<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
February 3, 1997
To Our Shareholders:
We are pleased to submit to you our annual report for Cohen & Steers Realty
Shares, Inc. for the year ended December 31, 1996. The net asset value per share
on that date was $45.09. In addition, a distribution of $1.02 per share
(including a regular $0.47 per share distribution plus a $0.55 extra
distribution representing capital gains during the year) was declared for
shareholders of record December 26, 1996 and paid on December 27, 1996.
1996 REVIEW
By nearly every measure, 1996 was an exceptional year for REITs on both an
absolute and relative basis. The Fund's total return for 1996 based on income,
realized capital gains and change in net asset value was 38.5%. The 35.3% total
return of equity REITs (as measured by the NAREIT Equity REIT Index) was the
best since 1991, the year that the real estate depression hit bottom, causing
REITs to rebound from severely depressed levels. Relative to the stock market,
REITs had their best year since 1984, beating the S&P 500 Index total return of
23.0%. Relative to bonds, REITs had their best year since 1979, surpassing the
Lehman Brothers Government/Corporate Bond Index total return of 2.9%. These
results continue to substantiate the low correlation of returns between REITs
and other asset classes, particularly bonds.
All major property sectors showed outstanding positive returns for the
year, with the Office, Hotel and Regional Mall sectors performing best. The
strong performance of REITs continues to be influenced by the ongoing real
estate recovery and the advantageous position of REITs as property owners,
managers and acquirers. Most important from a capital market perspective was
that these factors translated into strong earnings growth for the major
companies in 1996 and there appears to us to be widespread expectations for
continued strong growth of REIT earnings in 1997.
The rise of REIT share prices is not solely the result of earnings growth,
in our opinion. 1996 was the year in which a substantial shift in sentiment and
opinion about real estate and REITs took place, and we believe this change will
affect the industry for many years. For the first time since the 1980s, real
estate returned to favor among both institutional and individual investors, and
long-term debt and equity capital began to flow freely. This caused property
values to rise across the board, adding another lever to REIT returns by
significantly increasing underlying asset values. This favorable capital market
environment also enabled the top tier companies to raise and efficiently invest
capital. Due to a combination of new issuance and price appreciation, the stock
market capitalization of equity REITs rose by 55% in 1996 to $90 billion. The
number of equity REITs declined during the year by 7% to 166, indicating an
acceleration in the consolidation of the industry and greater concentration of
assets among fewer, but in our opinion, stronger companies. Consequently, REIT
valuations ended the year at a
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1
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COHEN & STEERS REALTY SHARES, INC.
higher level than when the year began. For example, the average REIT dividend
yield, which is the simplest measure of valuation, was 7.4% at the beginning of
1996 and 5.9% at year end.
Last year was also pivotal with regard to the acceptance of the
publicly-traded REIT structure by direct real estate advisors and institutional
real estate consultants. They appeared to have finally come to terms with the
decline in their traditional businesses and nearly all have adopted a real
estate securities effort. We believe that this is primarily the result of their
clients' preference for the liquidity, fair pricing and professional practices
of the leading public real estate companies. With REITs being the most prominent
real estate equity capital raisers and property acquirers in 1996 (as well as
having produced consistently superior investment returns), they can no longer be
dismissed as incidental to the real estate industry. Rather, they have become
the model for creating investor value. For the same reasons, during the year a
large number of private real estate companies merged into public companies and a
great many property owners transferred their ownership interests in exchange for
REIT shares. These are trends which we believe will remain in place for a long
time to come.
1997 OUTLOOK
With real estate fundamentals and the role of REITs firmly in place, we
believe that there are essentially two major issues of concern to investors as
the year progresses. The first is the ability of REITs as a group to sustain the
higher level of valuation that they now enjoy. The second issue is determining
which companies and property sectors are best positioned to outperform in 1997.
We believe that the current level of REIT valuations is being affected by the
following factors:
REAL ESTATE FUNDAMENTALS REMAIN POSITIVE. In nearly every property sector
and region of the country, the real estate recovery appears to be gathering
momentum. Occupancies and rental rates are rising, and the amount of new
construction is less than the incremental demand for space. Greater confidence
in the stability and growth of real estate, particularly after the depression of
the early 1990s, can account for the higher valuation of real estate companies.
