UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-07154
Cohen & Steers Total Return Realty Fund, Inc.
(Exact name of registrant as specified in charter)
280 Park Avenue, New York, NY | 10017 | |||
(Address of principal executive offices) | (Zip code) |
Dana DeVivo
Cohen & Steers Capital Management, Inc.
280 Park Avenue
New York, New York 10017
(Name and address of agent for service)
Registrants telephone number, including area code: (212) 832-3232
Date of fiscal year end: December 31
Date of reporting period: June 30, 2018
Item 1. Reports to Stockholders.
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
To Our Shareholders:
We would like to share with you our report for the six months ended June 30, 2018. The total returns for Cohen & Steers Total Return Realty Fund, Inc. (the Fund) and its comparative benchmarks were:
Six Months Ended June 30, 2018 |
||||
Cohen & Steers Total Return Realty Fund at Net Asset Valuea |
0.11 | % | ||
Cohen & Steers Total Return Realty Fund at Market Valuea |
2.04 | % | ||
FTSE Nareit Equity REIT Indexb |
1.02 | % | ||
Blended Benchmark80% FTSE Nareit Equity REIT Index/20% ICE BofAML REIT Preferred Securities Indexb |
0.93 | % | ||
S&P 500 Indexb |
2.65 | % |
The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment return and the principal value of an investment will fluctuate and shares, if sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current total returns of the Fund can be obtained by visiting our website at cohenandsteers.com. The Funds returns assume the reinvestment of all dividends and distributions at prices obtained under the Funds dividend reinvestment plan. Index performance does not reflect the deduction of any fees, taxes or expenses. An investor cannot invest directly in an index. Performance figures for periods shorter than one year are not annualized.
Managed Distribution Policy
The Fund, acting in accordance with an exemptive order received from the U.S. Securities and Exchange Commission (SEC) and with approval of its Board of Directors (the Board), adopted a managed distribution policy under which the Fund intends to include long-term capital gains, where applicable, as part of the regular monthly cash distributions to its shareholders (the Plan). The Plan gives the Fund greater flexibility to realize long-term capital gains and to distribute those gains on a regular monthly basis. In accordance with the Plan, the Fund currently distributes $0.08 per share on a monthly basis.
a | As a closed-end investment company, the price of the Funds exchange-traded shares will be set by market forces and can deviate from the net asset value (NAV) per share of the Fund. |
b | The FTSE Nareit Equity REIT Index contains all tax-qualified real estate investment trusts (REITs) except timber and infrastructure REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria. The ICE BofAML REIT Preferred Securities Index tracks the performance of fixed-rate U.S. dollar-denominated preferred securities issued in the U.S. domestic market including all REITs. The S&P 500 Index is an unmanaged index of 500 large-capitalization stocks that is frequently used as a general measure of U.S. stock market performance. |
1
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
The Fund may pay distributions in excess of the Funds investment company taxable income and net realized gains. This excess would be a return of capital distributed from the Funds assets. Distributions of capital decrease the Funds total assets and, therefore, could have the effect of increasing the Funds expense ratio. In addition, in order to make these distributions, the Fund may have to sell portfolio securities at a less than opportune time.
Shareholders should not draw any conclusions about the Funds investment performance from the amount of these distributions or from the terms of the Funds Plan. The Funds total return based on NAV is presented in the table above as well as in the Financial Highlights table.
The Plan provides that the Board may amend or terminate the Plan at any time without prior notice to Fund shareholders; however, at this time, there are no reasonably foreseeable circumstances that might cause the termination. The termination of the Plan could have the effect of creating a trading discount (if the Funds stock is trading at or above NAV) or widening an existing trading discount.
Market Review
Despite having one of their worst starts in years, real estate investment trusts (REITs) regained their footing to deliver a modestly positive total return for the first half of 2018. The group initially had a sharp decline amid an early-period spike in bond yields and concerns about fundamentals for retail and health care property landlords. REITs turned a corner in March as inflation remained generally benign and global economic momentum slowed, allowing bond yields to stabilize. Better-than-expected national retail sales data added to positive sentiment, as did visible real estate merger and acquisition activity. The turnaround occurred amid valuations that appeared attractive, based both on general discounts to REITs underlying net asset values and compared with earnings multiples for S&P 500 companies.
The deep discounts to property values sparked a wave of company acquisitions. Regional mall owner GGP endorsed a bid from Brookfield Property Partners, and an affiliate of Greystar Real Estate Partners announced that it would acquire student housing REIT Education Realty Trust (EDR) in a $4.6 billion privatization, at a 26% premium to EDRs 90-day volume-weighted average share price. Prologis made a bid for its smaller industrial peer DCT Industrial Trust at a 15% premium. In the hotel sector, listed Pebblebrook and private Blackstone made competing offers to acquire LaSalle Hotel Properties.
REIT preferred securities declined early in the period as rising interest rates and widening credit spreads impacted many low-coupon issues that came to market in late 2017. REIT preferreds later recovered to post a slight gain for the period, aided by healthy issuer fundamentals.
Fund Performance
The Fund had a positive total return in the period, although it underperformed its blended benchmark based on NAV (the Fund outperformed based on market price). Contributors to relative performance included our decision not to own Colony NorthStar. The diversified REIT fell more than 40% on concerns about the companys health care portfolio and its plans to move into new business segments.
Shopping center and regional mall REITs were among the poorer-performing sectors, although they recovered some of their initial losses as national retail sales appeared to stabilize, easing worries about store closings. An underweight in the shopping center sector helped performance.
Data center REITs, which were strong performers in 2017, declined in the period. Stock selection in the sector detracted from performance. The Fund was overweight QTS Realty Trust, Class A shares,
2
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
which fell sharply after the company announced it was exiting certain cloud computing and managed services markets. As of June 30, 2018, the Fund did not own QTS Realty Trust Class A shares.
The industrial property sector outperformed in the period, supported by limited new supply and rising demand. An underweight and stock selection detracted from relative performance, in part as the Fund did not own DCT Industrial Trust, which rallied on the takeover bid from Prologis. Stock selection in the health care property sector also hindered relative performance, as did security selection among REIT preferred issues.
Sincerely,
|
| |
THOMAS N. BOHJALIAN | WILLIAM F. SCAPELL | |
Portfolio Manager | Portfolio Manager |
JASON YABLON
Portfolio Manager
The views and opinions in the preceding commentary are subject to change without notice and are as of the date of the report. There is no guarantee that any market forecast set forth in the commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.
Visit Cohen & Steers online at cohenandsteers.com
For more information about the Cohen & Steers family of mutual funds, visit cohenandsteers.com. Here you will find fund net asset values, fund fact sheets and portfolio highlights, as well as educational resources and timely market updates.
Our website also provides comprehensive information about Cohen & Steers, including our most recent press releases, profiles of our senior investment professionals and their investment approach to each asset class. The Cohen & Steers family of mutual funds invests in major real asset categories including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions.
