 4.62%. This underperformance compared to its benchmark primarily
resulted from the Fund's overweighting in Health Care and preferred stocks.
The REIT bear market continued in earnest in 1999, and for only the second
time in history, and the first time in 25 years, REITs recorded back-to-back
years of negative returns. As is well known, this performance came in the face
of continued strong real estate fundamentals, rising inflation expectations and
historically attractive REIT valuations.
The relative underperformance of the Fund for the year was primarily due to
the allocation to both the Health Care sector and to fixed income investments.
The Health Care sector was the poorest performing property sector in 1999 as
these companies were buffeted by Medicare reforms that reduced the profitability
of nursing homes, and overbuilding in the assisted living industry that has
caused severe financial distress for their operators. Real estate fixed income
investments, consisting primarily of preferred stocks of REITs, performed poorly
as a result of a combination of real estate securities being out of favor, tax
loss selling and higher interest rates. In addition, sporadic leveraged buyout
or merger transactions raised the specter of credit deterioration. We believe
our Health Care and fixed income investments will contribute significantly to
the account's performance in the coming year during what we believe will be a
general recovery in the overall REIT market.
The best performing sectors in 1999 were Apartment and Office. Both were
positively affected by the strong economy, exposure to the growth of the
Internet and knowledge-based industries, and financial market discipline that
constrained capital flows and new construction that might have led to
overbuilding. In addition to the Health Care sector, the Hotel sector performed
poorly due to the increasing level of new hotel construction. The Retail sector,
of course, was adversely affected by investor fears about the growing threat of
the Internet on real estate based shopping.
What is perhaps most interesting about performance in 1999 is what
investment themes did not work, despite widely held beliefs that certain
valuation parameters and corporate policies would stem the tide of persistent
investor selling. While so-called 'value' investors in general suffered during
the year, in the REIT universe neither value nor growth styles of management
provided better returns. Net asset values (NAV) per share failed to provide a
floor to REIT share prices, and now most trade well below NAV. Current dividend
yield also provided little or no support as share price declines produced an
unprecedented number of double-digit dividend yields in the REIT universe. Share
buy-backs, which totaled several $billion, and were widely heralded as both
managements'
1
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
strongest defense and their greatest investment opportunity, failed to do more
than barely cushion the fall of REIT prices. And finally, increased merger and
acquisition activity, nearly everyone's expected outcome of the bear market, not
only failed to materialize, but in the few transactions that did take place, the
premium paid for the acquired company was disappointingly modest.
INVESTMENT OUTLOOK
As 2000 begins, little if anything has changed in the REIT investment
environment. The economy continues to grow at a substantial pace and real estate
fundamentals remain strong; we expect REIT earnings to grow by 8%, on average,
this year, which is about in line with the projections for the S&P 500. REITs
are generally very well capitalized and these companies are expected to again
record strong dividend growth. The REIT modernization legislation passed in 1999
has broadened these companies' power to control their destinies due to their new
ability, starting in 2001, to establish taxable subsidiary companies that can
engage in previously prohibited services and related businesses. Nonetheless,
REIT shares remain at record low valuations and investor sentiment continues to
strongly favor high technology and Internet-related companies.
In our opinion, REITs continue to suffer from the lack of cyclical tailwinds
from which they benefited in the mid-1990's, and from investor fears that
cyclical headwinds may be just around the corner, the result of either a slowing
economy (thereby reducing demand) or a boom in new construction (increasing
supply). Thus, to commit to this sector one must be satisfied that neither of
these are an issue or, if they are, that the stocks are cheap enough and have
discounted these factors. While we are no better at predicting the economy than
anyone else, it appears that there are very few impediments to continued
economic growth, although perhaps not at the torrid pace of the past year. We
also see ample evidence that the combination of enhanced real estate information
flow and capital market discipline can be sufficient to control the amount of
new construction in most property types and major regions of the country. As a
result, we are not concerned that a supply/demand imbalance in the real estate
market is about to develop. Consequently, due to the current level of REIT
valuations, we also do not see a lot of risk in their share prices.
