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: 811-7154
Cohen & Steers Total Return Realty Fund, Inc.
(Exact name of registrant as specified in charter)
757 Third Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
Robert H. Steers
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 832-3232
Date of fiscal year end: December 31
Date of reporting period: December 31, 2004
Item 1. Reports to Stockholders.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
February 21, 2005
To Our Shareholders:
We are pleased to submit to you our report for the quarter and year ended
December 31, 2004. The net asset value at that date was $19.72 per share. The
total return, including income, for Cohen & Steers Total Return Realty Fund and
its relevant benchmarks were:
NET ASSET VALUE(a) MARKET PRICE(a)
------------------- -------------------
QUARTER- YEAR- QUARTER- YEAR-
ENDED ENDED ENDED ENDED
12/31/04 12/31/04 12/31/04 12/31/04
-------- -------- -------- --------
Cohen & Steers Total Return Realty
Fund(b).............................. 11.1% 23.7% 14.0% 20.8%
NAREIT Equity REIT Index(c)............ 15.2% 31.6% 15.2% 31.6%
Morgan Stanley REIT Preferred Index(d). 2.7% 7.3% 2.7% 7.3%
During the quarter, three $0.085 share monthly dividends and one long-term
capital gain dividend of $0.13 per share were declared and paid.(e)
In addition, the fund's board of directors announced an increase of $0.025
per common share in the fund's regular monthly distribution, raising the monthly
distribution to $0.11 per common share. The new monthly distribution rate
represents a 29% increase to the prior monthly distribution rate. In connection
with this increase, the fund's board of directors announced the adoption of a
level rate distribution policy. The new distribution rate reflects both the
increased investment income that the fund's investment manager believes the fund
will earn and the decision by the board of directors to augment investment
income with the fund's capital, which has increased significantly since the
fund's initial public offering due to unrealized appreciation in the fund's
portfolio investments. As of December 31, 2004, the fund had unrealized
appreciation in its portfolio investments equivalent to $7.73 per common share.
-------------------
(a) As a closed-end investment company, the price of the fund's New York Stock
Exchange-traded shares will be set by market forces and at times may deviate
from the net asset value per share of the fund.
(b) For the year, the fund averaged 82% REIT common stock and 18% preferred
stock and other fixed income investments.
(c) The NAREIT Equity REIT Index ('Equity REITs') is an unmanaged
market-capitalization-weighted index of all tax-qualified Equity REITs
listed on the NYSE, AMEX, and the Nasdaq that have 75% or more of their
gross invested book assets invested directly or indirectly in the equity
ownership of real estate.
(d) The Morgan Stanley REIT Preferred Index is an unmanaged index of all
exchange-traded perpetual preferred securities of equity REITs, weighted by
capitalization and considered representative of real estate preferred stock
performance.
(e) Please note that distributions paid by the fund to shareholders are subject
to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders after the close of each fiscal
year.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
INVESTMENT REVIEW
One year ago, in our year-end letter to shareholders, we shared our belief
that REITs would experience 'a continuation of strong performance' as a result
of strong expected economic fundamentals. We predicted that GDP would increase
by at least 4% in 2004, creating 1.5 to 2.0 million jobs and leading to
improving real estate fundamentals and accelerating cash flow growth rates for
REITs. We are pleased to report that all of these predictions have been
realized.
Additionally, we believe that investors of all types -- individual and
institutional, in the United States and abroad -- continued to gravitate toward
REITs in recognition of their historical investment characteristics, which
include a secure and growing dividend stream, diversification away from the
broader stock and bond markets, and competitive total returns. In addition, as
more and more investors came to appreciate the investment characteristics of
real estate, REIT merger and acquisition activity heated up. The prices paid for
real estate companies over the course of 2004 continued to validate the higher
asset values associated with high quality U.S. commercial real estate assets.
For all these reasons, the portfolio experienced another year of very strong
absolute returns while at the same time providing current income at levels that
were superior to that of the REIT market, as measured by the dividend yield of
the NAREIT Equity REIT Index.
Regional mall companies continued to lead the REIT industry in performance.
Regional malls, benefiting from strong sales growth, rapid consolidation of
ownership (resulting in greater leverage with retailers), strong demand for
space by retailers, and a relatively fixed supply of franchise assets, returned
45.1%. The Mills Corporation was our best performing mall stock, returning
52.4%. Shopping centers benefited from some of the same trends in retailing and
returned 37.0%. Though we maintained a significant weighting in both these
sectors, our underweight positions -- due to the lack of available yield
opportunities in of these sectors -- detracted from the fund's overall
performance.
The industrial and apartment sectors, both cyclical in nature, benefited
from a strong economy and generated 34.1% and 34.7% respectively. AvalonBay
Communities, for example, was the best performing stock in the fund generating a
65.0% total return.
Office companies trailed the index on average by a wide margin, returning
23.4% as a group. Office fundamentals, however, varied widely across the U.S.
Although the dividend yields in this sector are generally well above average,
our overweight here was a drag on the fund's total return performance. The
fund's best office holding was Kilroy Realty with a 37.6% total return while the
worst performer was Equity Office Properties with a total returned of 9.1%. The
worst performing stock in the fund was Affordable Residential Communities, a
manufactured housing company -- lower apartment rents and affordable for-sale
housing have continued to disadvantage this low-priced housing alternative.
Affordable Residential Communities returned -4.8%, one of only a small handful
of REITs with a negative total return in 2004.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
INVESTMENT OUTLOOK
We anticipate that economic fundamentals in 2005 will be substantially
similar to 2004 and in a few ways even better. We believe that GDP growth will
be in the 3.5% range with job growth of about 2 million. In our view, barring
any large, exogenous economic shocks, this will result in continuing improvement
in the unemployment rate and real wage gains. In short, we believe the economic
recovery should become self-sustaining and somewhat steadier.
This should provide a continued positive backdrop for real estate
fundamentals, characterized by higher occupancies, rents and cash flows for most
property types and in most regions of the country. As a result, our estimates
indicate that REIT cash flow and dividend growth will continue to accelerate
through 2005 and 2006. We expect REIT cash flow to increase 9.2% and 9.5% while
dividend growth is projected to be 5.9% and 6.2% in 2005 and 2006, respectively.
We believe the growth in earnings and dividends will support strong REIT
valuations. Further, we believe this growth to be superior to what may be
expected from most other sectors of the equity market. Although past performance
is no guarantee of future results, history has shown that accelerating cash flow
and dividend growth rates, which we anticipate for at least the next two years,
can have a salutary effect on stock prices. For REITs as with other stocks, it
has generally been when growth rates peaked and began declining that stock
prices peaked. Not coincidentally, when REIT cash flow growth rates last peaked
in early 1998, the REIT index peaked as well, and total returns turned negative.
By 1998, real estate in the United States had been in recovery for several years
and growth rates had been accelerating. But with rents having escalated
dramatically in 1996 and 1997, an explosion of new construction in 1998 began to
attenuate the dramatic market rental rate increases that commercial landlords
had been experiencing. In short, real estate had fully recovered and even though
demand from the economy was growing nicely, supply had risen to meet that
demand, which caused earnings growth rates to peak.
Accordingly, if the current real estate cycle continues to improve and
economic growth remains steady in the 2.5% to 4% range, we believe that real
estate stocks can continue to perform well, until such time when market rents
rise to the level where developers are induced to build new buildings and rental
increases are stifled by new competitive product. We believe that this
eventuality is still a couple of years away. Rents, though rising in most
markets, are generally nowhere near levels that would justify new construction
and will not be for some time in our view. In most instances, we believe that it
will be several years before new construction makes sense, given that the price
of building a building has also escalated dramatically in accordance with the
price of steel, concrete, lumber and labor.
In summary, we anticipate that a steadily growing economy will support
demand for real estate and that muted new construction will constrain the supply
of real estate in many markets. With respect to REITs, we believe that cash flow
growth will continue to accelerate along with dividend growth. We further
believe that correctly anticipating these changing growth rates will be the key
to REIT stock price performance again in 2005. Valuations are somewhat above
historical averages, partially reflecting some of these positives in our view.