REIT EARNINGS ARE GROWING AT A SUBSTANTIAL RATE. Wall Street analysts
estimate that average REIT earnings per share growth was approximately 9% in
1996 and expect further growth of 10% in 1997. These growth estimates are
predicated on conservative assumptions regarding occupancies and rental rates
plus the contribution of income both from properties acquired last year and
those that are expected to be acquired this year. Further, based on trends
firmly in place, REIT earnings are expected to grow at a meaningful rate in
1998. This type of growth, in our opinion, warrants a higher level of valuation
than REITs have historically enjoyed. As investors become more confident in
these prospects, REITs increasingly may be recognized as growth rather than
current dividend yield vehicles. This renders the often-made comparison of REITs
to bonds and utility stocks less meaningful than ever.
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2
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COHEN & STEERS REALTY SHARES, INC.
REIT DIVIDEND GROWTH SHOULD BEGIN TO ACCELERATE. One important result of
REIT earnings growth is the growth of REIT dividends. While most REITs have been
raising their dividends at least annually, they have done so at a lower rate
than the rate of growth of cash earnings per share, resulting in continually
decreasing payout ratios. This is almost universally viewed by the investment
community as a healthy policy because it permits the company to maintain a
record of dividend growth, while at the same time retain more capital for
reinvestment. Because REITs, by law, must distribute no less than 95% of their
taxable income as dividends, several companies are now unable to reduce their
payout ratios any further. These companies must now increase their dividends at
the identical rate as their income growth. At the current time only a handful of
companies are in this situation but we expect a great many more to reach this
point in 1997 and 1998. When investors apply traditional stock valuation
measures such as dividend discount models, which emphasize dividend yield and
dividend growth, to REITs this group will appear extremely attractive. As this
phenomenon becomes more widely recognized it is likely to enable REITs to
maintain healthy valuations, in our opinion.
THE LEADING REITS HAVE DEMONSTRATED STRONG TRACK RECORDS. The last time
REIT valuations approached these levels was at year-end 1993, a period when most
of today's largest REITs were just coming public. Since that time there have
been very few initial public offerings and investors have had a chance to assess
and differentiate the abilities, dedication and, most importantly, the
performance of all the companies in the industry. Greater investor confidence
has naturally led to higher valuations for those companies that have proven
themselves to be market leaders and this has enabled them to routinely issue
low-cost equity. This has also allowed the companies to judiciously access
varied forms of debt financing on economic terms that have enhanced earnings and
return on equity.
REITS HAVE PROVEN THEMSELVES UNDER VARIED FINANCIAL MARKET CONDITIONS.
REITs have outperformed stocks in five of the past six years and have done so
with lower volatility than, and little sensitivity to the broader stock market
movements. This was dramatically illustrated last year when, during periods of
stock and bond market turbulence, REIT prices remained stable or rose. As a
result, REITs have returned to favor among institutions and individuals seeking
portfolio diversification. The ongoing demand for REIT shares is likely to help
maintain the current, or even higher, level of valuation.
As we begin the new year our investment strategy generally is one that
emphasizes those companies we expect to achieve above-average growth in earnings
per share, preferably through increases in occupancy and rental rates. More
specifically, we believe that the Office sector as a whole is exemplary of
accelerating internal growth and there are several extremely well-positioned
companies within that sector. Because of their stature, size and access to
capital these companies have substantial opportunities to acquire world class
properties at attractive prices relative to their replacement costs. For these
reasons office building owners comprise our largest sector weighting.
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3
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COHEN & STEERS REALTY SHARES, INC.
Our second largest weighting is the Regional Mall sector. To the surprise
of many, this group was among the best performers in 1996 and we expect that to
be the case again in 1997. The retail environment today is much improved over
the recent past and regional mall tenants are enjoying solid sales increases. As
a result there are very few tenant bankruptcies and we believe that both
occupancies and rental rates in premier properties will show healthy increases.