3
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
June 30, 2018
Top Ten Holdingsa
(Unaudited)
Security |
Value | % of Net Assets |
||||||
Simon Property Group |
$ | 17,136,431 | 5.1 | |||||
Prologis |
16,072,241 | 4.8 | ||||||
Equinix |
15,075,812 | 4.5 | ||||||
UDR |
14,886,074 | 4.4 | ||||||
Host Hotels & Resorts |
10,547,873 | 3.1 | ||||||
Crown Castle International Corp. |
10,324,843 | 3.1 | ||||||
Digital Realty Trust |
10,167,951 | 3.0 | ||||||
Extra Space Storage |
10,057,754 | 3.0 | ||||||
Essex Property Trust |
9,780,354 | 2.9 | ||||||
CyrusOne |
8,237,923 | 2.4 |
a | Top ten holdings are determined on the basis of the value of individual securities held. The Fund may also hold positions in other types of securities issued by the companies listed above. See the Schedule of Investments for additional details on such other positions. |
Sector Breakdown
(Based on Net Assets)
(Unaudited)
4
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 2018 (Unaudited)
Number of Shares |
Value | |||||||||||
COMMON STOCK |
82.3% | |||||||||||
COMMUNICATIONSTOWERS |
3.1% | |||||||||||
Crown Castle International Corp. |
|
95,760 | $ | 10,324,843 | ||||||||
|
|
|||||||||||
REAL ESTATE |
79.2% | |||||||||||
DATA CENTERS |
9.9% | |||||||||||
CyrusOne |
|
141,157 | 8,237,923 | |||||||||
Digital Realty Trust |
|
91,127 | 10,167,951 | |||||||||
Equinix |
|
35,069 | 15,075,812 | |||||||||
|
|
|||||||||||
33,481,686 | ||||||||||||
|
|
|||||||||||
HEALTH CARE |
7.7% | |||||||||||
Healthcare Trust of America, Class A |
|
284,123 | 7,659,956 | |||||||||
National Health Investors |
|
35,987 | 2,651,522 | |||||||||
Physicians Realty Trust |
|
331,237 | 5,279,918 | |||||||||
Sabra Health Care REIT |
|
232,103 | 5,043,598 | |||||||||
Ventas |
|
49,272 | 2,806,041 | |||||||||
Welltower |
|
42,232 | 2,647,524 | |||||||||
|
|
|||||||||||
26,088,559 | ||||||||||||
|
|
|||||||||||
HOTEL |
6.3% | |||||||||||
Host Hotels & Resorts |
|
500,611 | 10,547,873 | |||||||||
Pebblebrook Hotel Trust |
|
84,536 | 3,279,997 | |||||||||
RLJ Lodging Trust |
|
113,539 | 2,503,535 | |||||||||
Sunstone Hotel Investors |
|
299,729 | 4,981,496 | |||||||||
|
|
|||||||||||
21,312,901 | ||||||||||||
|
|
|||||||||||
INDUSTRIALS |
4.8% | |||||||||||
Prologis |
|
244,668 | 16,072,241 | |||||||||
|
|
|||||||||||
NET LEASE |
4.9% | |||||||||||
Agree Realty Corp. |
|
76,356 | 4,029,306 | |||||||||
EPR Properties |
|
28,981 | 1,877,679 | |||||||||
Four Corners Property Trust |
|
154,071 | 3,794,769 | |||||||||
Gaming and Leisure Properties |
|
46,941 | 1,680,488 | |||||||||
Spirit Realty Capital |
|
317,977 | 2,553,355 | |||||||||
VICI Properties |
|
124,159 | 2,562,642 | |||||||||
|
|
|||||||||||
16,498,239 | ||||||||||||
|
|
See accompanying notes to financial statements.
5
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Number of Shares |
Value | |||||||||||
OFFICE |
12.0% | |||||||||||
Alexandria Real Estate Equities |
|
44,658 | $ | 5,634,500 | ||||||||
Boston Properties |
|
47,966 | 6,015,896 | |||||||||
Douglas Emmett |
|
153,826 | 6,180,729 | |||||||||
Empire State Realty Trust, Class A |
|
140,822 | 2,408,056 | |||||||||
Highwoods Properties |
|
86,742 | 4,400,422 | |||||||||
Hudson Pacific Properties |
|
119,216 | 4,223,823 | |||||||||
Kilroy Realty Corp. |
|
106,807 | 8,078,881 | |||||||||
SL Green Realty Corp. |
|
16,236 | 1,632,205 | |||||||||
Vornado Realty Trust |
|
26,086 | 1,928,277 | |||||||||
|
|
|||||||||||
40,502,789 | ||||||||||||
|
|
|||||||||||
RESIDENTIAL |
16.7% | |||||||||||
APARTMENT |
10.4% | |||||||||||
Apartment Investment & Management Co., Class A |
|
70,063 | 2,963,665 | |||||||||
AvalonBay Communities |
|
10,178 | 1,749,496 | |||||||||
Equity Residential |
|
90,430 | 5,759,487 | |||||||||
Essex Property Trust |
|
40,910 | 9,780,354 | |||||||||
UDR |
|
396,539 | 14,886,074 | |||||||||
|
|
|||||||||||
35,139,076 | ||||||||||||
|
|
|||||||||||
MANUFACTURED HOME |
2.9% | |||||||||||
Equity Lifestyle Properties |
|
57,861 | 5,317,426 | |||||||||
Sun Communities |
|
45,334 | 4,437,292 | |||||||||
|
|
|||||||||||
9,754,718 | ||||||||||||
|
|
|||||||||||
SINGLE FAMILY |
2.1% | |||||||||||
Invitation Homes |
|
307,999 | 7,102,457 | |||||||||
|
|
|||||||||||
STUDENT HOUSING |
1.3% | |||||||||||
American Campus Communities |
|
103,858 | 4,453,431 | |||||||||
|
|
|||||||||||
TOTAL RESIDENTIAL |
|
56,449,682 | ||||||||||
|
|
|||||||||||
SELF STORAGE |
5.4% | |||||||||||
Extra Space Storage |
|
100,769 | 10,057,754 | |||||||||
Life Storage |
|
34,707 | 3,377,338 | |||||||||
Public Storage |
|
21,575 | 4,894,504 | |||||||||
|
|
|||||||||||
18,329,596 | ||||||||||||
|
|
See accompanying notes to financial statements.
6
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Number of Shares |
Value | |||||||||||
SHOPPING CENTERS |
10.0% | |||||||||||
COMMUNITY CENTER |
4.3% | |||||||||||
Brixmor Property Group |
|
272,232 | $ | 4,745,004 | ||||||||
Regency Centers Corp. |
|
86,645 | 5,378,922 | |||||||||
Weingarten Realty Investors |
|
140,982 | 4,343,655 | |||||||||
|
|
|||||||||||
14,467,581 | ||||||||||||
|
|
|||||||||||
REGIONAL MALL |
5.7% | |||||||||||
GGP |
|
96,755 | 1,976,704 | |||||||||
Simon Property Group |
|
100,690 | 17,136,431 | |||||||||
|
|
|||||||||||
19,113,135 | ||||||||||||
|
|
|||||||||||
TOTAL SHOPPING CENTERS |
|
33,580,716 | ||||||||||
|
|
|||||||||||
SPECIALTY |
1.5% | |||||||||||
CoreCivic |
|
86,190 | 2,059,079 | |||||||||
Lamar Advertising Co., Class A |
|
45,470 | 3,106,056 | |||||||||
|
|
|||||||||||
5,165,135 | ||||||||||||
|
|
|||||||||||
TOTAL REAL ESTATE |
|
267,481,544 | ||||||||||
|
|
|||||||||||
TOTAL COMMON
STOCK |
|
277,806,387 | ||||||||||
|
|
|||||||||||
PREFERRED SECURITIES$25 PAR VALUE |
13.6% | |||||||||||
BANKS |
0.4% | |||||||||||
GMAC Capital Trust I, 8.128%, due 2/15/40, Series 2 (TruPS) (FRN) (3 Month US LIBOR + 5.785%)a |
|
35,000 | 920,500 | |||||||||
Regions Financial Corp., 6.375% to 9/15/24, Series Bb,c |
|
20,000 | 541,200 | |||||||||
|
|
|||||||||||
1,461,700 | ||||||||||||
|
|
|||||||||||
FINANCIALINVESTMENT BANKER/BROKER |
0.3% | |||||||||||
Morgan Stanley, 6.375% to 10/15/24, Series Ib,c |
|
40,000 | 1,074,400 | |||||||||
|
|
|||||||||||
REAL ESTATE |
12.9% | |||||||||||
DIVERSIFIED |
2.9% | |||||||||||
Colony Capital, 8.75%, Series Ec |
|
59,180 | 1,535,129 | |||||||||
Colony Capital, 7.15%, Series Ic |
|
21,000 | 486,150 | |||||||||
Colony NorthStar, 8.50%, Series Dc |
|
33,850 | 855,390 | |||||||||
EPR Properties, 5.75%, Series Gc |
|
17,000 | 397,800 |
See accompanying notes to financial statements.