The continued strength of the economy has justifiably caused fears of
further interest rate increases this year, and many have suggested that this
will be negative for real estate and REITs. This conclusion, however, may not be
entirely correct and, again, recent experience is substantiating this. Again,
using the supply and demand analogy, as long as interest rate increases do not
choke off economic growth altogether, the demand side of the equation should
stay intact. Importantly, real estate development is very sensitive to interest
rates. Rising interest rates over the past year have already had the effect of
slowing construction. We would expect that any additional rise in rates will
further reduce development activity and nearly ensure limitations on new supply.
This may also precipitate a rise in required current returns (capitalization
rates) on both new development and property purchases and a concomitant decline
in property values. This situation may be exactly what the decline in REIT share
prices has been anticipating. Again, as long as the economy continues to grow,
rental income and, therefore, REIT earnings should not be negatively affected.
Thus, REIT share prices may hold up relatively well. Further, this may create a
new buying opportunity for the REITs that have retained or can access capital.
It is for this reason that we have advocated that companies marshal as much
liquidity as possible, and have focused our investments on those that have done
so.
2
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
Within the context of the entire REIT universe, we expect a continuation of
divergent trends between different property sectors and companies. Perhaps more
so than recently, we believe that sector selection will play an increasingly
important role in investment performance. We continue to like the Office sector,
but favor urban locations. We still favor the Health Care sector based on early
signs that the worst may be over for both the owners and operators of health
care facilities. Similarly, we have begun to increase our weighting in the Hotel
sector, as we see abatement in the growth of new hotel construction and
continued strong demand for rooms, particularly in the urban, upscale segment.
With an average current yield of over 13%, we believe, the account's preferred
holdings offer an exceptional investment opportunity as they all possess strong
fixed charge coverage. We are continuing to underweight the Retail sector due to
a peaking of earnings momentum and the continued threat of the Internet with
respect to retailers' sales and profit margins. Further, we are reducing or
eliminating any holdings where managements have not adapted well to a capital
constrained environment or have not adopted a business strategy that addresses
the changed fundamental trends. The wholesale decline in REIT prices over the
last two years has allowed the account to substantially upgrade its investment
in companies with these characteristics, consistent with the account's goal of
producing a high level of current income.
In our opinion, waiting for REITs to return to investor favor is not like
waiting for bell-bottom pants and wide ties to come back into vogue. Real estate
remains a large and essential, albeit changing, industry and REITs continue to
be the prominent vehicle for investment. Our investment strategy remains focused
on owning a broadly diversified portfolio of above average yielding real estate
securities. In constructing the Fund's portfolio, we look for companies with
high current income coupled with healthy dividend increases and predictable
earnings growth. It is our view that 1999's performance, while disappointing,
reflects the tail end of the REIT securities bear market. We are optimistic
about the Fund's prospects and will continue to do our best to deliver rewarding
returns.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
-----------------------------------------------------------
Cohen & Steers is 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.