However, valuations are not at levels that indicate to us a peak in stock
prices. As it relates to REIT preferred stocks, we will
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
adhere to the proven strategy of maintaining an allocation to REIT preferred
stocks which provide a premium yield, enhance the stability of the overall
portfolio, and generally provide a total return that we believe is attractive in
what we generally believe will be a low return environment. As a result, we
believe the fund's overall portfolio may deliver attractive total returns in
2005, although investors are cautioned not to assume that returns will continue
at the pace of the past two years.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JOSEPH M. HARVEY
JOSEPH M. HARVEY
Portfolio Manager
VISIT COHEN & STEERS ONLINE AT cohenandsteers.com
For more information about any of our funds, visit
cohenandsteers.com, where you'll find daily net asset
values, fund fact sheets and portfolio highlights. You can
also access newsletters, education tools and market updates
covering the REIT, utility and preferred securities sectors.
In addition, our Web site contains comprehensive information
about our firm, including our most recent press releases,
profiles of our senior investment professionals, and an
overview of our investment approach.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
DECEMBER 31, 2004
TOP TEN HOLDINGS
(UNAUDITED)
MARKET % OF
VALUE NET ASSETS
SECURITY ----------- ----------
1. Vornado Realty Trust.................................... $10,901,816 5.98%
2. Ventas.................................................. 7,721,397 4.23
3. Mills Corp.............................................. 6,949,840 3.81
4. Mack-Cali Realty Corp................................... 6,941,324 3.81
5. Macerich Co............................................. 6,751,000 3.70
6. Health Care Property Investors.......................... 6,368,700 3.49
7. Prentiss Properties Trust............................... 6,314,460 3.46
8. Arden Realty............................................ 6,035,200 3.31
9. Liberty Property Trust.................................. 5,857,920 3.21
10. Archstone-Smith Trust................................... 5,856,070 3.21
SECTOR BREAKDOWN
(Based on Net Assets)
(Unaudited)
[PIE CHART]
Cash & Other Assets
in Excess of Liabilities 0.56%
Other 5.23%
Diversified 10.78%
Health Care 13.14%
Residential 16.31%
Shopping Center 22.65%
Office/Industrial 31.13%
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
DIVIDEND
NUMBER VALUE YIELD
OF SHARES (NOTE 1) (UNAUDITED)(a)
--------- ------------ -------------
EQUITIES 99.26%(b)
COMMON STOCK 81.01%
DIVERSIFIED 9.64%
Colonial Properties Trust.............. 82,100 $ 3,224,067 6.82%
Crescent Real Estate Equities Co....... 97,600 1,782,176 8.21
iStar Financial........................ 36,900 1,670,094 6.16
Vornado Realty Trust................... 143,200 10,901,816 3.99
------------
17,578,153
------------
HEALTH CARE 10.41%
Health Care Property Investors......... 230,000 6,368,700 6.03
Health Care REIT....................... 27,600 1,052,940 6.29
Nationwide Health Properties........... 161,800 3,842,750 6.23
Ventas................................. 281,700 7,721,397 4.74
------------
18,985,787
------------
HOTEL 1.22%
Hospitality Properties Trust........... 38,400 1,766,400 6.26
Strategic Hotel Capital................ 27,300 450,450 5.33
------------
2,216,850
------------
INDUSTRIAL 1.45%
First Industrial Realty Trust.......... 64,700 2,635,231 6.83
------------
MORTGAGE 1.80%
Newcastle Investment Corp.............. 103,027 3,274,198 7.87
------------
-------------------
(a) Dividend yield is computed by dividing the security's current annual
dividend rate by the last sale price on the principal exchange, or
market, on which such security trades. The dividend yield has not been
audited.
(b) Percentages indicated are based on the net assets of the fund.
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
DIVIDEND
NUMBER VALUE YIELD
OF SHARES (NOTE 1) (UNAUDITED)
--------- ------------ ------------
OFFICE 24.44%
Arden Realty........................... 160,000 $ 6,035,200 5.36%
Brandywine Realty Trust................ 184,900 5,434,211 5.99
CarrAmerica Realty Corp................ 155,100 5,118,300 6.06
Equity Office Properties Trust......... 179,400 5,224,128 6.87
HRPT Properties Trust.................. 71,900 922,477 6.55
Kilroy Realty Corp..................... 56,600 2,419,650 4.63
Mack-Cali Realty Corp.................. 150,800 6,941,324 5.47
Maguire Properties..................... 93,000 2,553,780 5.83
Prentiss Properties Trust.............. 165,300 6,314,460 5.86
Reckson Associates Realty Corp. ....... 110,000 3,609,100 5.18
------------
44,572,630
------------
OFFICE/INDUSTRIAL 3.21%
Liberty Property Trust................. 135,600 5,857,920 5.65
------------
RESIDENTIAL 13.34%
APARTMENT 13.15%
American Campus Communities............ 19,400 436,306 6.00
Archstone-Smith Trust.................. 152,900 5,856,070 4.49
AvalonBay Communities.................. 69,900 5,263,470 3.72
Camden Property Trust.................. 78,900 4,023,900 4.98
GMH Communities Trust.................. 36,400 513,240 6.45
Gables Residential Trust............... 122,900 4,398,591 6.73
Home Properties........................ 47,000 2,021,000 5.86
Mid-America Apartment Communities...... 35,400 1,459,188 5.68
------------
23,971,765
------------
MANUFACTURED HOME 0.19%
Affordable Residential Communities..... 24,300 348,705 8.71
------------
TOTAL RESIDENTIAL...................... 24,320,470
------------
SELF STORAGE 0.39%
Sovran Self Storage.................... 6,200 261,268 5.74
U-Store-It Trust....................... 25,900 449,365 6.46
------------
710,633
------------
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
DIVIDEND
NUMBER VALUE YIELD
OF SHARES (NOTE 1) (UNAUDITED)
--------- ------------ ------------
SHOPPING CENTER 15.11%
COMMUNITY CENTER 4.39%
Developers Diversified Realty Corp...... 22,600 $ 1,002,762 4.60%
Federal Realty Investment Trust......... 52,400 2,706,460 3.91
Heritage Property Investment Trust...... 51,300 1,646,217 6.54
Kramont Realty Trust.................... 69,500 1,626,300 5.56
Urstadt Biddle Properties -- Class A.... 60,000 1,023,000 5.16
------------
8,004,739
------------
REGIONAL MALL 10.72%
CBL & Associates Properties............. 42,100 3,214,335 4.26
Glimcher Realty Trust................... 95,200 2,637,992 6.93
Macerich Co............................. 107,500 6,751,000 4.14
Mills Corp.............................. 109,000 6,949,840 3.73
------------
19,553,167
------------
TOTAL SHOPPING CENTER................... 27,557,906
------------
TOTAL COMMON STOCK
(Identified cost -- $81,444,081).. 147,709,778
------------
PREFERRED STOCK 18.25%
DIVERSIFIED 1.14%
Colonial Properties Trust, 9.25%,
Series C............................. 600 15,930 8.70
Colonial Properties Trust, 8.125%,
Series D............................. 14,600 387,630 7.65
Crescent Real Estate Equities Co.,
6.75%, Series A (Convertible)........ 75,500 1,682,895 7.58
------------
2,086,455
------------
HEALTH CARE 2.93%
Health Care REIT, 7.625%, Series F...... 17,000 429,250 7.56
Nationwide Health Properties, 7.677%,
Series P............................. 47,000 4,911,500 7.35
------------
5,340,750
------------
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
DIVIDEND
NUMBER VALUE YIELD
OF SHARES (NOTE 1) (UNAUDITED)
--------- ------------ ------------
HOTEL 0.19%
FelCor Lodging Trust, 9.00%,
Series B............................ 2,900 $ 74,327 8.78%
Host Marriott Corp, 10.00%,
Series C............................ 3,500 92,295 9.48
Host Marriott Financial Trust, 6.75%,
QUIPS(a) (Convertible).............. 3,200 184,000 5.88
------------
350,622
------------
OFFICE 3.48%
Alexandria Real Estate Equities,
9.10%, Series B..................... 13,900 375,300 8.44
HRPT Properties Trust, 8.75%,
Series B............................ 52,800 1,460,184 7.92
Highwoods Properties, 8.625%,
Series A............................ 4,300 4,504,250 8.23
------------
6,339,734
------------
RESIDENTIAL 2.97%
Apartment Investment & Management Co.,
8.75%, Series D..................... 2,978 74,450 8.76
Apartment Investment & Management Co.,
9.375%, Series G.................... 113,200 3,094,888 8.56
Apartment Investment & Management Co.,
10.10%, Series Q.................... 25,000 664,250 9.52
Apartment Investment & Management Co.,
10.00%, Series R.................... 18,100 482,003 9.39
Mid-America Apartment Communities,
8.30%, Series H..................... 17,300 449,800 8.00
Post Properties, 8.50%, Series A....... 11,000 653,400 7.15
------------
5,418,791
------------
SHOPPING CENTER 7.54%
COMMUNITY CENTER 0.83%
Developers Diversified Realty Corp.,
8.60%, Series F..................... 1,600 42,992 8.00
Ramco-Gershenson Property Trust,
9.50%, Series B..................... 11,600 321,320 8.59
Saul Centers, 8.00%, Series A.......... 26,800 716,900 7.48
Urstatdt Biddle Properties, 8.50%,
Series C............................ 4,000 431,000 7.89
------------
1,512,212
------------
---------------
(a) QUIPS Quarterly Income Preferred Securities.