7
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Number of Shares |
Value | |||||||||||
Investors Real Estate Trust, 6.625%, Series Cc |
|
19,695 | $ | 479,376 | ||||||||
Lexington Realty Trust, 6.50%, Series C ($50 Par Value)c |
|
11,300 | 555,113 | |||||||||
National Retail Properties, 5.70%, Series Ec |
|
32,000 | 786,880 | |||||||||
VEREIT, 6.70%, Series Fc |
|
144,711 | 3,635,140 | |||||||||
Wells Fargo Real Estate Investment Corp., 6.375%, Series Ac |
|
35,135 | 909,996 | |||||||||
|
|
|||||||||||
9,640,974 | ||||||||||||
|
|
|||||||||||
HOTEL |
2.2% | |||||||||||
Ashford Hospitality Trust, 7.375%, Series Fc |
|
43,000 | 1,016,305 | |||||||||
Ashford Hospitality Trust, 7.375%, Series Gc |
|
24,463 | 577,571 | |||||||||
Ashford Hospitality Trust, 7.50%, Series Hc |
|
20,000 | 479,400 | |||||||||
Ashford Hospitality Trust, 7.50%, Series Ic |
|
30,000 | 710,100 | |||||||||
Hersha Hospitality Trust, 6.50%, Series Dc |
|
23,937 | 573,291 | |||||||||
Hersha Hospitality Trust, 6.50%, Series Ec |
|
10,348 | 248,145 | |||||||||
LaSalle Hotel Properties, 6.30%, Series Jc |
|
38,944 | 963,864 | |||||||||
Summit Hotel Properties, 6.45%, Series Dc |
|
26,000 | 629,460 | |||||||||
Summit Hotel Properties, 6.25%, Series Ec |
|
27,475 | 663,384 | |||||||||
Sunstone Hotel Investors, 6.95%, Series Ec |
|
35,000 | 889,350 | |||||||||
Sunstone Hotel Investors, 6.45%, Series Fc |
|
26,825 | 676,527 | |||||||||
|
|
|||||||||||
7,427,397 | ||||||||||||
|
|
|||||||||||
INDUSTRIALS |
1.3% | |||||||||||
Monmouth Real Estate Investment Corp., 6.125%, Series Cc |
|
35,000 | 840,000 | |||||||||
PS Business Parks, 5.75%, Series Uc |
|
39,173 | 988,335 | |||||||||
PS Business Parks, 5.70%, Series Vc |
|
35,000 | 878,150 | |||||||||
Rexford Industrial Realty, 5.875%, Series Ac |
|
41,973 | 1,018,265 | |||||||||
STAG Industrial, 6.875%, Series Cc |
|
28,000 | 718,760 | |||||||||
|
|
|||||||||||
4,443,510 | ||||||||||||
|
|
|||||||||||
NET LEASE |
0.2% | |||||||||||
Spirit Realty Capital, 6.00%, Series Ac |
|
34,667 | 806,008 | |||||||||
|
|
|||||||||||
OFFICE |
0.6% | |||||||||||
Equity Commonwealth, 6.50%, Series Dc |
|
37,000 | 964,220 | |||||||||
SL Green Realty Corp., 6.50%, Series Ic |
|
47,492 | 1,198,698 | |||||||||
|
|
|||||||||||
2,162,918 | ||||||||||||
|
|
See accompanying notes to financial statements.
8
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Number of Shares |
Value | |||||||||||
RESIDENTIAL |
1.2% | |||||||||||
APARTMENT |
0.4% | |||||||||||
Apartment Investment & Management Co., 6.875%c |
|
23,456 | $ | 601,646 | ||||||||
Blue Rock Residential Growth REIT, 8.25%, Series Ac |
|
34,725 | 877,293 | |||||||||
|
|
|||||||||||
1,478,939 | ||||||||||||
|
|
|||||||||||
MANUFACTURED HOME |
0.2% | |||||||||||
UMH Properties, 8.00%, Series Bc |
|
20,000 | 529,000 | |||||||||
|
|
|||||||||||
SINGLE FAMILY |
0.6% | |||||||||||
American Homes 4 Rent, 6.50%, Series Dc |
|
36,825 | 933,514 | |||||||||
American Homes 4 Rent, 6.35%, Series Ec |
|
36,927 | 927,975 | |||||||||
|
|
|||||||||||
1,861,489 | ||||||||||||
|
|
|||||||||||
TOTAL RESIDENTIAL |
|
3,869,428 | ||||||||||
|
|
|||||||||||
SELF STORAGE |
0.2% | |||||||||||
National Storage Affiliates Trust, 6.00%, Series Ac |
|
25,000 | 614,625 | |||||||||
|
|
|||||||||||
SHOPPING CENTERS |
3.6% | |||||||||||
COMMUNITY CENTER |
2.0% | |||||||||||
Cedar Realty Trust, 7.25%, Series Bc |
|
7,262 | 169,350 | |||||||||
Cedar Realty Trust, 6.50%, Series Cc |
|
15,000 | 319,500 | |||||||||
DDR Corp., 6.375%, Series Ac |
|
34,952 | 859,819 | |||||||||
DDR Corp., 6.50%, Series Jc |
|
80,000 | 1,918,400 | |||||||||
DDR Corp., 6.25%, Series Kc |
|
102,362 | 2,339,996 | |||||||||
Kimco Realty Corp., 5.125%, Series Lc |
|
15,000 | 343,650 | |||||||||
Saul Centers, 6.125%, Series Dc |
|
17,400 | 399,678 | |||||||||
Washington Prime Group, 7.50%, Series Hc |
|
16,917 | 400,087 | |||||||||
|
|
|||||||||||
6,750,480 | ||||||||||||
|
|
|||||||||||
REGIONAL MALL |
1.6% | |||||||||||
GGP, 6.375%, Series Ac |
|
65,740 | 1,577,760 | |||||||||
Pennsylvania REIT, 7.20%, Series Cc |
|
30,050 | 684,539 | |||||||||
Pennsylvania REIT, 6.875%, Series Dc |
|
20,000 | 443,000 | |||||||||
Taubman Centers, 6.50%, Series Jc |
|
33,470 | 843,444 | |||||||||
Taubman Centers, 6.25%, Series Kc |
|
71,351 | 1,765,937 | |||||||||
|
|
|||||||||||
5,314,680 | ||||||||||||
|
|
|||||||||||
TOTAL SHOPPING CENTERS |
|
12,065,160 | ||||||||||
|
|
See accompanying notes to financial statements.
9
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Number of Shares |
Value | |||||||||||
SPECIALTY |
0.7% | |||||||||||
Digital Realty Trust, 6.625%, Series Cc |
|
20,000 | $ | 528,000 | ||||||||
Digital Realty Trust, 6.35%, Series Ic |
|
50,000 | 1,297,000 | |||||||||
QTS Realty Trust, 7.125%, Series Ac |
|
23,400 | 602,082 | |||||||||
|
|
|||||||||||
2,427,082 | ||||||||||||
|
|
|||||||||||
TOTAL REAL ESTATE |
|
43,457,102 | ||||||||||
|
|
|||||||||||
TOTAL PREFERRED
SECURITIES$25 PAR VALUE |
|
45,993,202 | ||||||||||
|
|
|||||||||||
Principal Amount |
||||||||||||
PREFERRED SECURITIESCAPITAL SECURITIES |
3.1% | |||||||||||
BANKS |
0.7% | |||||||||||
Bank of America Corp., 6.30% to 3/10/26, Series DDb,c |
|
$ | 840,000 | 889,350 | ||||||||
Bank of America Corp., 6.50% to 10/23/24, Series Zb,c |
|
1,000,000 | 1,063,750 | |||||||||
Farm Credit Bank of Texas, 10.00%, Series Ic |
|
500 | | 571,250 | ||||||||
|
|
|||||||||||
2,524,350 | ||||||||||||
|
|
|||||||||||
BANKSFOREIGN |
0.8% | |||||||||||
BNP Paribas SA, 7.625% to 3/30/21, 144A (France)b,c,d,e |
|
400,000 | 418,500 | |||||||||
Credit Suisse Group AG, 7.50% to 12/11/23, 144A (Switzerland)b,c,d,e |
|
700,000 | 724,437 | |||||||||
Royal Bank of Scotland Group PLC, 8.625% to 8/15/21 (United Kingdom)b,c,e |
|
900,000 | 958,725 | |||||||||
UBS Group AG, 6.875% to 3/22/21 (Switzerland)b,c,e,f |
|
600,000 | 616,162 | |||||||||
|
|
|||||||||||
2,717,824 | ||||||||||||
|
|
|||||||||||
COMMUNICATIONSTOWERS |
0.4% | |||||||||||
Crown Castle International Corp., 6.875%, due 8/1/20, Series A (Convertible) |
|
1,300 | | 1,396,625 | ||||||||
|
|
|||||||||||
INSURANCEPROPERTY CASUALTYFOREIGN |
0.2% | |||||||||||
QBE Insurance Group Ltd., 6.75% to 12/2/24, due 12/2/44 (Australia)b,f |
|
606,000 | 622,665 | |||||||||
|
|
|||||||||||
REAL ESTATE |
1.0% | |||||||||||
DIVERSIFIED |
0.2% | |||||||||||
EPR Properties, 4.95%, due 4/15/28 |
|
500,000 | 490,118 | |||||||||
|
|
See accompanying notes to financial statements.