------------------------------------------------------------
* The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly-traded REITs that invest predominately in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
3
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
----------- -----------
<S> <C> <C>
EQUITIES 96.88%
COMMON STOCK 82.25%
APARTMENT/RESIDENTIAL 3.42%
Apartment Investment & Management
Co. -- Class A........................... 21,900 $ 871,894
Home Properties of New York................. 27,600 757,275
Summit Properties........................... 59,300 1,059,987
-----------
2,689,156
-----------
HEALTH CARE 13.86%
ElderTrust.................................. 106,700 653,538
Health Care Property Investors.............. 133,800 3,194,475
Healthcare Realty Trust..................... 86,500 1,351,563
Nationwide Health Properties................ 240,900 3,312,375
Omega Healthcare Investors.................. 114,000 1,446,375
*Ventas..................................... 225,000 942,187
-----------
10,900,513
-----------
HOTEL 6.22%
FelCor Lodging Trust........................ 120,300 2,105,250
MeriStar Hospitality Corp................... 174,200 2,787,200
-----------
4,892,450
-----------
INDUSTRIAL 8.61%
First Industrial Realty Trust............... 123,300 3,383,044
Pacific Gulf Properties..................... 167,300 3,387,825
-----------
6,770,869
-----------
OFFICE 21.88%
Arden Realty Group.......................... 131,400 2,636,212
Brandywine Realty Trust..................... 196,100 3,211,138
CarrAmerica Realty Corp..................... 99,000 2,091,375
Crescent Real Estate Equities Co............ 112,300 2,063,513
Highwoods Properties........................ 139,700 3,248,025
Mack-Cali Realty Corp....................... 125,400 3,268,237
SL Green Realty Corp........................ 32,000 696,000
-----------
17,214,500
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
----------- -----------
<S> <C> <C>
OFFICE/INDUSTRIAL 7.86%
Liberty Property Trust...................... 138,800 $ 3,365,900
Prime Group Realty Trust.................... 117,100 1,778,456
Reckson Associates Realty Corp. --
Class B.................................. 45,570 1,036,718
-----------
6,181,074
-----------
SHOPPING CENTER 19.16%
COMMUNITY CENTER 7.30%
Developers Diversified Realty Corp.......... 146,200 1,882,325
Pan Pacific Retail Properties............... 118,700 1,936,294
Philips International Realty Corp........... 117,000 1,923,187
-----------
5,741,806
-----------
REGIONAL MALL 11.86%
JP Realty................................... 146,300 2,285,938
Macerich Co................................. 132,700 2,761,819
Simon Property Group........................ 110,300 2,530,006
Taubman Centers............................. 162,900 1,751,175
-----------
9,328,938
-----------
TOTAL SHOPPING CENTER....................... 15,070,744
-----------
SPECIALTY 1.24%
Entertainment Properties Trust.............. 73,900 974,556
-----------
TOTAL COMMON STOCK (Identified
cost -- $77,002,036)................. 64,693,862
-----------
PREFERRED STOCK 14.63%
Apartment Investment & Management Co.,
9.375%, Series G......................... 125,100 2,103,244
Bradley Real Estate, 8.40%, Series A
(Convertible)............................ 40,026 780,507
Camden Property Trust, $2.25, Series A
(Convertible)............................ 106,100 2,380,619
Crown American Realty Trust, 11.00%, Series
A........................................ 44,300 1,567,112
Prime Retail, 8.50%, Series B
(Convertible)............................ 94,800 1,119,825
Reckson Associates Realty Corp., 7.625%,
Series A (Convertible)................... 42,500 844,688
SL Green Realty Corp., 8.00%, Series A
(Convertible)............................ 114,200 2,712,250
-----------
TOTAL PREFERRED STOCK (Identified
cost -- $14,356,569)................. 11,508,245
-----------
TOTAL EQUITIES (Identified
cost -- $91,358,605)................. 76,202,107
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
----------- -------------
<S> <C> <C> <C>
CORPORATE BOND 1.00%
#Macerich Co. 144A, Convertible, 7.25%,
due 12/15/02
(Identified cost -- $770,175).......... $945,000 $ 789,074
-----------
TOTAL INVESTMENTS (Identified cost -- $92,128,780)... 97.88% 76,991,181
OTHER ASSETS IN EXCESS OF LIABILITIES................ 2.12% 1,666,913
------- -----------
NET ASSETS (Equivalent to $10.63 per share based on
7,399,100 shares of capital stock outstanding)..... 100.00% $78,658,094
------- -----------
------- -----------
</TABLE>
- -------------------
* Non-income producing security.
# Security is restricted subject to rule 144A and trades infrequently. The Fund
prices this security by obtaining a bid and ask price from two market makers
on a weekly basis. The average of the bid and ask prices is used as the
security's price.
See accompanying notes to financial statements.
