<PAGE>
COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
TOTAL RETURN REALTY FUND
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QUARTERLY REPORT
MARCH 31, 2000
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
April 17, 2000
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Total Return
Realty Fund for the quarter ended March 31, 2000. The net asset value per share
at that date was $10.47. In addition, during the quarter, three $0.08 per share
monthly dividends were declared and paid.
INVESTMENT REVIEW
For the quarter, Cohen & Steers Total Return Realty Fund had a total return,
based on income and change in net asset value, of 0.8%. This performance
compares to the NAREIT Equity REIT Index* total return of 2.5%.
Despite the near-chaotic behavior in nearly every corner of the financial
markets so far this year, REITs remained steady and produced positive, albeit
modest, returns which were competitive with the overall stock market. The Hotel
and Regional Mall sectors, among the most depressed during 1999, rebounded to be
among the best performers during the quarter as their fundamentals proved to be
much better than expected. The Office sector also performed well as strong
employment growth coupled with a restrained supply picture has continued to
favor office building owners. Meanwhile, the Health Care sector once again
produced negative returns as many of the beleaguered operators of these
facilities continue to undergo financial restructuring.
In our opinion, investment performance so far in 2000 appears to represent
an important shift in investor sentiment and an improved supply/demand picture
for REIT shares. In addition to the competitive returns in the latest quarter,
and perhaps more importantly, REITs have produced positive 12-month returns for
the first time since mid-1998. As shown in the chart it appears that on a
cyclical basis, the REIT bear market may be coming to an end.
NAREIT EQUITY REIT INDEX 12 MONTH TOTAL RETURNS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
QUARTER ENDED
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1Q92 1Q93 1Q94 1Q95 1Q96
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.3 13.3 16.3 14.6 38.5 31 34.1 19.7 1.7 6.6 -4.5 3.2 -0.4 3.6 10.7 15.3 18.1 16.5 18.5 35.3
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
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1Q97 1Q98 1Q99 1Q00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33.2 33.8 40.5 20.3 18.9 8 -13.5 -17.5 -21.1 -9 -6.5 -4.6 2.6
</TABLE>
Source: NAREIT
Perhaps predictably, a number of influential Wall Street strategists have
begun to recommend that their clients reduce their overall equity exposure and
add REITs in their place. REITs are apparently again being viewed as both a safe
haven for capital as well as a good source of current income. In a world where
growth has been of foremost significance and current income has simply been
unimportant to most investors, persistent efforts by the Federal Reserve to slow
the economy by raising interest rates may have finally convinced market
participants that the Fed will eventually prevail. Such a slowdown would
probably favor income-oriented securities and, as a result, the U.S. Treasury
market has staged a strong rally. This rally, no doubt, has been enhanced by the
Treasury's program of repurchasing securities with funds generated by the budget
surplus. Considering that interest rates are low while the economy is still
showing strong growth, one can only imagine how low interest rates may
ultimately fall to once the economy shows some signs of weakness. With equity
REITs in general currently yielding well over 8%, and with these dividends
having exhibited impressive growth over the past several years, REITs investment
characteristics are becoming more highly valued.
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1
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
On the supply side, it is also symptomatic of a bottoming of REIT share
prices that capital raising has virtually ground to a halt. As shown in the
table, REITs raised only $646 million in equity (more than half of which was
preferred stock) in the first quarter, a 60% decline from a year ago, and a 93%
decline from two years ago. Debt capital raised declined by a lesser, but still
significant amount. Further, total equity issuance by REITs during the 12-month
period ended March 31, at $5.8 billion, was the lowest 12-month total since the
second quarter of 1993.
<TABLE>
<CAPTION>
Capital Raised by REITs ($millions)
<S> <C> <C> <C>
First Quarter of: Debt Equity Total
1998 $5,427 $9,009 $14,436
1999 4,047 1,600 5,647
2000 1,938 646 2,584
</TABLE>
Source: NAREIT
In addition to the lack of demand for new capital, outflows from real estate
mutual funds slowed to a trickle, and the supply of existing REIT shares
continued to shrink as many companies have persistently repurchased stock in the
open market. By quarter's end, 59 REITs had authorized buybacks totaling nearly
$6 billion. As a consequence of all the above, the REIT industry appears to us
to be at or close to a bottom.
INVESTMENT OUTLOOK
For most of the past two years REITs were unable to raise capital because it
was either not available, or too highly priced. Today, however, it is our
perception that the psychology of REIT management has begun to change. Resigned
to the reality that the capital markets may not always be open to them, and
because there are not a great deal of new investment opportunities, more and
more companies are adopting self-financing business plans. This entails constant
reevaluation of properties held in the portfolio and aggressively selling or
repositioning those that do not meet their investment criteria. Proceeds from
these sales are commonly used to fund higher return opportunities,
repay debt or repurchase stock. Many other companies are finding privately
financed joint ventures to be a preferable way to take advantage of
opportunities. In short, many companies are learning to live well without
constantly tapping the capital markets.