10
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Principal Amount |
Value | |||||||||||
FINANCE |
0.3% | |||||||||||
AT Securities BV, 5.25% to 7/21/23 (Netherlands)b,c,f |
|
$ | 750,000 | $ | 689,003 | |||||||
CyrusOne LP/CyrusOne Finance Corp., 5.375%, due 3/15/27 |
|
352,000 | 350,240 | |||||||||
|
|
|||||||||||
1,039,243 | ||||||||||||
|
|
|||||||||||
OFFICE |
0.1% | |||||||||||
Alexandria Real Estate Equities, 4.70%, due 7/1/30 |
|
250,000 | 253,020 | |||||||||
|
|
|||||||||||
SPECIALTY |
0.4% | |||||||||||
Equinix, 5.375%, due 5/15/27 |
|
500,000 | 500,000 | |||||||||
QTS Realty Trust, 6.50%, Series Bc |
|
9,300 | | 934,743 | ||||||||
|
|
|||||||||||
1,434,743 | ||||||||||||
|
|
|||||||||||
TOTAL REAL ESTATE |
|
3,217,124 | ||||||||||
|
|
|||||||||||
TOTAL PREFERRED SECURITIESCAPITAL SECURITIES (Identified cost$9,471,002) |
|
10,478,588 | ||||||||||
|
|
|||||||||||
Number of Shares |
||||||||||||
SHORT-TERM INVESTMENTS |
0.6% | |||||||||||
MONEY MARKET FUNDS |
||||||||||||
State Street Institutional Treasury Money Market Fund, Premier Class, 1.74%g |
|
2,021,050 | 2,021,050 | |||||||||
|
|
|||||||||||
TOTAL SHORT-TERM
INVESTMENTS |
|
2,021,050 | ||||||||||
|
|
|||||||||||
TOTAL INVESTMENTS IN
SECURITIES |
99.6% | 336,299,227 | ||||||||||
OTHER ASSETS IN EXCESS OF LIABILITIES |
0.4 | 1,321,797 | ||||||||||
|
|
|
|
|||||||||
NET ASSETS (Equivalent to $12.91 per share based on 26,142,041 shares of common stock outstanding) |
100.0% | $ | 337,621,024 | |||||||||
|
|
|
|
See accompanying notes to financial statements.
11
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS(Continued)
June 30, 2018 (Unaudited)
Glossary of Portfolio Abbreviations
FRN |
Floating Rate Note | |
LIBOR |
London Interbank Offered Rate | |
REIT |
Real Estate Investment Trust | |
TruPS |
Trust Preferred Securities |
Note: Percentages indicated are based on the net assets of the Fund.
| Represents shares. |
a | Variable rate. Rate shown is in effect at June 30, 2018. |
b | Security converts to floating rate after the indicated fixed-rate coupon period. |
c | Perpetual security. Perpetual securities have no stated maturity date, but they may be called/redeemed by the issuer. |
d | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold to qualified institutional buyers. Aggregate holdings amounted to $1,142,937 or 0.3% of the net assets of the Fund, of which 0.0% are illiquid. |
e | Contingent Capital security (CoCo). CoCos are preferred securities with loss absorption characteristics built into the terms of the security for the benefit of the issuer. Aggregate holdings amounted to $2,717,824 which represents 0.8% of the net assets of the Fund. |
f | Securities exempt from registration under Regulation S of the Securities Act of 1933. These securities are subject to resale restrictions. Aggregate holdings amounted to $1,927,830 or 0.6% of the net assets of the Fund, of which 0.0% are illiquid. |
g | Rate quoted represents the annualized seven-day yield of the fund. |
See accompanying notes to financial statements.
12
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2018 (Unaudited)
ASSETS: |
||||
Investments in securities, at value (Identified cost$253,823,169) |
$ | 336,299,227 | ||
Foreign currency, at value (Identified cost$608) |
667 | |||
Receivable for: |
||||
Dividends and interest |
1,459,860 | |||
Investment securities sold |
208,120 | |||
Other assets |
15,228 | |||
|
|
|||
Total Assets |
337,983,102 | |||
|
|
|||
LIABILITIES: |
||||
Payable for: |
||||
Investment advisory fees |
191,130 | |||
Dividends and distributions declared |
80,063 | |||
Administration fees |
10,922 | |||
Directors fees |
128 | |||
Other liabilities |
79,835 | |||
|
|
|||
Total Liabilities |
362,078 | |||
|
|
|||
NET ASSETS |
$ | 337,621,024 | ||
|
|
|||
NET ASSETS consist of: |
||||
Paid-in capital |
$ | 260,566,845 | ||
Dividends in excess of net investment income |
(7,584,402 | ) | ||
Accumulated undistributed net realized gain |
2,162,464 | |||
Net unrealized appreciation |
82,476,117 | |||
|
|
|||
$ | 337,621,024 | |||
|
|
|||
NET ASSET VALUE PER SHARE: |
||||
($337,621,024 ÷ 26,142,041 shares outstanding) |
$ | 12.91 | ||
|
|
|||
MARKET PRICE PER SHARE |
$ | 12.53 | ||
|
|
|||
MARKET PRICE PREMIUM (DISCOUNT) TO NET ASSET VALUE PER SHARE |
(2.94 | )% | ||
|
|
See accompanying notes to financial statements.
13
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2018 (Unaudited)
Investment Income: |
| |||
Dividend income |
$ | 5,166,177 | ||
Interest income |
241,235 | |||
|
|
|||
Total Investment Income |
5,407,412 | |||
|
|
|||
Expenses: |
| |||
Investment advisory fees |
1,127,980 | |||
Shareholder reporting expenses |
100,370 | |||
Administration fees |
83,858 | |||
Professional fees |
40,511 | |||
Transfer agent fees and expenses |
15,094 | |||
Directors fees and expenses |
10,116 | |||
Custodian fees and expenses |
4,214 | |||
Miscellaneous |
23,757 | |||
|
|
|||
Total Expenses |
1,405,900 | |||
|
|
|||
Net Investment Income (Loss) |
4,001,512 | |||
|
|
|||
Net Realized and Unrealized Gain (Loss): |
| |||
Net realized gain (loss) on: |
| |||
Investments in securities |
3,615,104 | |||
Written option contracts |
(205,035 | ) | ||
|
|
|||
Net realized gain (loss) |
3,410,069 | |||
|
|
|||
Net change in unrealized appreciation (depreciation) on: |
| |||
Investments in securities |
(7,875,855 | ) | ||
Foreign currency translations |
(18 | ) | ||
|
|
|||
Net change in unrealized appreciation (depreciation) |
(7,875,873 | ) | ||
|
|
|||
Net Realized and Unrealized Gain (Loss) |
(4,465,804 | ) | ||
|
|
|||
Net Increase (Decrease) in Net Assets Resulting from Operations |
$ | (464,292 | ) | |
|
|
See accompanying notes to financial statements.
14
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
For the Six Months Ended June 30, 2018 |
For the Year Ended December 31, 2017 |
|||||||
Change in Net Assets: |
| |||||||
From Operations: |
||||||||
Net investment income (loss) |
$ | 4,001,512 | $ | 7,874,903 | ||||
Net realized gain (loss) |
3,410,069 | 13,802,900 | ||||||
Net change in unrealized appreciation (depreciation) |
(7,875,873 | ) | 5,069,862 | |||||
|
|
|
|
|||||
Net increase (decrease) in net assets resulting from operations |
(464,292 | ) | 26,747,665 | |||||
|
|
|
|
|||||
Dividends and Distributions to Shareholders from: |
||||||||
Net investment income |
(12,547,137 | ) | (8,083,470 | ) | ||||
Net realized gain |
| (16,408,272 | ) | |||||
Return of capital |
| (598,308 | ) | |||||
|
|
|
|
|||||
Total dividends and distributions to shareholders |
(12,547,137 | ) | (25,090,050 | ) | ||||
|
|
|
|
|||||
Capital Stock Transactions: |
||||||||
Increase (decrease) in net assets from Fund share transactions |
78,675 | | ||||||
|
|
|
|
|||||
Total increase (decrease) in net assets |
(12,932,754 | ) | 1,657,615 | |||||
Net Assets: |
||||||||
Beginning of period |
350,553,778 | 348,896,163 | ||||||
|
|
|
|
|||||
End of perioda |
$ | 337,621,024 | $ | 350,553,778 | ||||
|
|
|
|
a | Includes dividends in excess of net investment income and accumulated undistributed net investment net investment income of $7,584,402 and $961,223, respectively. |
See accompanying notes to financial statements.
15
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS (Unaudited)
The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto.