6
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified
cost -- $92,128,780) (Note 1)........................ $ 76,991,181
Cash.................................................... 1,065,027
Dividends and interest receivable....................... 1,044,166
Receivable for investment securities sold............... 27,983
Other assets............................................ 4,160
------------
Total Assets....................................... 79,132,517
------------
LIABILITIES:
Payable for dividends declared.......................... 285,349
Payable to investment advisor........................... 44,499
Payable to administrator................................ 13,690
Other liabilities....................................... 130,885
------------
Total Liabilities.................................. 474,423
------------
NET ASSETS applicable to 7,399,100 shares of $0.001 par
value common stock outstanding (Note 4)................... $ 78,658,094
------------
------------
NET ASSET VALUE PER SHARE:
($78,658,094[div]7,399,100 shares outstanding).......... $ 10.63
------------
------------
MARKET PRICE PER SHARE...................................... $ 10.625
------------
------------
MARKET PRICE DISCOUNT TO NET ASSET VALUE PER SHARE.......... (0.05)%
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)......................... $ 94,897,831
Accumulated net realized loss on investments sold....... (1,102,138)
Net unrealized depreciation on investments.............. (15,137,599)
------------
$ 78,658,094
------------
------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income......................................... $ 8,317,915
Interest income......................................... 125,598
------------
Total Income....................................... 8,443,513
------------
Expenses:
Investment advisory fees (Note 2)....................... 603,982
Administration fees (Note 2)............................ 150,000
Transfer agent fees..................................... 71,161
Custodian fees and expenses............................. 63,527
Reports to shareholders................................. 38,807
Professional fees....................................... 31,708
Directors' fees and expenses (Note 2)................... 32,703
Registration and filing fees............................ 16,170
Interest expense (notes 1 and 7)........................ 102
Miscellaneous........................................... 7,048
------------
Total Expenses..................................... 1,015,208
Reduction of Expenses (Note 6).......................... (51,804)
------------
Net Expenses....................................... 963,404
------------
Net Investment Income....................................... 7,480,109
------------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments........................ (4,610,583)
Net change in unrealized depreciation on investments.... (8,273,337)
------------
Net realized and unrealized loss on investments.... (12,883,920)
------------
Net Decrease in Net Assets Resulting from Operations........ $ (5,403,811)
------------
------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income............... $ 7,480,109 $ 8,681,907
Net realized gain/(loss) on
investments...................... (4,610,583) 9,196,571
Net change in unrealized
appreciation/(depreciation) on
investments...................... (8,273,337) (34,059,788)
------------ ------------
Net decrease in net assets
resulting from operations.... (5,403,811) (16,181,310)
------------ ------------
Dividends and Distributions to
shareholders from
(Note 1):
Net investment income............... (6,160,687) (5,466,924)
Net realized gain on investments.... -- (15,192,513)
Tax return of capital............... (1,163,676) (1,325,146)
------------ ------------
Total dividends and
distributions to
shareholders................. (7,324,363) (21,984,583)
------------ ------------
Total decrease in net assets... (12,728,174) (38,165,893)
Net Assets:
Beginning of year................... 91,386,268 129,552,161
------------ ------------
End of year......................... $ 78,658,094 $ 91,386,268
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
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 YEAR ENDED DECEMBER 31,
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1999 1998 1997 1996 1995
- -------------------------------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................. $ 12.35 $ 17.51 $ 16.87 $ 13.44 $ 13.26
------- -------- -------- -------- -------
Income from investment operations:
Net investment income........................... 1.01 1.17 1.10 1.02 0.88
Net realized and unrealized gain/(loss) on
investments................................... (1.74) (3.36) 2.38 3.42 0.26
------- -------- -------- -------- -------
Total from investment operations............ (0.73) (2.19) 3.48 4.44 1.14
------- -------- -------- -------- -------
Less dividends and distributions to shareholders
from:
Net investment income........................... (0.83) (0.74) (0.96) (0.96) (0.67)
Net realized gain on investments................ -- (2.05) (1.88) (0.05) --
Tax return of capital........................... (0.16) (0.18) -- -- (0.29)
------- -------- -------- -------- -------
Total dividends and distributions to
shareholders.............................. (0.99) (2.97) (2.84) (1.01) (0.96)