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
DIVIDEND
NUMBER VALUE YIELD
OF SHARES (NOTE 1) (UNAUDITED)
--------- ------------ -----------
REGIONAL MALL 6.71%
CBL & Associates Properties,
8.75%, Series B..................... 13,000 $ 702,000 8.11%
Glimcher Realty Trust, 8.125%,
Series G............................ 16,000 412,640 7.87
Mills Corp., 9.00%, Series B........... 73,800 2,044,260 8.12
Mills Corp., 9.00%, Series C........... 25,000 695,000 8.09
Mills Corp., 8.75%, Series E........... 26,000 737,360 7.72
Pennsylvania Real Estate Investment
Trust, 11.00%, Series A............. 55,400 3,351,700 9.09
Simon Property Group,
8.375%, Series J.................... 13,000 742,300 7.34
Taubman Centers, 8.30%, Series A....... 139,500 3,558,645 8.15
------------
12,243,905
------------
TOTAL SHOPPING CENTER.................. 13,756,117
------------
TOTAL PREFERRED STOCK
(Identified cost -- $28,084,663). 33,292,469
------------
TOTAL EQUITIES (Identified
cost -- $109,528,744)........... 181,002,247
------------
PRINCIPAL
AMOUNT
---------
CORPORATE BOND 0.18%
Host Marriott, LP, 9.50%, due 01/15/07
(Identified cost -- $300,171)............... $300,000 330,000
------------
TOTAL INVESTMENTS (Identified
cost -- $109,828,915)................. 99.44% 181,332,247
OTHER ASSETS IN EXCESS OF LIABILITIES... 0.56% 1,022,605
------ ------------
NET ASSETS (Equivalent to $19.72 per
share based on 9,249,159 shares of
capital stock outstanding)............ 100.00% $182,354,852
------ ------------
------ ------------
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS:
Investments in securities, at value (Identified
cost -- $109,828,915) (Note 1)....................... $181,332,247
Dividends and interest receivable....................... 1,093,121
Receivable for investment securities sold............... 703,107
Other assets............................................ 3,850
------------
Total Assets....................................... 183,132,325
------------
LIABILITIES:
Payable to custodian.................................... 566,155
Payable to investment advisor........................... 107,312
Payable for reports to shareholders..................... 33,934
Payable for professional fees........................... 28,144
Payable for investment securities purchased............. 6,889
Payable for directors fees.............................. 6,282
Payable to administrator................................ 6,010
Other liabilities....................................... 22,747
------------
Total Liabilities.................................. 777,473
------------
NET ASSETS applicable to 9,249,159 shares of $0.001 par
value common stock outstanding (Note 5)................... $182,354,852
------------
------------
NET ASSET VALUE PER SHARE:
($182,354,852[div]9,249,159 shares outstanding)........... $ 19.72
------------
------------
MARKET PRICE PER SHARE...................................... $ 20.12
------------
------------
MARKET PRICE PREMIUM/(DISCOUNT) TO NET ASSET VALUE PER
SHARE..................................................... 2.03%
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)......................... $111,082,965
Accumulated net realized loss on investments............ (231,445)
Net unrealized appreciation on investments.............. 71,503,332
------------
$182,354,852
------------
------------
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Investment Income (Note 1):
Dividend income......................................... $ 7,404,271
Interest income......................................... 58,741
-----------
Total Income....................................... 7,463,012
-----------
Expenses:
Investment advisory fees (Note 2)....................... 1,149,074
Reports to shareholders................................. 136,464
Professional fees....................................... 69,763
Directors' fees and expenses (Note 2)................... 48,586
Administration fees..................................... 27,104
Registration and filing fees............................ 23,748
Custodian fees and expenses............................. 21,944
Transfer agent fees and expenses........................ 19,556
Miscellaneous........................................... 19,360
-----------
Total Expenses..................................... 1,515,599
-----------
Net Investment Income....................................... 5,947,413
-----------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments........................ 3,223,829
Net change in unrealized appreciation on investments.... 26,674,230
-----------
Net realized and unrealized gain on investments.... 29,898,059
-----------
Net Increase in Net Assets Resulting from Operations........ $35,845,472
-----------
-----------
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
Change in Net Assets:
From Operations:
Net investment income.................. $ 5,947,413 $ 5,365,361
Net realized gain on investments....... 3,223,829 3,136,985
Net change in unrealized appreciation
on investments...................... 26,674,230 33,087,426
------------ ------------
Net increase in net assets
resulting from operations....... 35,845,472 41,589,772
------------ ------------
Dividends and Distributions to Shareholders
from (Note 1):
Net investment income.................. (5,947,413) (5,365,361)
Net realized gain on investments....... (3,210,876) (3,196,876)
Tax return of capital.................. (1,478,257) (917,957)
------------ ------------
Total dividends and distributions
to shareholders................. (10,636,546) (9,480,194)
------------ ------------
Total increase in net assets...... 25,208,926 32,109,578
Net Assets:
Beginning of year...................... 157,145,926 125,036,348
------------ ------------
End of year............................ $182,354,852 $157,145,926
------------ ------------
------------ ------------
See accompanying notes to financial statements.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 2004 2003 2002 2001 2000
-------------------------------- ------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year.... $16.99 $13.52 $13.41 $12.35 $10.63
------ ------ ------ ------ ------
Income from investment operations:
Net investment income.............. 0.64 0.58 0.64 0.77 0.75
Net realized and unrealized gain on
investments...................... 3.24 3.92 0.43 1.28 1.93
------ ------ ------ ------ ------
Total income from investment
operations................... 3.88 4.50 1.07 2.05 2.68
------ ------ ------ ------ ------
Less dividends and distributions to
shareholders from:
Net investment income.............. (0.64) (0.58) (0.75) (0.77) (0.74)
Net realized gain on investments... (0.35) (0.35) (0.21) -- --
Tax return of capital.............. (0.16) (0.10) -- (0.22) (0.22)
------ ------ ------ ------ ------
Total from dividends and
distributions to
shareholders................. (1.15) (1.03) (0.96) (0.99) (0.96)
------ ------ ------ ------ ------
Net increase in net assets..... 2.73 3.47 0.11 1.06 1.72
------ ------ ------ ------ ------
Net asset value, end of year.......... $19.72 $16.99 $13.52 $13.41 $12.35
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Market value, end of year............. $20.12 $17.74 $14.19 $13.60 $11.88
------ ------ ------ ------ ------
------ ------ ------ ------ ------
..............................................................................................................
Total market value return(a).......... 20.83% 33.36% 11.53% 23.34% 21.53%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total net asset value return(a)....... 23.65% 34.05% 7.77% 16.82% 26.17%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
..............................................................................................................