For the Six Months Ended June 30, 2018 |
For the Year Ended December 31, | |||||||||||||||||||||||
Per Share Operating Performance: |
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value, beginning of period |
$ | 13.41 | $ | 13.35 | $ | 13.60 | $ | 14.15 | $ | 12.23 | $ | 12.98 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) from investment operations: |
| |||||||||||||||||||||||
Net investment income (loss)a |
0.15 | 0.30 | 0.33 | 0.28 | 0.28 | 0.28 | ||||||||||||||||||
Net realized and unrealized gain (loss) |
(0.17 | ) | 0.72 | 0.38 | 0.48 | 2.94 | 0.12 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment |
(0.02 | ) | 1.02 | 0.71 | 0.76 | 3.22 | 0.40 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less dividends and distributions to shareholders from: | ||||||||||||||||||||||||
Net investment income |
(0.48 | ) | (0.31 | ) | (0.33 | ) | (0.28 | ) | (0.25 | ) | (0.28 | ) | ||||||||||||
Net realized gain |
| (0.63 | ) | (0.63 | ) | (1.03 | ) | (1.05 | ) | (0.87 | ) | |||||||||||||
Return of capital |
| (0.02 | ) | | | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total dividends and distributions to shareholders |
(0.48 | ) | (0.96 | ) | (0.96 | ) | (1.31 | ) | (1.30 | ) | (1.15 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Anti-dilutive effect from the issuance of reinvested shares |
| | | | | 0.00 | b | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in net asset value |
(0.50 | ) | 0.06 | (0.25 | ) | (0.55 | ) | 1.92 | (0.75 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net asset value, end of period |
$ | 12.91 | $ | 13.41 | $ | 13.35 | $ | 13.60 | $ | 14.15 | $ | 12.23 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Market value, end of period |
$ | 12.53 | $ | 12.77 | $ | 12.10 | $ | 12.60 | $ | 13.20 | $ | 11.99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total net asset value returnc |
0.11 | %d | 8.33 | % | 5.61 | % | 6.55 | % | 27.90 | % | 3.00 | %e | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total market value returnc |
2.04 | %d | 13.82 | % | 3.32 | % | 5.82 | % | 21.70 | % | 11.03 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
See accompanying notes to financial statements.
16
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS (Unaudited)(Continued)
For
the Six Months Ended June 30, 2018 |
For the Year Ended December 31, | |||||||||||||||||||||||
Ratios/Supplemental Data: |
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net assets, end of period (in millions) |
$ | 337.6 | $ | 350.6 | $ | 348.9 | $ | 355.5 | $ | 369.8 | $ | 117.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ratios to average daily net assets: |
||||||||||||||||||||||||
Expenses |
0.87 | %f | 0.87 | % | 0.85 | % | 0.85 | % | 0.94 | %g | 0.94 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net investment income (loss) (net of expense reduction) |
2.48 | %f | 2.24 | % | 2.39 | % | 2.04 | % | 2.05 | %g | 2.06 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Portfolio turnover rate |
11 | %d | 29 | % | 36 | % | 14 | % | 41 | % | 53 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
a | Calculation based on average shares outstanding. |
b | Amount is less than $0.005. |
c | Total net asset value return measures the change in net asset value per share over the period indicated. Total market value return is computed based upon the Funds market price per share and excludes the effects of brokerage commissions. Dividends and distributions are assumed, for purposes of these calculations, to be reinvested at prices obtained under the Funds dividend reinvestment plan. |
d | Not annualized. |
e | Does not reflect adjustments in accordance with accounting principles generally accepted in the United States of America. The net asset value for financial reporting purposes and the returns based upon those net asset values differ from the net asset value and returns reported on December 31, 2012. |
f | Annualized. |
g | Includes non-recurring merger related expenses. Without these expenses, the ratio of expenses to average daily net assets would have been 0.88% and the ratio of net investment income to average daily net assets would have been 2.11%. |
See accompanying notes to financial statements.
17
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Note 1. Organization and 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 1940 Act) as a diversified, closed-end management investment company. The Funds investment objective is high total return.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The Fund is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 946Investment Companies. The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of the financial statements in accordance with GAAP 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 (NYSE) are valued, except as indicated below, at the last sale price reflected at the close of the NYSE 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 ask prices on such day or, if no ask price is available, at the bid price. Exchange-traded options are valued at their last sale price as of the close of options trading on applicable exchanges on the valuation date. In the absence of a last sale price on such day, options are valued at the average of the quoted bid and ask prices as of the close of business. Over-the-counter (OTC) options are valued based upon prices provided by a third-party pricing service or counterparty.
Securities not listed on the NYSE but listed on other domestic or foreign securities exchanges (including NASDAQ) are valued in a similar manner. Securities traded on more than one securities exchange are valued at the last sale price reflected at the close of the exchange representing the principal market for such securities on the business day as of which such value is being determined. If after the close of a foreign market, but prior to the close of business on the day the securities are being valued, market conditions change significantly, certain non-U.S. equity holdings may be fair valued pursuant to procedures established by the Board of Directors.
Readily marketable securities traded in the OTC market, including listed securities whose primary market is believed by Cohen & Steers Capital Management, Inc. (the investment advisor) to be OTC, are valued on the basis of prices provided by a third-party pricing service or third-party broker-dealers when such prices are believed by the investment advisor, pursuant to delegation by the Board of Directors, to reflect the fair value of such securities.
Fixed-income securities are valued on the basis of prices provided by a third-party pricing service or third-party broker-dealers when such prices are believed by the investment advisor, pursuant to delegation by the Board of Directors, to reflect the fair value of such securities. The pricing services or broker-dealers use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services or broker-dealers may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient
18
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
market activity may not exist or is limited, the pricing services or broker-dealers also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining fair value and/or characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features which are then used to calculate the fair values.
Short-term debt securities with a maturity date of 60 days or less are valued at amortized cost, which approximates fair value. Investments in open-end mutual funds are valued at net asset value (NAV).
The policies and procedures approved by the Funds Board of Directors delegate authority to make fair value determinations to the investment advisor, subject to the oversight of the Board of Directors. The investment advisor has established a valuation committee (Valuation Committee) to administer, implement and oversee the fair valuation process according to the policies and procedures approved annually by the Board of Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
Securities for which market prices are unavailable, or securities for which the investment advisor determines that the bid and/or ask price or a counterparty valuation does not reflect market value, will be valued at fair value, as determined in good faith by the Valuation Committee, pursuant to procedures approved by the Funds Board of Directors. Circumstances in which market prices may be unavailable include, but are not limited to, when trading in a security is suspended, the exchange on which the security is traded is subject to an unscheduled close or disruption or material events occur after the close of the exchange on which the security is principally traded. In these circumstances, the Fund determines fair value in a manner that fairly reflects the market value of the security on the valuation date based on consideration of any information or factors it deems appropriate. These may include, but are not limited to, recent transactions in comparable securities, information relating to the specific security and developments in the markets.
The Funds use of fair value pricing may cause the NAV of Fund shares to differ from the NAV that would be calculated using market quotations. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security.
Fair value is defined as the price that the Fund would expect to receive upon the sale of an investment or expect to pay to transfer a liability in an orderly transaction with an independent buyer in the principal market or, in the absence of a principal market, the most advantageous market for the investment or liability. The hierarchy of inputs that are used in determining the fair value of the Funds investments is summarized below.
| Level 1quoted prices in active markets for identical investments |
| Level 2other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.) |
| Level 3significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments) |
19
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
The inputs or methodology used for valuing investments may or may not be an indication of the risk associated with those investments.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfer at the end of the period in which the underlying event causing the movement occurred. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. As of June 30, 2018, there were $3,631,427 of securities transferred from Level 1 to Level 2, which resulted from a change in the use of a quoted price to an evaluated mean price supplied by an independent pricing service, for certain securities; and $1,640,747 of securities transferred from Level 2 to Level 1, which resulted from a change in the use of an evaluated mean price supplied by an independent pricing service to a quoted price, for certain securities.
The following is a summary of the inputs used as of June 30, 2018 in valuing the Funds investments carried at value:
Total | Quoted Prices in Active Markets for Identical Investments (Level 1) |
Other Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Common Stock |
$ | 277,806,387 | $ | 277,806,387 | $ | | $ | | ||||||||
Preferred Securities |
||||||||||||||||
$25 Par Value: |
||||||||||||||||
Real EstateDiversified |
9,640,974 | 9,085,861 | 555,113 | | ||||||||||||
Real EstateHotel |
7,427,397 | 5,747,708 | 1,679,689 | | ||||||||||||
Other Industries |
28,924,831 | 28,924,831 | | | ||||||||||||
Preferred Securities |
||||||||||||||||
Capital Securities: |
||||||||||||||||
Specialty |
1,434,743 | 934,743 | 500,000 | | ||||||||||||
Other Industries |
9,043,845 | | 9,043,845 | | ||||||||||||
Short-Term Investments |
2,021,050 | | 2,021,050 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Investments in Securitiesa |
$ | 336,299,227 | $ | 322,499,530 | $ | 13,799,697 | $ | | ||||||||
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|
|
|
|
|
|
a | Portfolio holdings are disclosed individually on the Schedule of Investments. |
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. Interest income, which includes the amortization of premiums and accretion of discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except for certain dividends on foreign securities, which are recorded as soon as the Fund is informed after the ex-dividend date. Distributions from REITs are recorded as ordinary income, net realized capital gain or return of capital based on information reported by the REITs and managements estimates of such amounts based on historical information. These estimates are adjusted when the actual source of distributions is disclosed by the REITs and actual amounts may differ from the estimated amounts.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based upon prevailing exchange rates on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency exchange contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates. Pursuant to U.S. federal income tax regulations, certain foreign currency gains/losses included in realized and unrealized gains/losses are included in or are a reduction of ordinary income for federal income tax purposes.