------- -------- -------- -------- -------
Net increase/(decrease) in net asset
value..................................... (1.72) (5.16) 0.64 3.43 0.18
------- -------- -------- -------- -------
Net asset value, end of year........................ $ 10.63 $ 12.35 $ 17.51 $ 16.87 $ 13.44
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Market value, end of year........................... $10.625 $ 12.81 $ 17.75 $ 16.50 $13.375
------- -------- -------- -------- -------
------- -------- -------- -------- -------
- --------------------------------------------------------------------------------------------------------
TOTAL MARKET VALUE RETURN(a)........................ - 10.18% - 12.20% 24.96% 32.37% 16.38%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
TOTAL NET ASSET VALUE RETURN(a)..................... - 6.77% - 14.21% 20.57% 34.68% 9.14%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------
Net assets, end of period (in millions)......... $ 78.7 $ 91.4 $ 129.6 $ 124.8 $ 99.4
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Ratios of expenses to average weekly net assets
(before expense reduction).................... 1.18% 1.14% 1.22% 1.20% 1.25%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Ratios of expenses to average weekly net assets
(net of expense reduction).................... 1.12% 1.12% 1.17% 1.16% 1.23%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Ratios of net investment income to average
weekly net assets (before expense
reduction).................................... 8.61% 7.35% 6.12% 7.16% 6.78%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Ratios of net investment income to average
weekly net assets
(net of expense reduction).................... 8.67% 7.37% 6.17% 7.21% 6.79%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
Portfolio turnover rate......................... 62% 76% 41% 31% 51%
------- -------- -------- -------- -------
------- -------- -------- -------- -------
</TABLE>
- -------------------
(a) 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 as
reinvested.
See accompanying notes to financial statements.
10
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Total Return Realty Fund, Inc. (the 'Fund') was incorporated
under the laws of the State of Maryland on September 4, 1992 and is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified management investment company. The Fund had no operations until
September 13, 1993 when it sold 7,100 shares of common stock for $100,110 to
Cohen & Steers Capital Management, Inc. (the 'Adviser'). Investment operations
commenced on September 27, 1993. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The preparation of the financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts 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 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 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
11
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
non-taxable components of the dividends from the Fund's portfolio investments.
As a result, the Fund had a return of capital of $1,163,676 ($0.16 per share),
for the year ended December 31, 1999, which has been deducted from paid-in
capital. Net realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders annually. Distributions to
shareholders are recorded on the ex-dividend date.
Dividends from net 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. During the year ended
December 31, 1999, the Fund decreased undistributed net investment income and
decreased accumulated net realized loss on investments by $1,319,422. These
differences are primarily due to payment of distributions subject to a 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. At December 31, 1999,
the Fund had a capital loss carryfoward of $2,599,723 expiring in 2007.
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 year ended
December 31, 1999, the Fund incurred investment advisory fees of $603,982.
Administration Fees: Princeton Administrators, L.P., (the 'Administrator')
serves as the administrator pursuant to an Administration Agreement (the
'Administration Agreement'), as amended, with the Fund. Under such
Administration 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,
12
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 year ended December 31, 1999, the Fund incurred administrative fees of
$150,000.
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. Fees and
related expenses accrued for non-affiliated directors totaled $32,703 for the
year ended December 31, 1999.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
year ended December 31, 1999, totaled $52,378,972 and $60,509,880, respectively.
At December 31, 1999, the cost and unrealized appreciation/(depreciation) in
value of the investments owned by the Fund, as computed on a federal income tax
basis, are as follows:
<TABLE>
<S> <C>
Aggregated cost................................... $ 90,631,192
------------
Gross unrealized appreciation..................... $ 2,009,250
Gross unrealized depreciation..................... $(15,649,261)
------------
Net unrealized depreciation....................... $(13,640,011)
------------
------------
</TABLE>
NOTE 4. COMMON STOCK
At December 31, 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 13,578
shares.