RATIOS/SUPPLEMENTAL DATA:
-------------------------
Net assets, end of year (in millions). $182.4 $157.1 $125.0 $124.1 $ 91.4
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of expenses to average daily net
assets
(before expense reduction)........... 0.92% 0.95% 0.96% 1.18% 1.16%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of expenses to average daily net
assets
(net of expense reduction)........... 0.92% 0.95% 0.96% 1.18% 1.15%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net investment income to
average daily net
assets (before expense reduction).... 3.62% 3.93% 4.59% 5.86% 6.56%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net investment income to
average daily net
assets (net of expense reduction).... 3.62% 3.93% 4.59% 5.86% 6.57%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Portfolio turnover rate............... 3% 22% 30% 34% 31%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
-------------------
(a) Total market value return is computed based upon the New York Stock Exchange
market price of the fund's shares and excludes the effects of brokerage
commissions. Dividends and distributions, if any, are assumed for purposes
of this calculation, to be reinvested at prices obtained under the fund's
dividend reinvestment plan. Total net asset value return measures the
changes in value over the period indicated, taking into account dividends
as reinvested.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
14
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Total Return Realty Fund, Inc. (the fund) was incorporated
under the laws of the State of Maryland on September 4, 1992 and is registered
under the Investment Company Act of 1940 as amended, as a closed-end,
nondiversified management investment company.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with 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 are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day or, if no asked price is available, at the bid price. If no bid or
asked prices are quoted on such day, then the security is valued by such method
as the board of directors shall determine in good faith to reflect its fair
market value.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. (Nasdaq) national
market system are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by Cohen & Steers
Capital Management, Inc. to be over-the-counter, but excluding securities
admitted to trading on the Nasdaq national list, are valued at the official
closing prices as reported by Nasdaq, the National Quotations Bureau, or such
other comparable sources as the board of directors deems appropriate to reflect
their fair market value. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices for the day, or if no
asked price is available, at the bid price. Where securities are traded on more
than one exchange and also over-the-counter, the securities will generally be
valued using the quotations the board of directors believes reflect most closely
the value of such securities. Any securities for which market quotations are not
readily available shall be valued in accordance with the procedures approved by
the board of directors.
Short-term debt securities, which have a maturity of 60 days or less, are
valued at amortized cost, which approximates value.
--------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. The fund
records distributions received in excess of income from underlying investments
as a reduction of cost of investments and/or realized gain. Such amounts are
based on estimates if actual amounts are not available, and actual amounts of
income, realized gain and return of capital may differ from the estimated
amounts. The fund adjusts the estimated amounts of the components of
distributions (and consequently its net investment income) as an increase to
unrealized appreciation/(depreciation) and realized gain/(loss) on investments
as necessary once the issuers provide information about the actual composition
of the distributions.
Discounts and premiums of securities purchased are amortized using the
effective yield basis over their respective lives.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid monthly. Distributions to shareholders are recorded
on the ex-dividend date. Dividends will automatically be reinvested in full and
fractional shares of the fund based on open market purchases made by Equiserve
(the Plan Agent) on payable date unless the shareholder has elected to have them
paid in cash.
A portion of the fund's dividend may consist of amounts in excess of net
investment income derived from nontaxable components of the dividends from the
fund's portfolio investments. Net realized capital gains, unless offset by any
available capital loss carryforward, are distributed to shareholders annually.
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. These differences are primarily due to return of capital and
capital gain distributions received by the fund on portfolio securities.
Federal Income Taxes: It is the policy of the fund to qualify as a regulated
investment company, if such qualification is in the best interest of the
shareholders, by complying with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders. Accordingly, no
provision for federal income or excise tax is necessary.
Borrowings and Leverage: The fund may borrow for leveraging purposes when an
investment opportunity arises but the advisor believes that it is not
appropriate to liquidate any existing investments. The fund will only borrow
when the advisor believes that the cost of borrowing to carry the assets to be
acquired through leverage will be lower than the return earned by the fund on
its longer-term portfolio investments. Should the differential between interest
rates on borrowed funds and the return from investment assets purchased with
such funds narrow, the fund would realize less of a positive return, with the
additional risk that, during periods of adverse market conditions, the market
value of the fund's entire portfolio holdings (including those acquired through
leverage) may decline far in excess of incremental returns the fund may have
achieved in the interim. The fund had no borrowings during the year ended
December 31, 2004.
--------------------------------------------------------------------------------
16
--------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
advisor) serves as the investment advisor to the fund, pursuant to an advisory
agreement (the advisory agreement). The advisor is responsible for the
management of the fund's portfolio. The responsibility for making decisions to
buy, sell or hold a particular investment rests with the advisor, subject to
review by the board of directors and the applicable provisions of the Act. For
the services provided pursuant to the advisory agreement, the advisor is
entitled to receive a fee, computed daily and payable monthly at an annual rate
of 0.70% of the fund's average daily net assets. For the year ended
December 31, 2004, the fund incurred investment advisory fees of $1,149,074.
Director's Fees: Certain directors and officers of the fund are also
directors, officers and/or employees of the advisor. None of the directors and
officers so affiliated received compensation from the fund for their services.
For the year ended December 31, 2004, fees and related expenses accrued for
nonaffiliated directors totaled $48,586.
Other: During the period, the fund may have purchased securities in which an
affiliate of the investment manager served as placement agent for the issuer.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
year ended December 31, 2004, totaled $5,069,921 and $5,601,928, respectively.
NOTE 4. INCOME TAXES
The fund had a return of capital of $1,478,257 ($0.16 per common share) for
the year ended December 31, 2004 which has been deducted from paid-in capital.
Short-term capital gains are reflected in the financial statements as
realized gains on investments but are typically treated as ordinary income for
tax purposes.
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
2004 2003
----------- ----------
Ordinary income................................... $ 6,046,295 $5,365,361
Long-term capital gains........................... 3,111,994 3,196,876
Tax return of capital............................. 1,478,257 917,957
----------- ----------
$10,636,546 $9,480,194
----------- ----------
----------- ----------
--------------------------------------------------------------------------------
17
--------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2004 the cost of investments and net unrealized appreciation
for federal income tax purposes were as follows:
Aggregate cost............................ $110,060,365
------------
------------
Gross unrealized appreciation............. $ 71,335,222
Gross unrealized depreciation............. $ (63,340)
------------
Net unrealized appreciation............... $ 71,271,882
------------
------------
Differences between book and tax basis unrealized are primarily due to wash
sales on portfolio securities.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily due to wash sales on portfolio securities. To the
extent such differences are permanent in nature, such amounts are reclassified
within the capital accounts. During the year ended December 31, 2004, the fund
decreased accumulated net realized loss on investments by $740 and increased
paid-in capital by $740, related primarily to prior year REIT return of capital
adjustment.
For the year ended December 31, 2004, the Fund did not have any
undistributed ordinary income or capital gains.
NOTE 5. COMMON STOCK
At December 31, 2004, the fund had one class of common stock, par value
$0.001 per share, of which 100 million shares are authorized and 9,249,159
shares are outstanding. At December 31, 2004, Cohen & Steers Capital Management,
Inc. owned approximately 44,500 shares.
NOTE 6. BORROWINGS
The fund, in conjunction with Cohen & Steers Realty Shares, Inc., Cohen &
Steers Institutional Realty Shares, Inc., Cohen & Steers Realty Focus Fund,
Inc., Cohen & Steers Realty Income Fund, Inc., and Cohen & Steers Utility Fund,
Inc. has entered into a $150,000,000 syndicated credit agreement (the credit
agreement) with State Street Bank and Trust Company, as administrative agent and
operations agent, and the lenders identified in the credit agreement.
During the year ended December 31, 2004, did not utilize the line of credit.
For the year ended December 31, 2004, the fund paid commitment fees and other
expenses of $7,242.
Effective December 15, 2004, Cohen & Steers Total Return Realty Fund no
longer participated in the credit agreement.
--------------------------------------------------------------------------------
18
--------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cohen & Steers Total Return Realty Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cohen & Steers Total Return Realty
Fund, Inc. (the 'Fund') at December 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 21, 2005
--------------------------------------------------------------------------------
19
--------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS(a)
(PERIODS ENDED DECEMBER 31, 2004) (UNAUDITED)
SINCE INCEPTION
ONE YEAR FIVE YEARS TEN YEARS (9/27/93)
-------- ---------- --------- -------------------------
23.65% 21.36% 14.08% 12.72%
The performance data quoted represent past performance. Past performance is
no guarantee of future results. The rate of 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
performance data quoted.
TAX INFORMATION -- 2004 (UNAUDITED)
Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the
fund designates qualified dividend income of $26,220. Additionally, the fund
designates long term capital gains distributions of $2,659,478 at the 15% rate
and $452,516 at the 25% rate or the maximum allowable.
Shareholders are advised to consult with their own tax advisors as to the
Federal, State, and local tax status of the income received.
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
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the fund may purchase, from time to time, shares of its
common stock in the open market.
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 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com, or (iii) on the Securities and Exchange Commission's (SEC)
Web site at http://www.sec.gov. In addition, the fund's proxy voting record for
the most recent 12-month period ended June 30 is available (i) without charge
upon request, by calling 1-800-330-7348 or (ii) on the SEC's Web site 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 Fund's
Forms N-Q are available (i) without charge, upon request by calling
1-800-330-7348, or (ii) on the SEC's website at http://www.sec.gov. In addition,
the Forms N-Q may be reviewed
-------------------
(a) Based on net asset value.