To the extent that this thinking prevails, the supply side of the REIT share
equation will continue to improve. The commonly held belief that at the first
uptick in prices, REITs will flood the market with new stock issuance, has often
helped to abort any meaningful recovery in their prices. A wide adoption of this
new business model would be a clear departure from recent thinking. There are
two other factors worthy of mention. First, the shares of nearly all REITs began
the year at such unprecedented low valuations that even a strong price rally
would still leave them undervalued. Second, because many companies have just
recently implemented extensive repurchase programs of their own stock, it would
be illogical for them to quickly reissue that equity unless they were confronted
with some extraordinary investment opportunities. In these cases, however, it
would be highly likely that any top tier company would be able to access capital
privately in both a more efficient and low cost manner.
Meanwhile, without the benefit of a great deal of new investments and little
or no additional capital, the REIT industry has continued to enjoy healthy
growth in earnings. Funds from operations (FFO) per share grew at an average of
10% in 1999 and are widely expected to grow by a further 9% in 2000. This growth
potential is not confined to any single property type or geographic region -- it
is an industry-wide phenomenon that is the result of the strong economy and
discipline with respect to new construction. We do, however, expect the Office,
Industrial and Apartment sectors to enjoy the highest growth rates and have
accordingly maintained a strong weighting in these property types. We are
particularly optimistic about owners of office buildings in major cities due to
the demand for space fueled by
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2
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
employment growth, the impediments to new construction and the long lead
times required to bring on new supply. We are somewhat concerned about the
retail environment and have consequently maintained an under-weighted position
in the sector. Following the strongest sales growth in a decade, the prospect of
slower economic growth and the continued pressure of the Internet on both retail
sales and margins, we expect investor psychology to be less positive on this
sector than on many others.
Two trends that we expect to continue are the emergence of more technology
initiatives by property owners, and a clarification of plans by many REITs to
establish taxable subsidiaries that will be allowed to operate beginning in
2001. Property owners are increasingly able to deliver goods and services to
tenants and, in addition, manage their properties more efficiently due to
advances in technology and the Internet. These initiatives enable the property
owners to potentially increase revenue and reduce costs. For example, it appears
that some REITs are targeting taxable subsidiaries as a means of either 1)
providing services to tenants, 2) holding properties on a shorter-term basis
than what is allowed in the REIT itself, or 3) purchasing properties that are
expected to produce a high return but may be outside of the mainstream of the
company's existing portfolio. Importantly, these initiatives are not only
potentially additive to earnings but are also enabling many companies to employ
'new economy' strategies using their 'old economy' asset bases.
It is always difficult to reconcile the efficiency of the financial market
with the emotional extremes to which it tends to move. Just as many have
questioned the high valuations afforded technology stocks, we have questioned
the low valuations of realty stocks in light of their strong fundamentals. We
believe that recent market activity is bringing valuations of both groups more
in line with true underlying fundamentals. If these trends continue, it is our
hope that the Fund will be able to deliver rewarding returns on both an absolute
and relative basis.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
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Cohen & Steers is now online at WWW.COHENANDSTEERS.COM. Visit our website
for daily NAVs, portfolio information, performance information, recent news
articles, literature and insights on the REIT market.
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* 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.