Options: The Fund may purchase and write exchange-listed and OTC put or call options on securities, stock indices and other financial instruments to enhance portfolio returns and reduce overall volatility.
When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is recorded on the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When an option expires, the Fund realizes a gain on the option to the extent of the premium received. Premiums received from writing options which are exercised or closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. If a put option on a security is exercised, the premium reduces the cost basis of the security purchased by the Fund. If a call option is exercised, the premium is added to the proceeds of the security sold to determine the realized gain or loss. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the underlying investment. Other risks include the possibility of an illiquid options market or the inability of the counterparties to fulfill their obligations under the contracts.
Put and call options purchased are accounted for in the same manner as portfolio securities. Premiums paid for purchasing options which expire are treated as realized losses. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss when the underlying transaction is executed. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract.
At June 30, 2018, the Fund did not have any option contracts outstanding.
21
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
Dividends and Distributions to Shareholders: Dividends from net investment income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from GAAP. Dividends from net investment income, if any, are declared quarterly and paid monthly. Net realized capital gains, unless offset by any available capital loss carryforward, are typically distributed to shareholders at least annually. Dividends and distributions to shareholders are recorded on the ex-dividend date and are automatically reinvested in full and fractional shares of the Fund in accordance with the Funds Reinvestment Plan, unless the shareholder has elected to have them paid in cash.
This Fund has a managed distribution policy in accordance with exemptive relief issued by the SEC. The Plan gives the Fund greater flexibility to realize long-term capital gains throughout the year and to distribute those gains on a more regular basis to shareholders. Therefore, regular monthly distributions throughout the year may include a portion of estimated realized long-term capital gains, along with net investment income, short-term capital gains and return of capital, which is not taxable. In accordance with the Plan, the Fund is required to adhere to certain conditions in order to distribute long-term capital gains during the year.
Dividends from net investment income are subject to recharacterization for tax purposes. Based upon the results of operations for the six months ended June 30, 2018, the investment advisor considers it likely that a significant portion of the dividends will be reclassified to distributions from net realized gain and/or return of capital upon the final determination of the Funds taxable income after December 31, 2018, the Funds fiscal year end.
Income Taxes: It is the policy of the Fund to continue to qualify as a regulated investment company (RIC), 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 RICs, and by distributing substantially all of its taxable earnings to its shareholders. Also, in order to avoid the payment of any federal excise taxes, the Fund will distribute substantially all of its net investment income and net realized gains on a calendar year basis. Accordingly, no provision for federal income or excise tax is necessary. Dividend and interest income from holdings in non-U.S. securities is recorded net of non-U.S. taxes paid. Management has analyzed the Funds tax positions taken on federal and applicable state income tax returns as well as its tax positions in non-U.S. jurisdictions in which it trades for all open tax years and has concluded that as of June 30, 2018, no additional provisions for income tax are required in the Funds financial statements. The Funds tax positions for the tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service, state departments of revenue and by foreign tax authorities.
Note 2. Investment Advisory Fees, Administration Fees and Other Transactions with Affiliates
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. serves as the Funds investment advisor pursuant to an investment advisory agreement (the investment advisory agreement). Under the terms of the investment advisory agreement, the investment advisor provides the Fund with day-to-day investment decisions and generally manages the Funds investments in accordance with the stated policies of the Fund, subject to the supervision of the Board of Directors.
22
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
For the services provided to the Fund, the investment advisor receives a fee, accrued daily and paid monthly, at the annual rate of 0.70% of the average daily net assets of the Fund.
Administration Fees: The Fund has entered into an administration agreement with the investment advisor under which the investment advisor performs certain administrative functions for the Fund and receives a fee, accrued daily and paid monthly, at the annual rate of 0.04% of the average daily net assets of the Fund. For the six months ended June 30, 2018, the Fund incurred $64,456 in fees under this administration agreement. Additionally, the Fund pays State Street Bank and Trust Company as co-administrator under a fund accounting and administration agreement.
Directors and Officers Fees: Certain directors and officers of the Fund are also directors, officers, and/or employees of the investment advisor. The Fund does not pay compensation to directors and officers affiliated with the investment advisor except for the Chief Compliance Officer, who received compensation from the investment advisor, which was reimbursed by the Fund, in the amount of $1,918 for the six months ended June 30, 2018.
Note 3. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, for the six months ended June 30, 2018, totaled $38,092,282 and $42,498,334, respectively.
Note 4. Derivative Investments
The following table presents the effect of derivatives held during the six months ended June 30, 2018, along with the respective location in the financial statements.
Statement of Operations
Derivatives |
Location |
Realized Gain (Loss) |
Change in Unrealized Appreciation (Depreciation) |
|||||||
Equity Risk: |
||||||||||
Written Option Contracts |
Net Realized and Unrealized Gain (Loss) |
$ | (205,035 | ) | |
The following summarizes the volume of the Funds written option contracts activity for the six months ended June 30, 2018:
Written Option Contractsa | ||||
Average Notional Amount |
$ | 7,587,404 | ||
Ending Notional Amount |
|
a | Average notional amount is for the period February 11, 2018 through May 9, 2018, which represents the period the Fund had written option contracts outstanding. Notional amount is calculated using the number of contracts multiplied by notional contract size multiplied by the underlying price. |
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
Note 5. Income Tax Information
As of June 30, 2018, the federal tax cost and net unrealized appreciation (depreciation) in value of investments held were as follows:
Cost of investments in securities for federal income tax purposes |
$ | 253,823,169 | ||
|
|
|||
Gross unrealized appreciation on investments |
$ | 85,625,429 | ||
Gross unrealized depreciation on investments |
(3,149,371 | ) | ||
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|
|||
Net unrealized appreciation (depreciation) on investments |
$ | 82,476,058 | ||
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|
Note 6. Capital Stock
The Fund is authorized to issue 100 million shares of common stock at a par value of $0.001 per share.
During the six months ended June 30, 2018, the Fund issued 6,572 shares of common stock at $78,675 for the reinvestment of dividends. During the year ended December 31, 2017, the Fund did not issue shares of common stock for the reinvestment of dividends.
On December 5, 2017, the Board of Directors approved the continuation of the delegation of its authority to management to effect repurchases, pursuant to managements discretion and subject to market conditions and investment considerations, of up to 10% of the Funds common shares outstanding (Share Repurchase Program) from January 1, 2018, through the fiscal year ended December 31, 2018.
During the six months ended June 30, 2018 and the year ended December 31, 2017, the Fund did not effect any repurchases.
Note 7. Other Risks
Common Stock Risk: While common stocks have historically generated higher average returns than fixed-income securities over the long-term, common stock has also experienced significantly more volatility in those returns, although under certain market conditions, fixed-income investments may have comparable or greater price volatility. An adverse event, such as an unfavorable earnings report, may depress the value of common stock held by the Fund. Also, the price of common stock is sensitive to general movements in the stock market. A drop in the stock market may depress the price of common stock held by the Fund.
Real Estate Market Risk: Since the Fund concentrates its assets in companies engaged in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. Risks of investing in real estate securities include falling property values due to increasing vacancies, declining rents resulting from economic, legal, tax, political or technological developments, lack of liquidity, limited diversification, and sensitivity to certain economic factors such as interest-rate changes and market recessions. Real estate company prices also may drop because of the failure of borrowers to pay their loans and poor management, and residential developers, in particular, could be negatively impacted by falling home prices, slower mortgage origination and rising construction costs. The risks of investing in REITs are similar to those associated with direct investments in real estate securities.
24
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
REIT Risk: In addition to the risks of securities linked to the real estate industry, REITs are subject to certain other risks related to their structure and focus. REITs are dependent upon management skills and generally may not be diversified. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, REITs could possibly fail to (i) qualify for pass-through of income under applicable tax law, or (ii) maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrowers or a lessees ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments.
Small- and Medium-Sized Companies Risk: Real estate companies in the industry tend to be small-to medium-sized companies in relation to the equity markets as a whole. There may be less trading in a smaller companys stock, which means that buy and sell transactions in that stock could have a larger impact on the stocks price than is the case with larger company stocks. Smaller companies also may have fewer lines of business so that changes in any one line of business may have a greater impact on a smaller companys stock price than is the case for a larger company. Further, smaller company stocks may perform differently in different cycles than larger company stocks. Accordingly, real estate company shares can, and at times will, perform differently than large company stocks.