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20
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
and copied at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Please note that the distributions paid by the fund to shareholders are
subject to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders on their 1099-DIV forms, which are
mailed to shareholders after the close of each fiscal year. As noted in the
shareholder letter, the fund has adopted a level rate distribution policy. Under
this policy, the fund will pay distributions in excess of the fund's net
investment company taxable income and this excess will be a tax-free return of
capital distributed from the fund's assets. The fund's shareholders of record
will be notified of the approximate amount of capital returned to shareholders
for each distribution. Distributions of capital decrease the fund's total assets
and, therefore, could have the effect of increasing the fund's expense ratio. In
addition, in order to make these distributions, the fund may have to sell
portfolio securities at a less than opportune time.
As required, the fund has submitted to the New York Stock Exchange ('NYSE')
the annual certification of the fund's chief executive officer that he is not
aware of any violation of the NYSE's Corporate Governance listing standards. The
fund also has included the certifications of the fund's chief executive officer
and chief financial officer required by Section 302 of the Sarbanes-Oxley Act of
2002 as exhibits to the fund's Form N-CSR for the year ended December 31, 2004
filed with the Securities and Exchange Commission.
Joseph M. Harvey was appointed as a portfolio manager of the fund in August
2004. He joined Cohen & Steers Capital Management, the fund's advisor, in 1992
and currently serves as its president. Mr. Harvey also serves as president of
the advisor's parent company, Cohen & Steers, Inc. Prior to August 2003, he was
a senior vice president and director of investment research for the advisor.
--------------------------------------------------------------------------------
21
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
PRIVACY POLICY
The fund is committed to maintaining the privacy of its shareholders and to
safeguarding their personal information. The following is provided to help you
understand what personal information the fund collects, how we protect that
information, and why in certain cases we may share this information with others.
The fund does not receive any personal information relating to shareholders
who purchase shares through an intermediary that acts as the record owner of the
shares. In the case of shareholders who are record owners of the fund, to
conduct and process your business in an accurate and efficient manner, we must
collect and maintain certain personal information about you. This is the
information we collect on applications or other forms, and from the transactions
you make with us.
The fund does not disclose any personal information about its shareholders
or former shareholders to anyone, except as required or permitted by law or as
is necessary to service shareholder accounts. We will share information with
organizations, such as the fund's transfer agent, that assist the fund in
carrying out its daily business operations. These organizations will use this
information only for purposes of providing the services required or as otherwise
as may be required by law. These organizations are not permitted to share or use
this information for any other purpose. In addition, the fund restricts access
to personal information about its shareholders to employees of the adviser who
have a legitimate business need for the information.
--------------------------------------------------------------------------------
22
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
MANAGEMENT OF THE FUND
The business and affairs of the fund are managed under the direction of the
board of directors. The board of directors approves all significant agreements
between the fund and persons or companies furnishing services to it, including
the Fund's agreements with its advisor, administrator, custodian and transfer
agent. The management of the fund's day-to-day operations is delegated to its
officers, the advisor and the fund's administrator, subject always to the
investment objective and policies of the fund and to the general supervision of
the board of directors.
The directors and officers of the fund and their principal occupations
during the past five years are set forth below. The statement of additional
information (SAI) includes additional information about fund directors and is
available, without charge, upon request by calling 1-800-330-7348.
PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS
DURING PAST 5 YEARS WITHIN FUND COMPLEX
POSITION(S) HELD TERM OF (INCLUDING OTHER OVERSEEN BY DIRECTOR LENGTH OF
NAME, ADDRESS AND AGE(a) WITH FUND OFFICE DIRECTORSHIPS HELD) (INCLUDING THE FUND) TIME SERVED
----------------------- --------- ------ ------------------- -------------------- -----------
Interested Directors(b)
Robert H. Steers ....... Director, chairman 2006 Co-chairman and 14 Since
Age: 51 of the board, co-chief executive inception
and secretary officer of the advisor
since 2003 and prior to
that, chairman of the
advisor. President of
Cohen & Steers
Securities, LLC, the
fund's distributor.
Martin Cohen ........... Director, 2007 Co-chairman and 14 Since
Age: 55 president and co-chief executive inception
treasurer officer of the advisor
since 2003 and prior to
that, president of the
advisor. Vice president
of Cohen & Steers
Securities, LLC, the
fund's distributor.
Disinterested Directors
Bonnie Cohen(c) ........ Director 2005 Consultant. Prior 14 2001 to
Age: 61 thereto, Undersecretary present
of State, United States
Department of State.
Director of Wellsford
Real Properties, Inc.
George Grossman ........ Director 2006 Attorney-at-law. 14 Since
Age: 50 inception
(table continued on next page)
-------------------
(a) The address of each director is 757 Third Avenue, New York, NY 10017.
(b) 'Interested person,' as defined in the 1940 Act, of the fund because of
affiliation with Cohen & Steers Capital Management, Inc., the fund's
advisor.
(c) Martin Cohen and Bonnie Cohen are unrelated.
--------------------------------------------------------------------------------
23
--------------------------------------------------------------------------------
COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
(table continued from previous page)
PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS
DURING PAST 5 YEARS WITHIN FUND COMPLEX
POSITION(S) HELD TERM OF (INCLUDING OTHER OVERSEEN BY DIRECTOR LENGTH OF
NAME, ADDRESS AND AGE(a) WITH FUND OFFICE DIRECTORSHIPS HELD) (INCLUDING THE FUND) TIME SERVED
----------------------- --------- ------ ------------------- -------------------- -----------
Richard E. Kroon........ Director 2005 Board member of Finlay 14 2004 to
Age: 62 Enterprises, Inc. present
(operator of department
store fine jewelry
leased departments),
and several private
companies; member of
Investment
Subcommittee, Monmouth
University; retired
Chairman and Managing
Partner of Sprout Group
venture capital funds,
then an affiliate of
Donaldson, Lufkin and
Jenrette Securities
Corporation; and former
chairman of the
National Venture
Capital Association.
Richard J. Norman ...... Director 2007 Private investor, 14 2001 to
Age: 61 President of the Board present
of Directors of
Maryland Public
Television and board
member of The Salvation
Army. Prior thereto,
investment
representative of
Morgan Stanley Dean
Witter.
Frank K. Ross .......... Director 2007 Board member of NCRIC 14 2004 to
Age: 61 Group, Inc. (insurance) present
and Pepco Holdings,
Inc. (electric
utility). Formerly,
Midatlantic Area
Managing Partner for
Audit and Risk Advisory
Services at KPMG LLP
and Managing Partner of
its Washington, DC
office.
(table continued on next page)
-------------------
(a) The address of each director is 757 Third Avenue, New York, NY 10017.
--------------------------------------------------------------------------------
24
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
(table continued from previous page)
PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS
DURING PAST 5 YEARS WITHIN FUND COMPLEX
POSITION(S) HELD TERM OF (INCLUDING OTHER OVERSEEN BY DIRECTOR LENGTH OF
NAME, ADDRESS AND AGE(a) WITH FUND OFFICE DIRECTORSHIPS HELD) (INCLUDING THE FUND) TIME SERVED
----------------------- --------- ------ ------------------- -------------------- -----------
Willard H. Smith, Jr. Director 2005 Board member of Essex 14 1996 to
Age: 68 Property Trust, Inc., present
Highwoods Properties,
Inc., Realty Income
Corporation and Crest
Net Lease, Inc.
Managing Director at
Merrill Lynch & Co.,
Equity Capital Markets
Division from 1983 to
1995.
C. Edward Ward, Jr. .... Director 2005 Member of the board of 14 2004 to
Age: 58 trustees of Manhattan present
College, Riverdale, New
York. Formerly head of
closed-end fund
listings for the New
York Stock Exchange.
The officers of the fund (other than Messrs. Cohen and Steers, whose
biographies are provided above), their addresses, their ages, and their
principal occupations for at least the past five years are set forth below.
POSITION(S) HELD
NAME, ADDRESS AND AGE(a) WITH FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
---------------------- --------- ----------------------------------------
Joseph M. Harvey ...... Vice president President of the advisor since 2003 and,
Age: 40 prior to that, senior vice president and
director of investment research of the
advisor.
Adam M. Derechin ...... Vice president and Chief operating officer of the advisor since
Age: 40 assistant 2003 and prior to that, senior vice president
treasurer of the advisor.