A new factor this year for the publicly-traded companies is that the private
market values of regional malls have declined to a point at which, in
combination with REITs' lower cost of capital, a considerable acquisition
opportunity has developed. Therefore we expect that regional mall REITs could
experience growth well in excess of consensus expectations, which should lead to
superior investment performance.
At the close of a year of extraordinary investment results such as those
achieved in 1996 it is important to maintain the perspective that real estate
and REITs are not likely to sustain such a high rate of return. However, as we
have discussed, our analysis of the investment environment leads us to the
conclusion that REITs continue to offer potential risk-adjusted returns that are
attractive. Moreover, within the universe of publicly-traded real estate
companies there are many that we believe represent outstanding value and have
superior growth prospects. These companies dominate our portfolio. While this
year may be somewhat more challenging than the last, we are nonetheless
confident in our ability to achieve satisfactory investment results.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
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COHEN & STEERS REALTY SHARES, INC.
Performance Review
The investment objective of Cohen & Steers Realty Shares, Inc. is total
return through investment in real estate securities. The Fund pursues its
investment objective by seeking both current income and capital appreciation.
Securities in the portfolio are selected by the adviser based on the outlook for
various property types and regions of the country, and fundamental research on
the individual companies. Among the investment criteria applied to individual
companies are organizational structure, management depth, track record of
profitability, balance sheet strength and growth potential.
The Fund's investment performance in 1996 exceeded its benchmarks and the
stock market in general. Real estate securities (and the Fund) outperformed the
stock market in general in 1996, in the adviser's view, due to the strong growth
of the economy, and the ongoing nationwide real estate recovery. In comparison
to real estate securities benchmarks, the Fund's outperformance is attributable
to its heavier than average weighting in shopping center and office building
owners.
The performance of the Fund in 1996 and its cumulative return since its
inception in 1991 has comfortably exceeded that of its benchmarks and the stock
market in general.
[GRAPH]
<TABLE>
<CAPTION>
NAREIT
COHEN & STEERS WILSHIRE REAL ESTATE ALL REIT
REALTY SHARES, INC. S&P 500 SECURITIES INDEX INDEX
- ------------------- -------- -------------------- --------
<S> <C> <C> <C>
10,000.0 10,000.0 10,000.0 10,000.0
10,122.0 10,396.0 9,725.0 10,535.0
10,792.0 10,823.0 9,906.0 11,418.0
10,962.0 10,930.0 10,121.0 11,129.0
11,226,0 11,170.0 9,692.0 11,340.0
12,111.0 11,723.0 9,988.0 11,698.0
12,959.0 12,142.0 10,680.0 12,287.0
15,615.0 14,462.0 12,779.0 12,824.0
15,014.0 14,056.0 12,176.0 12,887.0
16,523.0 15,304.0 13,258.0 13,219.0
15,389.0 14,394.0 12,308.0 13,526.0
16,314.0 14,723.0 12,585.0 13,014.0
16,517.0 14,935.0 12,735.0 13,068.0
16,219.0 14,675.0 12,542.0 13,707.0
16,669.0 14,515.0 12,511.0 13,704.0
16,268.0 14,677.0 12,558.0 15,038.0
16,996.0 15,645.0 13,105.0 16,474.0
17,910.0 16,421.0 13,726.0 17,784.0
18,523.0 17,173.0 14,219.0 18,854.0
18,853.0 17,611.0 14,819.0 19,866.0
19,982.0 18,398.0 15,521.0 20,758.0
21,435.0 19,647.0 16,439.0 21,400.0
25,651.0 23,314.0 19,462.0 23,185.0
</TABLE>
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate. When shares are redeemed, they may be worth
more or less than the original cost.
* Commencement of Operations.
`D' The Comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the Fund's performance. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
NAREIT Index of All REITs is comprised of 198 real estate investment trusts.
The Wilshire Real Estate Securities Index is comprised of 111 companies
operating in the real estate industry and includes REITs. This index does
not include REITs with investments in health care facilities, which as a
group have produced investment returns in past years higher than the market
as a whole. The Fund invests in REITs with investments in health care
facilities. The S&P 500 Index is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. For more
information, including charges and expenses, please read the prospectus
carefully before you invest.
