COHEN & STEERS REALTY SHARES INC, N-30D, 1998-02-27

COHEN & STEERS REALTY SHARES INC
N-30D, 1998-02-27

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COHEN & STEERS REALTY SHARES, INC.

February 3, 1998

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, 1997. The net asset value per share
on that date was $50.18. In addition, a distribution of $2.77 per share
(including a regular $0.47 per share distribution plus a capital gains
distribution of $2.30 per share) was declared for shareholders of record on
December 22, 1997 and paid on December 23, 1997.

1997 REVIEW

The year 1997 proved to be very rewarding for nearly every participant in
the real estate securities industry. REIT share prices once again exhibited
stability amid turbulent financial market conditions, demonstrating their low
correlation to other asset classes. Yet, they still provided investment returns
which were well above their historic norm. For the quarter and the year ended
December 31, 1997, the Fund's total return based on income, realized capital
gains and change in net asset value was 2.5% and 21.2%, respectively.

During the year, Wall Street underwrote nearly $30 billion of REIT
securities, more than double the previous record amount raised in 1993. Due to
the combination of equity issuance and price appreciation, the market
capitalization of equity REITs grew by over 60% to $145 billion. The mutual fund
industry enjoyed record inflows into real estate funds, which are now one of the
most popular new asset classes.

REITs acquired an unprecedented $50 billion in property in 1997, becoming
the single most important source of capital for the real estate industry. They
grew in number for the first time since 1994, the result of IPO activity which
included some of the financial market's largest initial offerings of the year.
REITs also participated in a record amount of merger and acquisition activity,
including some of the largest, most visible and controversial of 1997. Whereas
several years ago no REIT had a stock market capitalization of more than $1
billion, by year end there were 50.

REITs enjoyed solid earnings growth, averaging approximately 11% per share,
with dividends increasing at a slower, but still respectable, 6% pace. For the
second year in a row the best performing sectors of the REIT industry were
owners of hotel and office properties, both of which benefited from supply
shortages resulting from the continued strength of the U.S. economy. It is in
these two sectors that some of the year's biggest and highest profile property
and corporate transactions occurred.

We believe that there were essentially two developments in 1997 that were
responsible for this record-setting activity, and which have permanently
reshaped the industry: extraordinary financial market conditions, particularly
related to interest rates, and the emergence of new management strategies by the
leading companies.

We have never been proponents of the notion, and are not now, that REITs
are interest-sensitive securities. Statistics and our own observations have
proven that there is, in fact, a very low correlation between REIT returns and
interest rates. However, in 1997 we believe that the low interest rate
environment influenced the REIT industry in a number of important ways. Because
the industry is so highly capital intensive, lower interest rates reduced the
cost of capital to a level which made property acquisitions extremely
advantageous for those companies that could efficiently access the debt markets.
These acquisitions produced higher rates of earnings growth which, in turn,
improved returns on equity and positively impacted share prices. The ability of
these REITs to sell additional equity

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COHEN & STEERS REALTY SHARES, INC.
allowed them to expand their borrowing capacity and grow even further. While at
some point this virtuous cycle must come to an end, we believe that as long as
the interest rate environment remains benign and the availability of
acquisitions remains plentiful, REITs should continue to enjoy unprecedented
growth through this means.

The superior current returns available throughout the spectrum of REIT
securities, from common stocks to debt instruments, have attracted a much
expanded investor constituency. In addition, the greater market capitalization
and size of individual issues has made REITs an important target of capital
providers from the very smallest to the very largest investors. Importantly, the
terms of debt financing, often with maturities greater than 10 years and at
fixed rates, closely match the investment horizon of the acquired assets. In the
case of some instruments such as perpetual preferred stocks, this debt-like
security has no maturity and thereby represents the closest thing to permanent
financing the real estate industry can attain. Further, the requirement that
companies maintain strong financial ratios to maintain favorable credit ratings
imposes fiscal discipline unlike anything the industry has ever known. This
situation, which has not existed in nearly 30 years, has served to strengthen
equity values across the entire industry.