Lawrence B. Stoller ... Assistant Executive vice president and general counsel
Age: 41 secretary of the advisor, since 2004; Chief legal
officer of Cohen & Steers Securities, LLC.
Prior to that, Senior vice president and
general counsel of the advisor, associate
general Counsel, Neuberger Berman Management,
Inc. (money manager); and assistant general
counsel, The Dreyfus Corporation (money
manager).
John E. McLean ........ Chief compliance Vice president and associate general counsel
Age: 34 officer of Cohen & Steers Capital Management since
September 2003. Prior to that, vice
president, Law & Regulation, J. & W. Seligman
& Co. Incorporated (money manager); and
associate, Battle Fowler LLP (law firm).
-------------------
(a) The address of each director is 757 Third Avenue, New York, NY 10017.
--------------------------------------------------------------------------------
25
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
REALTY INCOME FUND REALTY SHARES
DESIGNED FOR INVESTORS SEEKING A HIGH DESIGNED FOR INVESTORS SEEKING MAXIMUM
DIVIDEND YIELD AND CAPITAL APPRECIATION, TOTAL RETURN THROUGH BOTH CURRENT INCOME
INVESTING PRIMARILY IN REITS AND CAPITAL APPRECIATION, INVESTING
A, B, C AND I SHARES AVAILABLE PRIMARILY IN REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX SYMBOL: CSRSX
ALSO AVAILABLE: COHEN & STEERS
INSTITUTIONAL REALTY SHARES (CSRIX)
REQUIRES A HIGHER MINIMUM PURCHASE, BUT
OFFERS A LOWER TOTAL EXPENSE RATIO
FOR TOTAL RETURN: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
UTILITY FUND REALTY FOCUS FUND
DESIGNED FOR INVESTORS SEEKING MAXIMUM DESIGNED FOR INVESTORS SEEKING MAXIMUM
TOTAL RETURN THROUGH BOTH CURRENT INCOME CAPITAL APPRECIATION, INVESTING IN A
AND CAPITAL APPRECIATION, INVESTING LIMITED NUMBER OF REITS AND OTHER REAL
PRIMARILY IN UTILITIES ESTATE COMPANIES
A, B, C AND I SHARES AVAILABLE CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX A, B, C AND I SHARES AVAILABLE
SYMBOLS: CSFAX, CSFBX, CSFCX, CSSPX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-7348, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE
FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION ABOUT THE FUND. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING.
COHEN & STEERS SECURITIES, LLC, DISTRIBUTOR
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26
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISOR
Director and chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and president (212) 832-3232
Bonnie Cohen FUND ADMINISTRATOR AND CUSTODIAN
Director State Street Corp.
225 Franklin Street
George Grossman Boston, MA 02110
Director
TRANSFER AGENT
Richard E. Kroon Equiserve Trust Company
Director 250 Royall Street
Canton, MA 02021
Richard J. Norman (800) 426-5523
Director
LEGAL COUNSEL
Frank K. Ross Simpson Thacher & Bartlett LLP
Director 425 Lexington Avenue
New York, NY 10017
Willard H. Smith Jr.
Director New York Stock Exchange Symbol: RFI
C. Edward Ward, Jr. Web site: cohenandsteers.com
Director
This report is for shareholder
Joseph M. Harvey information. This is not a prospectus
Vice president intended for use in the purchase or
sale of fund shares. Past performance
Adam Derechin is of course no guarantee of future
Vice president and assistant treasurer results and your investment may be
worth more or less at the time you sell.
Lawrence B. Stoller
Assistant secretary
--------------------------------------------------------------------------------
27
COHEN & STEERS
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
TOTAL RETURN REALTY FUND
ANNUAL REPORT
DECEMBER 31, 2004
Item 2. Code of Ethics.
The registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made by calling 800-330-7348 or writing to the
Secretary of the registrant, 757 Third Avenue, New York, NY 10017.
Item 3. Audit Committee Financial Expert.
The registrant's Board has determined that Frank K. Ross, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
------- -------
Audit Fees $42,500 $41,000
Audit-Related Fees -- --
Tax Fees 12,600 10,300
All Other Fees -- --
Tax fees were billed in connection with the preparation of tax returns,
calculation and designation of dividends and other miscellaneous tax services.
Aggregate fees billed by the registrant's principal accountant for the last two
fiscal years for non-audit services provided to the registrant's investment
adviser (not including a sub-adviser whose role is primarily portfolio
management and is subcontracted or overseen by another investment adviser) and
any entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registered investment
company, where the engagement relates directly to the operations and financial
reporting of the registrant, were as follows:
2004 2003
------- -------
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees $62,500 $49,500
These other fees were billed in connection with internal control reviews and
AIMR performance reviews.
(e)(1) The Audit Committee is required to pre-approve audit and non-audit
services performed for the registrant by the principal accountant. The Audit
Committee also is required to pre-approve non-audit services performed by the
registrant's principal accountant for the registrant's investment adviser and
any sub-adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser)
and any entity controlling, controlled by or under common control with the
registrant's investment adviser that provides ongoing services to the
registrant, if the engagement for services relates directly to the operations
and financial reporting of the registrant.
The audit committee may delegate pre-approval authority to one or more of its
members who are independent members of the board of directors of the registrant.
The member or members to whom such authority is delegated shall report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee may not delegate its responsibility to pre-approve services to
be performed by the registrant's principal accountant for the investment
adviser.
(e) (2) No services included in (b) - (d) above were approved by the Audit
Committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal years ended December 31, 2004 and December 31, 2003, the
aggregate fees billed by the registrant's principal accountant for non-audit
services rendered to the registrant and for non-audit services rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the registrant's investment adviser that provides ongoing services
to the registrant were $80,600 and $59,800, respectively.
(h) The registrant's audit committee considered whether the provision of
non-audit services that were rendered to the registrant's investment adviser
(not including any sub-adviser whose role is primarily portfolio management and
is subcontracted with or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the registrant's
investment adviser that provides ongoing services to the registrant that were
not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X
was compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
The registrant has a standing audit committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The members of the committee are Frank
K. Ross (chairman), Bonnie Cohen, George Grossman, Richard E. Kroon, Richard J.
Norman, Willard H. Smith Jr. and C. Edward Ward.
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.
COHEN & STEERS CAPITAL MANAGEMENT, INC.
STATEMENT OF POLICIES AND PROCEDURES REGARDING THE VOTING OF
SECURITIES
This statement sets forth the policies and procedures that Cohen & Steers
Capital Management, Inc. ("C&S") follows in exercising voting rights with
respect to securities held in our client portfolios. All proxy-voting rights
that are exercised by C&S shall be subject to this Statement of Policy and
Procedures.
I. Objectives
Voting rights are an important component of corporate governance. C&S has three
overall objectives in exercising voting rights:
A. Responsibility. C&S shall seek to ensure that there is an effective
means in place to hold companies accountable for their actions. While management
must be accountable to its board, the board must be accountable to a company's
shareholders. Although accountability can be promoted in a variety of ways,
protecting shareholder voting rights may be among our most important tools.
B. Rationalizing Management and Shareholder Concerns. C&S seeks to ensure
that the interests of a company's management and board are aligned with those of
the company's shareholders. In this respect, compensation must be structured to
reward the creation of shareholder value.
C. Shareholder Communication. Since companies are owned by their
shareholders, C&S seeks to ensure that management effectively communicates with
its owners about the company's business operations and financial performance. It
is only with effective communication that shareholders will be able to assess
the performance of management and to make informed decisions on when to buy,
sell or hold a company's securities.
II. General Principles
In exercising voting rights, C&S shall conduct itself in accordance with the
general principles set forth below.
1. The ability to exercise a voting right with respect to a security is a
valuable right and, therefore, must be viewed as part of the asset
itself.
2. In exercising voting rights, C&S shall engage in a careful evaluation
of issues that may materially affect the rights of shareholders and
the value of the security.
3. Consistent with general fiduciary principles, the exercise of voting
rights shall always be conducted with reasonable care, prudence and
diligence.
4. In exercising voting rights on behalf of clients, C&S shall conduct
itself in the same manner as if C&S were the constructive owner of the
securities.
5. To the extent reasonably possible, C&S shall participate in each
shareholder voting opportunity.
6. Voting rights shall not automatically be exercised in favor of
management-supported proposals.