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5
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
----------- --------------
<S> <C> <C>
EQUITIES 93.37%
APARTMENT/RESIDENTIAL 13.67%
`D'Avalon Properties...................................... 1,903,800 $ 54,734,250
Bay Apartment Communities................................. 498,400 17,942,400
`D'Camden Property Trust.................................. 1,037,500 29,698,438
`D'Charles E. Smith Residential Realty.................... 515,600 15,081,300
`D'Colonial Properties Trust.............................. 1,205,200 36,607,950
`D'Columbus Realty Trust.................................. 777,600 17,690,400
`D'Irvine Apartment Communities........................... 1,013,900 25,347,500
Post Properties........................................... 1,059,500 42,644,875
Summit Properties......................................... 773,900 17,122,537
Sun Communities........................................... 620,400 21,403,800
--------------
278,273,450
--------------
DIVERSIFIED 2.01%
Newhall Land & Farming Company............................ 1,370,500 23,127,188
*Security Capital U.S. Realty............................. 1,400,000 17,920,000
--------------
41,047,188
--------------
HEALTH CARE 6.36%
Health Care Property Investors............................ 499,500 17,482,500
Health Care REIT.......................................... 839,100 20,557,950
Nationwide Health Properties.............................. 946,100 22,942,925
`D'Omega Healthcare Investors............................. 1,000,000 33,250,000
*`D'Sunrise Assisted Living............................... 1,268,400 35,356,650
--------------
129,590,025
--------------
HOTEL 4.56%
*Bristol Hotel Co......................................... 769,500 24,431,625
Innkeepers USA Trust...................................... 797,500 11,065,312
*Interstate Hotels Co..................................... 247,200 6,983,400
Patriot American Hospitality.............................. 599,800 25,866,375
Starwood Lodging Trust.................................... 327,900 18,075,488
*Studio Plus Hotels....................................... 407,400 6,416,550
--------------
92,838,750
--------------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
----------- --------------
<S> <C> <C>
INDUSTRIAL 5.01%
`D'CenterPoint Properties Corp............................ 1,139,500 $ 37,318,625
Meridian Industrial Trust................................. 528,100 11,090,100
Security Capital Industrial Trust......................... 1,014,900 21,693,487
`D'Weeks Corp............................................. 958,000 31,853,500
--------------
101,955,712
--------------
OFFICE 20.79%
Beacon Properties Corp.................................... 1,515,900 55,519,837
`D'Cali Realty Corp....................................... 2,418,800 74,680,450
`D'CarrAmerica Realty Corp................................ 2,472,400 72,317,700
`D'Cousins Properties..................................... 1,583,900 44,547,188
Crescent Real Estate Equities............................. 1,338,800 70,621,700
`D'Highwoods Properties................................... 3,131,000 105,671,250
--------------
423,358,125
--------------
OFFICE/INDUSTRIAL 7.52%
`D'Prentiss Properties Trust.............................. 1,412,700 35,317,500
`D'Reckson Associates Realty Corp......................... 840,100 35,494,225
`D'Spieker Properties..................................... 2,289,700 82,429,200
--------------
153,240,925
--------------
SELF STORAGE 4.48%
Public Storage............................................ 2,834,800 87,878,800
Storage USA............................................... 87,700 3,299,712
--------------
91,178,512
--------------
SHOPPING CENTER 28.97%
COMMUNITY CENTER 12.10%
Developers Diversified Realty Corp........................ 938,300 34,834,387
Federal Realty Investment Trust........................... 1,537,200 41,696,550
Glimcher Realty Trust..................................... 1,085,200 23,874,400
Kimco Realty Corp......................................... 1,543,700 53,836,538
Regency Realty Corp....................................... 216,500 5,683,125
`D'Vornado Realty Trust................................... 1,276,900 67,037,250
Weingarten Realty Investors............................... 480,400 19,516,250
--------------
246,478,500
--------------
</TABLE>
See notes to financial statements.