Preferred Securities Risk: Preferred securities are subject to credit risk, which is the risk that a security will decline in price, or the issuer of the security will fail to make dividend, interest or principal payments when due, because the issuer experiences a decline in its financial status. Preferred securities are also subject to interest rate risk and may decline in value because of changes in market interest rates. The Fund may be subject to a greater risk of rising interest rates than would normally be the case in an environment of low interest rates and the effect of potential government fiscal policy initiatives and resulting market reaction to those initiatives. In addition, an issuer may be permitted to defer or omit distributions. Preferred securities are also generally subordinated to bonds and other debt instruments in a companys capital structure. During periods of declining interest rates, an issuer may be able to exercise an option to redeem (call) its issue at par earlier than scheduled, and the Fund may be forced to reinvest in lower yielding securities. Certain preferred securities may be substantially less liquid than many other securities, such as common stocks. Generally, preferred security holders have no voting rights with respect to the issuing company unless certain events occur. Certain preferred securities may give the issuers special redemption rights allowing the securities to be redeemed prior to a specified date if certain events occur, such as changes to tax or securities laws.
Options Risk: Gains on options transactions depend on the investment advisors ability to predict correctly the direction of stock prices, indexes, interest rates, and other economic factors, and unanticipated changes may cause poorer overall performance for the Fund than if it had not engaged in such transactions. A rise in the value of the security or index underlying a call option written by the Fund exposes the Fund to possible loss or loss of opportunity to realize appreciation in the value of any portfolio securities underlying or otherwise related to the call option. By writing a put option, the Fund assumes the risk of a decline in the underlying security or index. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position, and for certain options not traded on an exchange no market usually exists. Trading could be interrupted, for example, because of supply
25
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
and demand imbalances arising from a lack of either buyers or sellers, or an options exchange could suspend trading after the price has risen or fallen more than the maximum specified by the exchange.
Although the Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, that Fund may experience losses in some cases as a result of such inability, may not be able to close its position and, in such an event would be unable to control its losses.
Regulatory Risk: The U.S. government has proposed and adopted multiple regulations that could have a long-lasting impact on the Fund and on the mutual fund industry in general. The SECs final rules and amendments to modernize reporting and disclosure, along with other potential upcoming regulations, could, among other things, restrict the Funds ability to engage in transactions and/or increase overall expenses of the Fund. In addition, the SEC, Congress, various exchanges and regulatory and self-regulatory authorities, both domestic and foreign, have undertaken reviews of the use of derivatives by registered investment companies, which could affect the nature and extent of derivatives used by the Fund. While the full extent of these regulations is still unclear, these regulations and actions may adversely affect the instruments in which the Fund invests and its ability to execute its investment strategy. Similarly, regulatory developments in other countries may have an unpredictable and adverse impact on the Fund.
Qualified REIT Dividends Paid by the Fund Ineligible for Pass-Through Deduction: Starting for calendar year 2018, non-corporate taxpayers are permitted to deduct a portion of any amounts received from a REIT that are qualified REIT dividends. This deduction is currently not available in respect of such amounts paid by a REIT to the Fund, and distributed by the Fund to its shareholders. As a result, a non-corporate shareholder will generally be subject to a higher effective tax rate on any such amounts received from the Fund compared to the effective rate applicable to any qualified REIT dividends a shareholder would receive if the shareholder invested directly in a REIT.
Note 8. Other
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Funds maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.
Note 9. New Accounting Guidance
In March 2017, the FASB issued ASU No. 2017-08, ReceivablesNonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities, held at a premium, to be amortized to the earliest call date. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The adoption will have no effect on the Funds net assets or results of operations.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
Note 10. Subsequent Events
Management has evaluated events and transactions occurring after June 30, 2018 through the date that the financial statements were issued, and has determined that no additional disclosure in the financial statements is required.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
PROXY RESULTS (Unaudited)
Cohen & Steers Total Return Realty Fund, Inc. shareholders voted on the following proposals at the annual meeting held on April 26, 2018. The description of each proposal and number of shares voted are as follows:
Common Shares | Shares Voted For |
Authority Withheld |
||||||
To elect Directors: |
||||||||
George Grossman |
23,324,150.485 | 721,609.828 | ||||||
Jane F. Magpiong |
23,437,732.297 | 608,028.016 | ||||||
Robert H. Steers |
23,389,209.592 | 656,550.721 | ||||||
C. Edward Ward, Jr. |
23,265,203.335 | 780,556.978 |
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS
(Periods ended June 30, 2018) (Unaudited)
Based on Net Asset Value | Based on Market Value | |||||||||||||||||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception (9/27/93) |
One Year | Five Years | Ten Years | Since Inception (9/27/93) |
|||||||||||||||||||||||||||
3.27 | % | 8.79 | % | 9.33 | % | 9.85 | % | 7.56 | % | 7.75 | % | 7.97 | % | 9.40 | % |
The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment return will vary and the principal value of an investment will fluctuate and shares, if sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current total returns of the Fund can be obtained by visiting our website at cohenandsteers.com. The Funds returns assume the reinvestment of all dividends and distributions at prices obtained under the Funds dividend reinvestment plan.
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.
OTHER INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 800-330-7348, (ii) on our website at cohenandsteers.com or (iii) on the SECs website at http://www.sec.gov. In addition, the Funds proxy voting record for the most recent 12-month period ended June 30 is available by August 31 of each year (i) without charge, upon request, by calling 800-330-7348 or (ii) on the SECs website at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available (i) without charge, upon request, by calling 800-330-7348 or (ii) on the SECs website at http://www.sec.gov. In addition, the Forms N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
Please note that distributions paid by the Fund to shareholders are subject to recharacterization for tax purposes and are taxable up to the amount of the Funds investment company taxable income and net realized gains. Distributions in excess of the Funds investment company taxable income and net realized gains are a return of capital distributed from the Funds assets. To the extent this occurs, the Funds shareholders of record will be notified of the estimated amount of capital returned to shareholders for each such distribution and this information will also be available at cohenandsteers.com. The final tax treatment of all distributions is reported to shareholders on their 1099-DIV forms, which are mailed after the close of each calendar year. Distributions of capital decrease the Funds total assets and, therefore, could have the effect of increasing the Funds expense ratio. In addition, in order to make these distributions, the Fund may have to sell portfolio securities at a less than opportune time.
Notice is hereby given in accordance with Rule 23c-1 under the 1940 Act that the Fund may purchase, from time to time, shares of its common stock in the open market.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Directors of the Fund, including a majority of the directors who are not parties to the Funds investment advisory agreement (the Advisory Agreement), or interested persons of any such party (the Independent Directors), has the responsibility under the Investment Company Act of 1940 to approve the Funds Advisory Agreement for its initial two year term and its continuation annually thereafter at a meeting of the Board of Directors called for the purpose of voting on the approval or continuation. The Advisory Agreement was discussed at a meeting of the Independent Directors held on June 5, 2018 and at meetings of the full Board of Directors held in person on March 20, 2018 and June 12, 2018. At the meeting of the full Board of Directors on June 12, 2018, the Advisory Agreement was discussed and was unanimously continued for a term ending June 30, 2019 by the Funds Board of Directors, including the Independent Directors. The Independent Directors were represented by independent counsel who assisted them in their deliberations during the meetings and executive sessions.
In considering whether to continue the Advisory Agreement, the Board of Directors reviewed materials provided by an independent data provider, which included, among other things, fee, expense and performance information compared to peer funds (the Peer Funds) and performance comparisons to a larger category universe; summary information prepared by the Funds investment advisor (the Investment Advisor); and a memorandum from Fund counsel outlining the legal duties of the Board of Directors. The Board of Directors also spoke directly with representatives of the independent data provider and met with investment advisory personnel. In addition, the Board of Directors considered information provided from time to time by the Investment Advisor throughout the year at meetings of the Board of Directors, including presentations by portfolio managers relating to the investment performance of the Fund and the investment strategies used in pursuing the Funds objective. In particular, the Board of Directors considered the following:
(i) The nature, extent and quality of services to be provided by the Investment Advisor: The Board of Directors reviewed the services that the Investment Advisor provides to the Fund, including, but not limited to, making the day-to-day investment decisions for the Fund, placing orders for the investment and reinvestment of the Funds assets, furnishing information to the Board of Directors of the Fund regarding the Funds portfolio, providing individuals to serve as Fund officers, and generally managing the Funds investments in accordance with the stated policies of the Fund. The Board of Directors also discussed with officers and portfolio managers of the Fund the types of transactions that were being done on behalf of the Fund. Additionally, the Board of Directors took into account the services provided by the Investment Advisor to its other funds and accounts, including those that have investment objectives and strategies similar to those of the Fund. The Board of Directors also considered the education, background and experience of the Investment Advisors personnel, particularly noting the potential benefit that the portfolio managers work experience and favorable reputation can have on the Fund. The Board of Directors further noted the Investment Advisors ability to attract qualified and experienced personnel. The Board of Directors also considered the administrative services provided by the Investment Advisor, including compliance and accounting services. After consideration of the above factors, among others, the Board of Directors concluded that the nature, extent and quality of services provided by the Investment Advisor are satisfactory and appropriate.