7. C&S, and its officers and employees, shall never accept any item of
value in consideration of a favorable proxy voting decision.
III. General Guidelines
Set forth below are general guidelines that C&S shall follow in exercising proxy
voting rights:
Prudence
In making a proxy voting decision, C&S shall give appropriate consideration to
all relevant facts and circumstances, including the value of the securities to
be voted and the likely effect any vote may have on that value. Since voting
rights must be exercised on the basis of an informed judgment, investigation
shall be a critical initial step.
Third Party Views
While C&S may consider the views of third parties, C&S shall never base a proxy
voting decision solely on the opinion of a third party. Rather, decisions shall
be based on a reasonable and good faith determination as to how best to maximize
shareholder value.
Shareholder Value
Just as the decision whether to purchase or sell a security is a matter of
judgment, determining whether a specific proxy resolution will increase the
market value of a security is a matter of judgment as to which informed parties
may differ. In determining how a proxy vote may affect
the economic value of a security, C&S shall consider both short-term and
long-term views about a company's business and prospects, especially in light of
our projected holding period on the stock (e.g., C&S may discount long-term
views on a short-term holding).
IV. Specific Issues
Set forth below are guidelines as to how specific proxy voting issues shall be
analyzed and assessed. While these guidelines will provide a framework for our
decision making process, the mechanical application of these guidelines can
never address all proxy voting decisions. When new issues arise or old issues
present nuances not encountered before, C&S must be guided by its reasonable
judgment to vote in a manner that C&S deems to be in the best interests of its
clients.
A. Stock-Based Compensation
Approval of Plans or Plan Amendments. By their nature, compensation plans must
be evaluated on a case-by-case basis. As a general matter, C&S always favors
compensation plans that align the interests of management and shareholders. C&S
generally approves compensation plans under the following conditions:
10% Rule. The dilution effect of the newly authorized shares, plus the shares
reserved for issuance in connection with all other stock related plans,
generally should not exceed 10%.
Exercise Price. The minimum exercise price of stock options should be at least
equal to the market price of the stock on the date of grant.
Plan Amendments. Compensation plans should not be materially amended without
shareholder approval.
Non-Employee Directors. Awards to non-employee directors should not be subject
to management discretion, but rather should be made under non-discretionary
grants specified by the terms of the plan.
Repricing/Replacement of Underwater Options. Stock options generally should not
be re-priced, and never should be re-priced without shareholder approval. In
addition, companies should not issue new options, with a lower strike price, to
make up for previously issued options that are substantially underwater. C&S
will vote against the election of any slate of directors that, to its knowledge,
has authorized a company to re-price or replace underwater options during the
most recent year without shareholder approval.
Reload/Evergreen Features. We will generally vote against plans that enable the
issuance of reload options and that provide an automatic share replenishment
("evergreen") feature.
Measures to Increase Executive Long-Term Stock Ownership. We support measures to
increase the long-term stock ownership by a company's executives. These include
requiring senior
executives to hold a minimum amount of stock in a company (often expressed as a
percentage of annual compensation), requiring stock acquired through option
exercise to be held for a certain minimum amount of time, and issuing restricted
stock awards instead of options. In this respect, we support the expensing of
option grants because it removes the incentive of a company to issue options in
lieu of restricted stock. We also support employee stock purchase plans,
although we generally believe the discounted purchase price should be at least
85% of the current market price.
Vesting. Restricted stock awards normally should vest over at least a two-year
period.
Other stock awards. Stock awards other than stock options and restricted stock
awards should be granted in lieu of salary or a cash bonus, and the number of
shares awarded should be reasonable.
B. Change of Control Issues
While we recognize that a takeover attempt can be a significant distraction for
the board and management to deal with, the simple fact is that the possibility
of a corporate takeover keeps management focused on maximizing shareholder
value. As a result, C&S opposes measures that are designed to prevent or
obstruct corporate takeovers because they can entrench current management. The
following are C&S's guidelines on change of control issues:
Shareholder Rights Plans. C&S acknowledges that there are arguments for and
against shareholder rights plans, also known as "poison pills." Companies should
put their case for rights plans to shareholders. We generally vote against any
directors who, without shareholder approval, to our knowledge have instituted a
new poison pill plan, extended an existing plan, or adopted a new plan upon the
expiration of an existing plan during the past year.
Golden Parachutes. C&S opposes the use of accelerated employment contracts that
result in cash grants of greater than three times annual compensation (salary
and bonus) in the event of termination of employment following a change in
control of a company. In general, the guidelines call for voting against "golden
parachute" plans because they impede potential takeovers that shareholders
should be free to consider. We generally withhold our votes at the next
shareholder meeting for directors who to our knowledge approved golden
parachutes.
Approval of Mergers - C&S votes against proposals that require a super-majority
of shareholders to approve a merger or other significant business combination.
We support proposals that seek to lower super-majority voting requirements.
C. Routine Issues
Director Nominees in a Non-Contested Election - C&S generally votes in favor of
management proposals on director nominees.
Director Nominees in a Contested Election - By definition, this type of board
candidate or slate runs for the purpose of seeking a significant change in
corporate policy or control. Therefore, the economic impact of the vote in favor
of or in opposition to that director or slate must be analyzed using a higher
standard normally applied to changes in control. Criteria for evaluating
director nominees as a group or individually should include: performance;
compensation, corporate governance provisions and takeover activity; criminal
activity; attendance at meetings; investment in the company; interlocking
directorships; inside, outside and independent directors; whether the chairman
and CEO titles are held by the same person; number of other board seats; and
other experience. It is impossible to have a general policy regarding director
nominees in a contested election.
Board Composition - C&S supports the election of a board that consists of at
least a majority of independent directors. We generally withhold our support for
non-independent directors who serve on a company's audit, compensation and/or
nominating committees. We also generally withhold support for director
candidates who have not attended a sufficient number of board or committee
meetings to effectively discharge their duties as directors.
Classified Boards - Because a classified board structure prevents shareholders
from electing a full slate of directors at annual meetings, C&S generally votes
against classified boards. We vote in favor of shareholder proposals to
declassify a board of directors unless a company's charter or governing
corporate law allows shareholders, by written consent, to remove a majority of
directors at any time, with or without cause.
Barriers to Shareholder Action - We vote to support proposals that lower the
barriers to shareholder action. This includes the right of shareholders to call
a meeting and the right of shareholders to act by written consent.
Cumulative Voting - Having the ability to cumulate our votes for the election of
directors - that is, cast more than one vote for a director about whom they feel
strongly - generally increases shareholders' rights to effect change in the
management of a corporation. We generally support, therefore, proposals to adopt
cumulative voting.
Ratification of Auditors - Votes generally are cast in favor of proposals to
ratify an independent auditor, unless there is a reason to believe the auditing
firm is no longer performing its required duties or there are exigent
circumstances requiring us to vote against the approval of the recommended
auditor. For example, our general policy is to vote against an independent
auditor that receives more than 50% of its total fees from a company for
non-audit services.
D. Stock Related Items
Increase Additional Common Stock - C&S's guidelines generally call for approval
of increases in authorized shares, provided that the increase is not greater
than three times the number of shares outstanding and reserved for issuance
(including shares reserved for stock-related plans and securities convertible
into common stock, but not shares reserved for any poison pill plan).
Votes generally are cast in favor of proposals to authorize additional shares of
stock except where the proposal:
1. creates a blank check preferred stock; or
2. establishes classes of stock with superior voting rights.
Blank Check Preferred Stock - Votes generally are cast in opposition to
management proposals authorizing the creation of new classes of preferred stock
with unspecific voting, conversion, distribution and other rights, and
management proposals to increase the number of authorized blank check preferred
shares. C&S may vote in favor of this type of proposal when it receives
assurances to its reasonable satisfaction that (i) the preferred stock was
authorized by the board for the use of legitimate capital formation purposes and
not for anti-takeover purposes, and (ii) no preferred stock will be issued with
voting power that is disproportionate to the economic interests of the preferred
stock. These representations should be made either in the proxy statement or in
a separate letter from the company to C&S.
Preemptive Rights - Votes are cast in favor of shareholder proposals restoring
limited preemptive rights.
Dual Class Capitalizations - Because classes of common stock with unequal voting
rights limit the rights of certain shareholders, C&S votes against adoption of a
dual or multiple class capitalization structure.