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7
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
----------- --------------
<S> <C> <C>
FACTORY OUTLET CENTER 1.53%
`D'Chelsea GCA Realty..................................... 688,800 $ 23,849,700
Tanger Factory Outlet Centers............................. 268,900 7,293,913
--------------
31,143,613
--------------
REGIONAL MALL 15.34%
CBL & Associates Properties............................... 1,014,500 26,250,187
General Growth Properties................................. 539,800 17,408,550
`D'JP Realty.............................................. 895,800 23,178,825
`D'Macerich Co............................................ 1,746,500 45,627,313
Rouse Co.................................................. 2,272,300 72,145,525
Simon DeBartolo Group..................................... 1,564,400 48,496,400
`D'Taubman Centers........................................ 2,875,000 37,015,625
`D'The Mills Corp......................................... 1,025,000 24,471,875
Urban Shopping Centers.................................... 611,000 17,719,000
--------------
312,313,300
--------------
TOTAL SHOPPING CENTER..................................... 589,935,413
--------------
TOTAL EQUITIES (Identified cost $1,482,340,008)..... 1,901,418,100
--------------
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C> <C>
COMMERCIAL PAPER 5.80%
California Gold State Financial, 6.50%, 1/2/97.......... $ 18,179,000 18,175,717
McKesson, 6.50%, 1/2/97................................. 100,000,000 99,981,940
--------------
TOTAL COMMERCIAL PAPER (Identified cost
$118,157,657)................................ 118,157,657
--------------
TOTAL INVESTMENTS (Identified cost $1,600,497,665).......... 99.17% 2,019,575,757
OTHER ASSETS, IN EXCESS OF LIABILITIES...................... .83% 16,802,828
------ --------------
NET ASSETS (Equivalent to $45.09 per share based on
45,162,308 shares of capital stock outstanding).......... 100.00% $2,036,378,585
------ --------------
------ --------------
</TABLE>
- ------------
* Non-income producing security.
`D' The Fund owns 5% or more of this company's outstanding voting securities
(Note 5).
See notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost $1,600,497,665) (Note 1 and Note 5)... $2,019,575,757
Cash....................................................................................... 710
Receivable for fund shares sold............................................................ 48,475,081
Dividends receivable....................................................................... 7,423,179
Receivable for investment securities sold.................................................. 199,320
Other assets............................................................................... 85,821
--------------
Total Assets......................................................................... 2,075,759,868
--------------
LIABILITIES:
Payable for investment securities purchased................................................ 29,446,535
Payable for fund shares redeemed........................................................... 7,805,153
Payable to investment adviser.............................................................. 1,285,308
Payable to administrator................................................................... 443,443
Payable to directors....................................................................... 1,041
Other liabilities.......................................................................... 399,803
--------------
Total Liabilities.................................................................... 39,381,283
--------------
NET ASSETS applicable to 45,162,308 shares of $.001 par value common stock outstanding (Note 4).. $2,036,378,585
--------------
--------------
NET ASSET VALUE PER SHARE:
($2,036,378,585[div]45,162,308 shares outstanding)......................................... $ 45.09
--------------
--------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................ $1,593,428,591
Accumulated net realized gain on investments sold.......................................... 23,871,902
Net unrealized appreciation on investments................................................. 419,078,092
--------------
$2,036,378,585
--------------
--------------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Investment Income:
Dividend income.............................................................................. $ 68,918,920
Interest income.............................................................................. 3,835,724
------------
Total Income........................................................................... 72,754,644
------------
Expenses:
Investment advisory fees (Note 2)............................................................ 9,704,419
Administrative and transfer agent fees (Note 2).............................................. 1,778,629
Custodian fees............................................................................... 271,175
Registration and filing fees................................................................. 352,134
Reports to shareholders...................................................................... 155,113
Professional fees............................................................................ 96,373
Directors' fees and expenses (Note 2)........................................................ 30,500
Amortization of organization expenses (Note 1)............................................... 16,204
Miscellaneous................................................................................ 115,963
------------
Total Expenses......................................................................... 12,520,510
Reduction of expenses (Note 6)............................................................... (140,729)
------------
Net Expenses........................................................................... 12,379,781