NOTE 5. SUBSEQUENT EVENTS
On January 3, 2000 the Board of Directors on the Fund declared a dividend of
$0.08 per share payable on January 31, 2000 to shareholders of record on January
14, 2000.
NOTE 6. DIRECTED BROKERAGE ARRANGEMENT
The Adviser directed certain portfolio trades to brokers who paid a portion
of the Fund's expenses. For the year ended December 31, 1999, the Fund's
expenses were reduced by $51,804 under this agreement.
NOTE 7. BORROWINGS
The Fund has entered into a Line of Credit Agreement with State Street Bank
& Trust Company for $15,000,000. At December 31, 1999, there were no loans
outstanding. During the year ended December 31, 1999, the average daily balance
of loans outstanding was $629,875 at a weighted average interest rate of
5.8125%. The
13
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maximum amount of loans outstanding at any time during the year ended December
31, 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.
NOTE 8. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET
NET REALIZED AND INCREASE/(DECREASE)
TOTAL NET UNREALIZED IN NET ASSETS
INVESTMENT INVESTMENT GAIN/(LOSS) RESULTING FROM
QUARTERLY PERIOD INCOME INCOME ON INVESTMENTS OPERATIONS
- --------------------- ------------------- ------------------ --------------------- ---------------------
PER PER PER PER
FISCAL 1999 AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ----------- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31............. $ 2,129,342 $0.29 $1,873,539 $0.25 $ (6,579,081) $(0.89) $ (4,705,542) $(0.64)
June 30.............. 1,961,183 0.27 1,727,962 0.23 7,909,724 1.07 9,637,686 1.30
September 30......... 2,319,601 0.31 2,085,459 0.28 (4,867,462) (0.66) (2,782,003) (0.38)
December 31.......... 2,033,387 0.28 1,793,149 0.25 (9,347,101) (1.26) (7,553,952) (1.01)
----------- ----- ---------- ----- ------------- ------- ------------- -------
$ 8,443,513 $1.15 $7,480,109 $1.01 $(12,883,920) $(1.74) $ (5,403,811) $(0.73)
----------- ----- ---------- ----- ------------- ------- ------------- -------
----------- ----- ---------- ----- ------------- ------- ------------- -------
<CAPTION>
PER PER PER PER
FISCAL 1998 AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ----------- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31............. $2,241,503 $0.30 $1,899,558 $0.26 $ (1,841,313) $(0.25) $ 58,245 $ 0.01
June 30.............. 3,202,066 0.43 2,843,127 0.38 (7,833,821) (1.06) (4,990,694) (0.68)
September 30......... 2,228,505 0.30 1,910,803 0.26 (9,818,779) (1.33) (7,907,976) (1.07)
December 31.......... 2,331,357 0.32 2,028,419 0.27 (5,369,304) (0.72) (3,340,885) (0.45)
----------- ----- ---------- ----- ------------- ------- ------------- -------
$10,003,431 $1.35 $8,681,907 $1.17 $(24,863,217) $(3.36) $(16,181,310) $(2.19)
----------- ----- ---------- ----- ------------- ------- ------------- -------
----------- ----- ---------- ----- ------------- ------- ------------- -------
<CAPTION>
DIVIDENDS AND NET ASSETS AT
QUARTERLY PERIOD DISTRIBUTIONS END OF PERIOD
- --------------------- ----------------------- ---------------------
PER PER
FISCAL 1999 AMOUNT SHARE AMOUNT SHARE
- ----------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
March 31............. $ (1,775,248) $(0.24) $ 84,905,478 $11.48
June 30.............. (1,775,721) (0.24) 92,767,443 12.54
September 30......... (1,775,714) (0.24) 83,437,777 11.28
December 31.......... (1,997,680) (0.27) 78,658,094 10.63
------------- -------
$ (7,324,363) $(0.99)
------------ ------
------------ ------
<CAPTION>
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
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)
------------- -------
------------- -------
</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.