E. Social Issues
C&S believes that it is the responsibility of the board and management to run a
company on a daily basis. With this in mind, in the absence of unusual
circumstances, we do not believe that shareholders should be involved in
determining how a company should address broad social and policy issues. As a
result, we generally vote against these types of proposals, which are generally
initiated by shareholders, unless we believe the proposal has significant
economic implications.
F. Other Situations
No set of guidelines can anticipate all situations that may arise. Our portfolio
managers and analysts will be expected to analyze proxy proposals in an effort
to gauge the impact of a proposal on the financial prospects of a company, and
vote accordingly. These policies are intended to provide guidelines for voting.
They are not, however, hard and fast rules because corporate governance issues
are so varied.
V. Proxy Voting Procedures
C&S shall maintain a record of all voting decisions for the period required by
applicable laws. In each case in which C&S votes contrary to the stated policies
set forth in these guidelines, the record shall indicate the reason for such a
vote.
The Investment Committee of C&S shall have responsibility for voting proxies,
under the supervision of the Director of Research. The Director of Research's
designee shall be responsible for ensuring that the Investment Committee is
aware of all upcoming proxy voting opportunities. The Designee shall ensure that
proxy votes are properly recorded and that the requisite information regarding
each proxy voting opportunity is maintained. The General Counsel of C&S shall
have overall responsibility for ensuring that C&S complies with all proxy voting
requirements and procedures.
VI. Recordkeeping
The Designee shall be responsible for recording and maintaining the following
information with respect to each proxy voted by C&S:
o Name of the company
o Ticker symbol
o CUSIP number
o Shareholder meeting date
o Brief identification of each matter voted upon
o Whether the matter was proposed by management or a shareholder
o Whether C&S voted on the matter
o If C&S voted, then how C&S voted
o Whether C&S voted with or against management
The General Counsel of C&S shall be responsible for maintaining and updating
these Policies and Procedures, and for maintaining any records of written client
requests for proxy voting information and documents that were prepared by C&S
and were deemed material to making a voting decision or that memorialized the
basis for the decision.
C&S shall rely on the SEC's EDGAR filing system with respect to the requirement
to maintain proxy materials regarding client securities.
VII. Conflicts of Interest
There may be situations in which C&S may face a conflict between its interests
and those of its clients or fund shareholders. Potential conflicts are most
likely to fall into three general categories:
o Business Relationships - This type of conflict would occur if C&S or an
affiliate has a substantial business relationship with the company or a
proponent of a proxy proposal relating to the company (such as an employee
group) such that failure to vote in favor of management (or the proponent) could
harm the relationship of C&S or its affiliate with the company or proponent. In
the context of C&S, this could occur if Cohen & Steers Capital Advisors, a
wholly owned subsidiary of C&S ("Capital Advisors"), has a material business
relationship with a company that C&S has invested in on behalf of its clients,
and C&S is encouraged to vote in favor of management as an inducement to acquire
or maintain the Capital Advisors relationship.
o Personal Relationships - C&S or an affiliate could have a personal
relationship with other proponents of proxy proposals, participants in proxy
contests, corporate directors or director nominees.
o Familial Relationships - C&S or an affiliate could have a familial
relationship relating to a company (e.g., spouse or other relative who serves as
a director or nominee of a public company).
The next step is to identify if a conflict is material. A material matter is one
that is reasonably likely to be viewed as important by the average shareholder.
Materiality will be judged under a two-step approach:
o Financial Based Materiality - C&S presumes a conflict to be non-material
unless it involves at least $500,000.
o Non-Financial Based Materiality - Non-financial based materiality would impact
the members of the C&S Investment Committee, who are responsible for making
proxy voting decisions.
Finally, if a material conflict exists, C&S shall vote in accordance with the
advice of a proxy voting service. C&S currently uses ISS to provide advice on
proxy voting decisions.
The General Counsel of C&S shall have responsibility for supervising and
monitoring conflicts of interest in the proxy voting process according to the
following process:
1. Identifying Conflicts - The General Counsel of C&S is responsible for
monitoring the relationships of Capital Advisors for purposes of C&S's Inside
Information Policies and Procedures. The General Counsel of C&S (or his
designee) maintains a watch list and a restricted list. The Investment Committee
is unaware of the content of the watch list and therefore it is only those
companies on the restricted list, which is made known to everyone at C&S, for
which potential concerns might arise. When a company is placed on the restricted
list, the General Counsel of C&S (or his designee) shall promptly inquire of the
Designee as to whether there is a pending proxy voting opportunity with respect
to that company, and continue to inquire on a weekly basis until such time as
the company is no longer included on the restricted list. When there is a proxy
voting opportunity with respect to a company that has been placed on the
restricted list, the General Counsel of C&S shall inform the Investment
Committee that no proxy vote is to be submitted for that company until the
General Counsel completes the conflicts analysis.
For purposes of monitoring personal or familial relationships, the General
Counsel of C&S (or his designee) shall receive on at least an annual basis from
each member of the Investment Committee written disclosure of any personal or
familial relationships with public company directors that could raise potential
conflict of interest concerns. Investment Committee members also shall agree in
writing to advise the General Counsel of C&S if (i) there are material changes
to any previously furnished information, (ii) a person with whom a personal or
familial
relationship exists is subsequently nominated as a director or (iii) a personal
or familial relationship exists with any proponent of a proxy proposal or a
participant in a proxy contest.
2. Identifying Materiality - The General Counsel of C&S (or his designee) shall
be responsible for determining whether a conflict is material. He shall evaluate
financial based materiality in terms of both actual and potential fees to be
received. Non-financial based items impacting a member of the Investment
Committee shall be presumed to be material.
3. Communication with Investment Committee; Voting of Proxy - If the General
Counsel of C&S determines that the relationship between Capital Advisors and a
company is financially material, he shall communicate that information to the
members of the Investment Committee and instruct them, and the Designee, that
C&S will vote its proxy based on the advice of ISS or other consulting firm then
engaged by C&S. Any personal or familial relationship, or any other business
relationship, that exists between a company and any member of the Investment
Committee shall be presumed to be material, in which case C&S again will vote
its proxy based on the advice of ISS or other consulting firm then engaged by
C&S. The fact that a member of the Investment Committee personally owns
securities issued by a company will not disqualify C&S from voting common stock
issued by that company, since the member's personal and professional interests
will be aligned.
In cases in which C&S will vote its proxy based on the advice of ISS or other
consulting firm then engaged by C&S, the General Counsel of C&S(or his designee)
shall be responsible for ensuring that the Designee votes proxies in this
manner. The General Counsel of C&S will maintain a written record of each
instance when a conflict arises and how the conflict is resolved (e.g., whether
the conflict is judged to be material, the basis on which the materiality is
decision is made and how the proxy is voted).
VIII. Cohen & Steers Funds
Proxies relating to portfolio securities held by any Cohen & Steers Fund shall
be voted in accordance with this Statement of Policies and Procedures. For this
purpose, the Board of Directors of the Cohen & Steers Funds has delegated to C&S
the responsibility for voting proxies on behalf of the Funds. The General
Counsel of C&S shall make an annual presentation to the Board regarding this
Statement of Policy and Procedures, including whether any revisions are
recommended, and shall report to the Board at each regular, quarterly meeting
with respect to any conflict of interest situation that arose regarding the
proxy voting process.
IV. Annual Review; Reporting
The chief compliance officer (CCO) of C&S (or his designee) shall conduct an
annual review to assess compliance with these policies and procedures. This
review will include sampling a limited number of proxy votes during the prior
year to determine if they were consistent with these policies and procedures.
The results of this review will be reported to the General Counsel of C&S and
the CCO of the Funds.
Any violations of these policies and procedures shall be reported to the General
Counsel or CCO of C&S. If the violation relates to any Cohen & Steers Fund, the
General Counsel or CCO of C&S shall report such violation to the CCO of the
Funds.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures are
sufficient 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 Commission's 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 registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. 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.
(b) Certifications of chief executive officer and chief financial officer as
required by Rule 30a- 2(b) under the Investment Company Act of 1940.
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/ Robert H. Steers
---------------------------------
Name: Robert H. Steers
Title: Chairman
Date: March 8, 2005
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/ Robert H. Steers By: /s/ Martin Cohen
--------------------------------- -------------------------------
Name: Robert H. Steers Name: Martin Cohen
Title: Chairman, Secretary and Title: President, Treasurer
and principal executive and principal
officer financial officer
Date: March 8, 2005
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as.............................. 'SS'
The division sign shall be expressed as............................... [div]