------------
Net Investment Income.............................................................................. 60,374,863
------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments............................................................. 31,989,185
Increase in unrealized appreciation on investments........................................... 370,632,346
------------
Net realized and unrealized gain on investments........................................ 402,621,531
------------
Net Increase in Net Assets Resulting From Operations............................................... $462,996,394
------------
------------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................. $ 60,374,863 $ 35,282,492
Net realized gain (loss) on investments................ 31,989,185 (5,735,142)
Increase in unrealized appreciation on investments..... 370,632,346 41,783,548
----------------- -----------------
Net increase in net assets resulting from
operations.................................... 462,996,394 71,330,898
----------------- -----------------
Dividends and Distributions From:
Net investment income.................................. (57,513,352) (25,186,847)
Net realized gain on investments....................... (23,648,701) --
Tax return of capital.................................. (3,926,373) (9,488,813)
----------------- -----------------
Total distributions to shareholders.............. (85,088,426) (34,675,660)
----------------- -----------------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund share transactions.... 865,386,543 298,330,768
----------------- -----------------
Total increase in net assets..................... 1,243,294,511 334,986,006
Net Assets:
Beginning of year...................................... 793,084,074 458,098,068
----------------- -----------------
End of year............................................ $ 2,036,378,585 $ 793,084,074
----------------- -----------------
----------------- -----------------
</TABLE>
See notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
Financial Statements. It should be read in conjunction with the Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1996 1995 1994 1993 1992
- ------------------------------------------------------- ---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 34.62 $ 32.90 $ 31.92 $ 29.58 $ 26.55
---------- -------- -------- -------- -------
Income from investment operations
Net investment income............................ 1.86 1.86 1.66 1.29 1.51
Net realized and unrealized gains on
investments................................... 11.04 1.69 0.98 4.24 3.55
---------- -------- -------- -------- -------
Total from investment operations........... 12.90 3.55 2.64 5.53 5.06
---------- -------- -------- -------- -------
Less distributions from:
Net investment income............................ (1.76) (1.33) (1.09) (1.27) (1.80)
Realized gains on investments.................... (0.55) 0.00 0.00 (1.64) (0.18)
In excess of net realized gains.................. 0.00 0.00 0.00 (0.04) 0.00
Tax return of capital............................ (0.12) (0.50) (0.57) (0.24) (0.05)
---------- -------- -------- -------- -------
Total distributions........................ (2.43) (1.83) (1.66) (3.19) (2.03)
---------- -------- -------- -------- -------
Net asset value, end of year........................... $ 45.09 $ 34.62 $ 32.90 $ 31.92 $ 29.58
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
- ----------------------------------------------------------------------------------------------------------------
Total investment return................................ 38.48% 11.13% 8.31% 18.76% 20.09%
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
- ----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year (in millions)............ $2,036.379 $793.084 $458.098 $163.478 $49.481
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
Ratio of expenses to average daily net assets
(before expense reduction).................... 1.10% 1.16% 1.26% 1.35% 1.77%
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
Ratios of expenses to average daily net assets
(net of expense reduction).................... 1.08% 1.12% 1.14% 1.18% 1.25%
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
Ratio of net investment income to average daily
net assets (net of expense reduction)......... 5.28% 6.05% 5.71% 4.57% 5.92%
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
Ratio of net investment income to average daily
net asset (before expense reduction).......... 5.27% 6.01% 5.59% 4.40% 5.40%
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
Portfolio turnover rate.......................... 33.23% 22.68% 39.00% 65.28% 14.81%
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
Average Commission Rate(a)....................... $ 0.0678 N/A N/A N/A N/A
---------- -------- -------- -------- -------
---------- -------- -------- -------- -------
</TABLE>
- ------------------------
(a) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
See notes to financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Realty Shares, Inc. (the 'Fund') was incorporated under the
laws of the State of Maryland on April 26, 1991 and is registered under the
Investment Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The following is a summary of significant
accounting policies followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Portfolio Valuation: Investment in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. ('NASDAQ') National
Market System are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ, the National Quotation Bureau or such other comparable
sources as the Board of Directors deems appropriate to reflect their fair market
value. Where securities are traded on more than one exchange and also
over-the-counter, the securities will generally be valued using the quotations
the Board of Directors believes reflect most closely the value of such
securities.