------------------------------------------------------------
14
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Cohen & Steers Total Return Realty Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cohen & Steers Total Return Realty
Fund, Inc. (the 'Fund') at December 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 3, 2000
15
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
DIVIDEND REINVESTMENT PLAN
The Fund has a Dividend Reinvestment Plan (the 'Plan'). Each shareholder may
elect to have all distributions of dividends and capital gains automatically
reinvested in additional shares by State Street Bank & Trust Company (the 'Plan
Agent'), as agent for shareholders pursuant to the Plan. The Plan Agent will
effect purchases of shares under the Plan in the open market. Shareholders who
do not participate in the Plan will receive all distributions in cash paid by
check mailed directly to the shareholder of record (or if the shares are held in
street or other nominee name, then to the nominee) by the Plan Agent, as
dividend disbursing agent. Shareholders whose shares are held in the name of a
broker or nominee should contact the broker or nominee to determine whether and
how they may participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or makes a capital gain distribution,
the Plan Agent will, as agent for the participants, receive the cash payment and
use it to buy shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. The Fund will not issue any new
shares in connection with the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole shares credited to his or her account under the Plan will be issued
and a cash payment will be made for any fraction of a share credited to such
account, or the Plan Agent will sell the participant's shares and send the
participant the proceeds less a service fee and brokerage commissions.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes written confirmations of all transactions in the accounts, including
information needed by the shareholders for personal and tax records. Shares in
the account of each Plan participant will be held by the Plan Agent on behalf of
the participant. Proxy material relating to shareholders' meetings of the Fund
will include those shares purchased as well as shares held pursuant to the Plan.
If shares are held in the name of a brokerage firm, bank, or other nominee,
shareholders should contact the nominee to see if it will participate in the
Plan on their behalf. If shareholders wish to participate in the Plan, but their
brokerage firm, bank or other nominee is unable to participate on their behalf,
they should request to reregister shares in their own name, which will enable
participation in the Plan.
The Plan Agent's fees for the handling of reinvestment of dividends and
other distributions will be paid by the Fund. Each participant will pay a pro
rata of brokerage commissions incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment of distributions. There are
no other charges to participants for reinvesting dividends or capital gain
distributions.
The automatic reinvestment of dividends and other distributions will not
relieve participants of any income tax that may be payable or required to be
withheld on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any distribution paid subsequent to written notice of the change sent
16
<PAGE>
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
to all shareholders of the Fund at least 90 days before the record date for the
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent by at least 90 days' written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at State
Street Bank and Trust Co., P.O. Box 8200, Boston, MA 02266-8200 (telephone
800-426-5523).
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
During the period, there have been no material changes in the Fund's
investment objectives or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by shareholders. There have been no changes in the principal risk
factors associated with the investment in the Fund. There have been no changes
in the persons who are primarily responsible for the day-to-day management of
the Fund's portfolio.
- --------------------------------------------------------------------------------
17
<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 (800) 543-6217
Jeffrey H. Lynford
Director CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
Willard H. Smith, Jr. P.O. Box 8200
Director Boston, MA 02266-8200
Elizabeth O. Reagan LEGAL COUNSEL
Vice President Simpson Thacher & Bartlett
425 Lexington Avenue
Adam Derechin New York, NY 10017
Vice President and Assistant
Treasurer
New York Stock Exchange Symbol: RFI
Lawrence B. Stoller 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. Past performance
is of course no guarantee of future
results and your investment may be
worth more or less at the time you sell.
</TABLE>
18
<PAGE>
COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
- -----------------------
TOTAL RETURN REALTY FUND
- -------------------------
ANNUAL REPORT
DECEMBER 31, 1999
STATEMENT OF DIFFERENCES
The division sign shall be expressed as .................................. [div]