(ii) Investment performance of the Fund and the Investment Advisor: The Board of Directors considered the investment performance of the Fund compared to Peer Funds and a relevant blended
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
benchmark. The Board of Directors noted that the Fund outperformed the Peer Funds medians for the one-, three-, five- and ten-year periods ended March 31, 2018, ranking first out of four peers, first out of four peers, second out of four peers and first out of four peers, respectively. The Board of Directors also noted that the Fund outperformed the blended benchmark for the one-, three-, five- and ten-year periods ended March 31, 2018. The Board of Directors engaged in discussions with the Investment Advisor regarding the contributors to and detractors from the Funds performance during the periods. The Board of Directors also considered supplemental information provided by the Investment Advisor, including a narrative summary of various factors affecting performance, and the Investment Advisors performance in managing other real estate funds. The Board of Directors determined that Fund performance, in light of all the considerations noted above, supported the continuation of the Advisory Agreement.
(iii) Cost of the services to be provided and profits to be realized by the Investment Advisor from the relationship with the Fund: Next, the Board of Directors considered the contractual and actual management fee paid by the Fund, as well as the Funds total expense ratio. As part of its analysis, the Board of Directors gave consideration to the fee and expense analyses provided by the independent data provider. The Board of Directors noted that the Funds actual management fee and total expense ratio were lower than the Peer Funds medians, ranking first out of four peers for each. In light of the considerations above, the Board of Directors concluded that the Funds current expense structure was satisfactory.
The Board of Directors also reviewed information regarding the profitability to the Investment Advisor of its relationship with the Fund. The Board of Directors considered the level of the Investment Advisors profits and whether the profits were reasonable for the Investment Advisor. The Board of Directors took into consideration other benefits to be derived by the Investment Advisor in connection with the Advisory Agreement, noting particularly the research and related services, within the meaning of Section 28(e) of the Securities Exchange Act of 1934, that the Investment Advisor receives by allocating the Funds brokerage transactions. The Board of Directors further considered that the Investment Advisor continues to reinvest profits back in the business, including upgrading and/or implementing new trading, compliance and accounting systems, and by adding investment personnel to the portfolio management teams. The Board of Directors also considered the administrative services provided by the Investment Advisor and the associated administration fee paid to the Investment Advisor for such services under the Administration Agreement. The Board of Directors determined that the services received under the Administration Agreement are beneficial to the Fund. The Board of Directors concluded that the profits realized by the Investment Advisor from its relationship with the Fund were reasonable and consistent with the Investment Advisors fiduciary duties.
(iv) The extent to which economies of scale would be realized as the Fund grows and whether fee levels would reflect such economies of scale: The Board of Directors noted that, as a closed-end fund, the Fund would not be expected to have inflows of capital that might produce increasing economies of scale. The Board of Directors determined that, given the Funds closed-end structure, there were not significant economies of scale that were not being shared with shareholders. In considering economies of scale, the Board of Directors also noted, as discussed above in (iii), that the Investment Advisor continues to reinvest profits back in the business.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
(v) Comparison of services to be rendered and fees to be paid to those under other investment advisory contracts, such as contracts of the same and other investment advisors or other clients: As discussed above in (iii), the Board of Directors compared the fees paid under the Advisory Agreement to those under other investment advisory contracts of other investment advisors managing Peer Funds. The Board of Directors also compared the services rendered, fees paid and profitability under the Advisory Agreement to those under the Investment Advisors other fund management agreements and advisory contracts with institutional and other clients with similar investment mandates, noting that the Investment Advisor provides more services to the Fund than it does for institutional or subadvised accounts. The Board of Directors also considered the entrepreneurial risk and financial exposure assumed by the Investment Advisor in developing and managing the Fund that the Investment Advisor does not have with institutional and other clients and other differences in the management of registered investment companies and institutional accounts. The Board of Directors determined that on a comparative basis the fees under the Advisory Agreement were reasonable in relation to the services provided.
No single factor was cited as determinative to the decision of the Board of Directors, and each Director may have assigned different weights to the various factors. Rather, after weighing all of the considerations and conclusions discussed above, the Board of Directors, including the Independent Directors, unanimously approved the continuation of the Advisory Agreement.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
Cohen & Steers Privacy Policy
Facts | What Does Cohen & Steers Do With Your Personal Information? | |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
Social Security number and account balances
Transaction history and account transactions
Purchase history and wire transfer instructions | |
How? | All financial companies need to share customers personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons Cohen & Steers chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does Cohen & Steers share? |
Can you limit this sharing? | ||
For our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or reports to credit bureaus |
Yes | No | ||
For our marketing purposes to offer our products and services to you |
Yes | No | ||
For joint marketing with other financial companies | No | We dont share | ||
For our affiliates everyday business purposes information about your transactions and experiences |
No | We dont share | ||
For our affiliates everyday business purposes information about your creditworthiness |
No | We dont share | ||
For our affiliates to market to you | No | We dont share | ||
For non-affiliates to market to you | No | We dont share | ||
Questions? Call 800.330.7348 |
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
Cohen & Steers Privacy Policy(Continued)
Who we are | ||
Who is providing this notice? | Cohen & Steers Capital Management, Inc., Cohen & Steers Asia Limited, Cohen & Steers Japan, LLC, Cohen & Steers UK Limited, Cohen & Steers Securities, LLC, Cohen & Steers Private Funds and Cohen & Steers Open and Closed-End Funds (collectively, Cohen & Steers). | |
What we do | ||
How does Cohen & Steers protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. We restrict access to your information to those employees who need it to perform their jobs, and also require companies that provide services on our behalf to protect your information. | |
How does Cohen & Steers collect my personal information? | We collect your personal information, for example, when you:
Open an account or buy securities from us
Provide account information or give us your contact information
Make deposits or withdrawals from your account
We also collect your personal information from other companies. | |
Why cant I limit all sharing? | Federal law gives you the right to limit only:
sharing for affiliates everyday business purposesinformation about your creditworthiness
affiliates from using your information to market to you
sharing for non-affiliates to market to you
State law and individual companies may give you additional rights to limit sharing. | |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
Cohen & Steers does not share with affiliates. | |
Non-affiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
Cohen & Steers does not share with non-affiliates. | |
Joint marketing | A formal agreement between non-affiliated financial companies that together market financial products or services to you.
Cohen & Steers does not jointly market. |
34
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
Cohen & Steers Investment Solutions
Distributed by Cohen & Steers Securities, LLC.
Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers U.S. registered open-end fund carefully before investing. A summary prospectus and prospectus containing this and other information can be obtained by calling 800-330-7348 or by visiting cohenandsteers.com. Please read the summary prospectus and prospectus carefully before investing.
35
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
36
COHEN & STEERS
TOTAL RETURN REALTY FUND
280 PARK AVENUE
NEW YORK, NY 10017
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Semiannual Report June 30, 2018
Cohen & Steers
Total Return
Realty Fund
RFISAR
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a) | Not applicable. |
(b) | The registrant has not had any change in the portfolio managers identified in response to paragraph (a)(1) of this item in the registrants most recent annual report on Form N-CSR. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) | The registrants principal executive officer and principal financial officer have concluded that the registrants disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the registrant in this Form N-CSR was recorded, |
processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, based upon such officers evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. |
(b) | There were no changes in the registrants internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrants internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a) | The Fund did not engage in any securities lending activity during the fiscal year ended December 31, 2017. |
(b) | The Fund did not engage in any securities lending activity and did not engage a securities lending agent during the fiscal year ended December 31, 2017. |
Item 13. Exhibits.
(a)(1) | Not applicable. |
(a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. |
(a)(3) | Not applicable. |
(b) | Certifications of chief executive officer and chief financial officer as required by Rule 30a- 2(b) under the Investment Company Act of 1940. |
(c) | Registrants notices to shareholders pursuant to Registrants exemptive order granting an exemption from Section 19(b) of the 1940 Act & Rule 19b-1 thereunder regarding distributions pursuant to the Registrants Managed Distribution Plan. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
By: | /s/ Adam M. Derechin | |||
Name: Adam M. Derechin Title: President and Chief Executive Officer | ||||
Date: | September 6, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Adam M. Derechin | |||
Name: Adam M. Derechin Title: President and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ James Giallanza | |||
Name: James Giallanza Title: Chief Financial Officer (Principal Financial Officer) | ||||
Date: September 6, 2018 |