Short-term debt securities, which have a maturity value of 60 days or less,
are valued at amortized cost which approximates value.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. Net realized capital gains, unless
offset by any available capital loss carryforward, are distributed to
shareholders annually. Distributions to shareholders are recorded on the
ex-dividend date.
- --------------------------------------------------------------------------------
13
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Distributions will automatically be reinvested in full and fractional
shares of the Fund based on the net asset value per share at the close of
business on the payable date unless the shareholder has elected to have them
paid in cash.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles.
During the year ended December 31, 1996, the Fund decreased Paid-in capital
by $8,066,327, decreased undistributed net investment income by $1,064,862 and
increased accumulated net realized gain on investments sold by $7,001,465. These
differences are primarily due to return of capital distributions received by the
Fund on portfolio securities and payment of distributions subject to capital
loss carryforwards.
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.
Organization Costs: All costs incurred in connection with organizing and
establishing the Fund are being amortized on the straight-line basis over a
period of five years from the date on which the Fund commenced operations. As of
December 31, 1996, deferred organization costs have been fully amortized.
NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
'Adviser') serves as the Fund's Investment Adviser pursuant to an investment
advisory agreement (the 'Advisory Agreement'). Under the terms of the Advisory
Agreement, the Adviser provides the Fund with the day-to-day investment
decisions and generally manages the Fund's investments in accordance with the
stated policies of the Fund, subject to the supervision of the Fund's Board of
Directors. For the services provided to the Fund, the Adviser receives a monthly
fee in an amount equal to 1/12th of .85% of the average daily net assets of the
Fund (approximately .85% on an annual basis). For the year ended December 31,
1996, the Fund incurred $9,704,419 in advisory fees.
The Investment Adviser has agreed to reduce its fee and reimburse the Fund
for other expenses, to the extent necessary to comply with the most stringent
state expense limitation applicable to the Fund in which the Fund's shares are
sold. The most stringent limitation requires the Adviser to reduce or eliminate
its fee to the extent that aggregate operating expenses of the Fund (excluding
interest, taxes, brokerage and extraordinary expenses) exceed 2 1/2% of the
first $30 million of average annual net assets, 2% of the next $70 million of
average annual net assets and 1 1/2% of average annual net assets in excess of
$100 million.
Administrative Fees: The Fund has entered into an administrative agreement
with the Adviser and Chase Global Funds Services Company ('CGFSC') under which
the Adviser performs certain administrative functions for the Fund and receives
a fee of .02% of the Fund's average daily net assets. The Fund has paid the
Adviser $228,410 in fees under this administrative agreement.
- --------------------------------------------------------------------------------
14
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Directors' Fees: Certain directors of the Fund are also directors, officers
and/or employees of the Adviser. None of the directors so affiliated received
compensation for their services as directors of the Fund with the exception of
out-of-pocket expenses relating to attendance at Board and committee meetings.
Similarly, none of the Fund's officers received compensation from the Fund. Fees
and related expenses accrued for non-affiliated directors totaled $30,500 for
the year ended December 31, 1996.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the year ended December 31, 1996 aggregated $1,098,358,968 and $361,967,304,
respectively.
At December 31, 1996, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a federal income
tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost....................................................................... $1,576,625,763
--------------
Gross unrealized appreciation........................................................ $ 443,395,554
Gross unrealized depreciaiton........................................................ $ (445,560)
--------------
Net unrealized appreciation.......................................................... $ 442,949,994
--------------
--------------
</TABLE>
NOTE 4. CAPITAL STOCK
The Fund is authorized to issue fifty million (50,000,000) shares of
capital stock, par value $.001 per share. The Board of Directors of the Fund may
increase or decrease the aggregate number of shares of common stock that the
Fund has authority to issue. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold..................................... 28,020,205 $1,072,865,893 15,202,637 $ 499,162,840
Issued as reinvestment of dividends...... 1,840,925 74,067,867 794,839 26,664,507
Redeemed................................. (7,606,587) (281,547,217) (7,012,384) (227,496,579)
---------- -------------- ---------- -------------
Net increase............................. 22,254,543 $ 865,386,543 8,985,092 $ 298,330,768
---------- -------------- ---------- -------------
---------- -------------- ---------- -------------
</TABLE>
NOTE 5. INVESTMENT IN AFFILIATES
The market value of investments in affiliates (as defined in the Investment
Company Act of 1940, 'affiliated'companies include those in which the Fund holds
5% or more of the outstanding voting securities) at December 31, 1996 aggregated
$988,576,714.