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3
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- -----------
<S> <C> <C>
EQUITIES 98.14%
COMMON STOCK 85.34%
APARTMENT/RESIDENTIAL 12.69%
Apartment Investment & Management Co. -- Class
A.............................................. 40,700 $ 1,554,231
Camden Property Trust............................ 57,400 1,553,387
Colonial Properties Trust........................ 31,000 736,250
Gables Residential Trust......................... 50,400 1,134,000
Home Properties of New York...................... 27,600 738,300
Summit Properties................................ 87,500 1,673,437
United Dominion Realty Trust..................... 242,300 2,438,144
-----------
9,827,749
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HEALTH CARE 10.48%
Health Care Property Investors................... 133,800 3,403,538
Healthcare Realty Trust.......................... 86,500 1,448,875
Nationwide Health Properties..................... 240,900 2,514,394
*Ventas.......................................... 225,000 745,312
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8,112,119
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HOTEL 8.32%
FelCor Lodging Trust............................. 120,300 2,127,806
Host Marriott Corp. ............................. 143,800 1,276,225
MeriStar Hospitality Corp. ...................... 174,200 3,037,613
-----------
6,441,644
-----------
INDUSTRIAL 6.90%
First Industrial Realty Trust.................... 86,400 2,354,400
Pacific Gulf Properties.......................... 152,300 2,988,887
-----------
5,343,287
-----------
OFFICE 23.57%
Arden Realty Group............................... 131,400 2,742,975
Brandywine Realty Trust.......................... 196,100 3,358,213
CarrAmerica Realty Corp. ........................ 99,000 2,091,375
Crescent Real Estate Equities Co. ............... 167,200 2,926,000
Highwoods Properties............................. 139,700 2,968,625
Mack-Cali Realty Corp. .......................... 133,400 3,401,700
SL Green Realty Corp. ........................... 32,000 760,000
-----------
18,248,888
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OFFICE/INDUSTRIAL 7.68%
Liberty Property Trust........................... 139,400 3,336,887
Prime Group Realty Trust......................... 117,100 1,675,994
Reckson Associates Realty Corp. -- Class B....... 45,570 934,185
-----------
5,947,066
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</TABLE>
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4
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- -----------
<S> <C> <C>
SHOPPING CENTER 14.44%
COMMUNITY CENTER 4.08%
Pan Pacific Retail Properties.................... 66,000 $ 1,216,875
Philips International Realty Corp. .............. 117,000 1,945,125
-----------
3,162,000
-----------
REGIONAL MALL 10.36%
JP Realty ....................................... 105,200 1,873,875
Macerich Co. .................................... 126,700 2,613,188
Simon Property Group............................. 81,300 1,951,200
Taubman Centers.................................. 142,500 1,585,312
-----------
8,023,575
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TOTAL SHOPPING CENTER............................ 11,185,575
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SPECIALTY 1.26%
Entertainment Properties Trust................... 73,900 974,556
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TOTAL COMMON STOCK (Identified
cost -- $75,154,265)....................... 66,080,884
-----------
PREFERRED STOCK 12.80%
Apartment Investment & Management Co., 9.375%,
Series G....................................... 125,100 2,353,444
Bradley Real Estate, 8.40%, Series A
(Convertible).................................. 40,000 785,000
Camden Property Trust, $2.25, Series A
(Convertible).................................. 90,100 1,999,094
Crown American Realty Trust, 11.00%, Series A.... 44,300 1,644,638
Reckson Associates Realty Corp., 7.625%, Series A
(Convertible).................................. 42,500 804,844
SL Green Realty Corp., 8.00%, Series A
(Convertible).................................. 91,200 2,325,600
-----------
TOTAL PREFERRED STOCK (Identified
cost -- $11,587,293)....................... 9,912,620
-----------
TOTAL EQUITIES (Identified
cost -- $86,741,558)....................... 75,993,504
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
CORPORATE BOND 1.02%
#Macerich Co. 144A, Convertible, 7.25%, due
12/15/02 (Identified cost -- $770,175)......... $ 945,000 789,075
-----------
COMMERCIAL PAPER 0.22%
United Bank of Switzerland Finance, 6.15%, due
4/3/00 (Identified cost -- $170,942)........... 171,000 171,000
-----------
TOTAL INVESTMENTS (Identified cost -- $87,682,675)..99.38% 76,953,579
OTHER ASSETS IN EXCESS OF LIABILITIES............... 0.62% 478,613
----- -----------
NET ASSETS (Equivalent to $10.47 per share based on
7,399,100 shares of capital stock outstanding).. 100.00% $77,432,192
------ -----------
------ -----------
</TABLE>
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* 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.
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5
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS'D'
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
------------------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/99................ $78,658,094 $10.63
Net investment income.................... $ 1,334,931 $ 0.18
Net realized and unrealized loss on
investments........................... (785,149) (0.10)
Distributions from net investment
income................................ (1,775,684) (0.24)
----------- ------
Net decrease in net asset value.............. (1,225,902) (0.16)
----------- ------
End of period: 3/31/2000..................... $77,432,192 $10.47
----------- ------
----------- ------
</TABLE>
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'D' Financial information included in this report has been taken from the
records of the Fund without examination by independent accountants.
AVERAGE ANNUAL TOTAL RETURNS*
(PERIODS ENDED MARCH 31, 2000)
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS SINCE INCEPTION (9/27/93)
-------- ---------- -------------------------
<S> <C> <C>
-0.80% 7.87% 6.08%
</TABLE>
- ---------
* Based on net asset value.
KEY INFORMATION
For general information and weekly
net asset value call (800) 543-6217
NEW YORK STOCK EXCHANGE SYMBOL: RFI
------------------------------------------------------------
REINVESTMENT PLAN
We urge shareholders who want to take advantage of this plan
and whose shares are held in 'Street Name' to consult your
broker as soon as possible to determine if you must change
registration into your own name to participate.
------------------------------------------------------------
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6
<PAGE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
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.
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7
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ...................... 'D'