- --------------------------------------------------------------------------------
15
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Affiliates, their investment income, and gain (loss) from sales of
affiliates are as follows:
<TABLE>
<CAPTION>
INVESTMENT GAIN/(LOSS)
EQUITIES INCOME ON SALES
- ------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Avalon Properties............................................ $ 1,957,271 $ 854,277
Cali Realty Corp. ........................................... 1,636,215 --
Camden Property Trust........................................ 1,600,323 (230,998)
CarrAmerica Realty Corp. .................................... 2,044,525 --
Center Point Properties...................................... 876,785 343
Charles E. Smith Residential Realty.......................... 997,538 --
Chelsea GCA Realty........................................... 1,511,437 --
Colonial Properties Trust.................................... 1,867,900 --
Columbus Realty Trust........................................ 919,929 (27,425)
Cousins Properties........................................... 1,408,118 --
Highwoods Properties......................................... 2,001,642 743,682
Irvine Apartment Communities................................. 704,852 --
JP Realty.................................................... 1,466,721 --
Marcerich Co. ............................................... 2,153,282 --
Omerga Healthcare............................................ -- --
Prentiss Properties Trust.................................... 437,937 --
Reckson Associates Realty Corp. ............................. 1,480,086 88,520
Spieker Properties........................................... 2,825,616 117,939
Sunrise Assisted Living...................................... -- --
Taubman Centers.............................................. 676,168 (31,289)
The Mills Corp. ............................................. 1,875,305 (3,230)
Vornado Realty Trust......................................... 2,374,486 --
Weeks Corp. ................................................. 1,002,280 137,202
----------- -----------
$31,818,416 $2,449,021
----------- -----------
----------- -----------
</TABLE>
NOTE 6. DIRECTED BROKERAGE ARRANGEMENTS
The Adviser has directed certain portfolio trades to brokers who paid a
portion of the Fund's expenses. For the year ended December 31, 1996, the Fund's
expenses were reduced by $140,729 under this arrangement.
NOTE 7. BORROWINGS
The Fund has entered into a Line of Credit Agreement with Chase Manhattan
Bank for $25,000,000. At December 31, 1996, the par value of loans outstanding
was $0. During the year ended December 31, 1996, the average daily balance of
loans outstanding was $0. The loan, if used, will be collateralized by the
Fund's portfolio.
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16
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors of
Cohen & Steers Realty Shares, Inc:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Cohen & Steers Realty Shares, Inc., as
of December 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in 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. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Cohen & Steers Realty Shares, Inc. as of December 31, 1996, 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 generally accepted
accounting principles.
New York, New York Coopers & Lybrand L.L.P.
February 3, 1997
- --------------------------------------------------------------------------------
17
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark FUND ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
73 Tremont Street
George Grossman Boston, MA 02108
Director (800) 437-9912
Jeffrey H. Lynford CUSTODIAN
Director The Chase Manhattan Bank
3 Chase MetroTech Center
Willard H. Smith, Jr. Brooklyn, NY 11245
Director
LEGAL COUNSEL
Elizabeth O. Reagan Dechert Price & Rhoads
Vice President 30 Rockefeller Plaza
New York, NY 10112
NASDAQ Symbol: CSRSX
Net asset value (NAV) can be found in the daily mutual
fund listings in the financial section of most major
newspapers under the Fund's abbreviation 'C&SRlty'.
This report is authorized for delivery to other than
shareholders of Cohen & Steers Realty Shares, Inc. only
when accompanied or preceded by the delivery of a
currently effective prospectus setting forth details of
the Fund.
</TABLE>
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18
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<PAGE>
<PAGE>
COHEN & STEERS
REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1996
First Class Mail
U.S.
Postage
PAID
Boston, MA
Permit No. 56712
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as................ 'D'