The result of these developments in the financial market environment is
that the REIT industry has achieved critical mass much sooner than expected.
Having achieved this milestone, the industry's access to capital continues to
widen, thereby ensuring the stature of REITs as the dominant participants in the
real estate industry for a long time to come.

The second major development of 1997 was the emergence of new operating
strategies that heretofore were never contemplated by participants in the REIT
industry. Historically, REITs operated primarily as passive owners of property,
often confined by the tax rules that governed the industry, but more often
confined by conservative management styles and narrow vision. This began to
change in the early 1990s when some older REITs took advantage of extraordinary
property acquisition opportunities and newer REITs came public with more
entrepreneurial management teams. With ready access to both capital and
investment opportunities, REITs have begun to aggressively pursue a vastly wider
range of assets and businesses. For example, the handful of so-called
'paired-share' REITs (two companies whose shares trade together, one a REIT
which owns property, the other a tax-paying company which can actively operate
businesses) have led the way towards revolutionizing the entire structure and
leadership of the hotel industry.

Other REITs, however, have established subsidiary companies or related
entities to allow management to operate businesses outside of the mainstream of
the sponsoring company. In some cases, the operation of these businesses is not
permissible under REIT regulations and must be conducted in a taxable
corporation. In other cases, some REITs have begun to separate or spin off
assets or business lines which possess various different risk/return
characteristics or represent property types that are best suited to be held in a
distinctly different entity or structure.

There are several investment implications of this emerging trend. REITs can
no longer be viewed as passive holders of property or mere financial partners.
More than ever, they now are in firm control of their assets and their
destinies. Further, the range of business opportunities available to REITs is
vastly greater, and limited only by the imagination of management. This new
opportunity set is enabling REITs to attract a very high caliber of executives
at every level of responsibility. Moreover, the pursuit of these opportunities
is boosting both the current and prospective growth rates of these companies.
Perhaps most importantly, this is being reflected in an expansion

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COHEN & STEERS REALTY SHARES, INC.
of share prices and P/E multiples which are providing shareholders with
considerable returns evidenced by investment results in 1997.

INVESTMENT OUTLOOK

We expect the investment environment in 1998 to continue to be quite
favorable for certain sectors of the real estate and REIT market. We believe
that further growth of the U.S. economy, albeit at a slower rate than in 1997,
will sustain the positive trends in real estate fundamentals. We expect that
inflation and interest rates will remain tame, perhaps even declining from
year-end levels. This would sustain the highly accommodative financial market
conditions that REITs benefited from last year. It is our expectation that,
barring any unusual developments, REIT earnings will grow at an even faster rate
than last year due to healthy internal growth as well as the high level of
acquisition and refinancing activity in 1997 that will contribute to financial
results in 1998. A consensus of Wall Street analysts is currently forecasting
average earnings per share growth in the 13-15% range for the industry in 1998.
Dividend growth, in our opinion, will also exceed last year's pace due to an
industry-wide bottoming of pay-out ratios. In short, we see no reason why REITs
should not post mid-teen returns in the coming year, in line with their
long-term track record.

We believe that the major risk in our (and the consensus) outlook is that a
severe economic slowdown may occur which causes unpredictable dislocations and
financial market turmoil. Whether this happens or not, an environment of slowing
economic growth could precipitate some changes in leadership among the REIT
sectors. The hotel sector, which is the most economically sensitive, could
suffer the most. Similarly, some segments of the retail sector might suffer. We
are concerned that despite the strong economy of the past several years the
retail sector has experienced only average profit growth; in a slowing economy
we would expect a diminishing profit growth picture.

The three themes that we believe will produce the best results this year
are: 1) Companies with the most entrepreneurial and opportunistic management, 2)
Property types with long lease terms, and 3) Securities with above-average, yet
safe, current yields.

Due to the same factors that contributed to their success in 1997, the
leading entrepreneurial management teams are likely to find even greater
opportunities in 1998. We expect further significant portfolio acquisitions and
large scale purchases of businesses on terms that will ensure a higher rate of
long-term growth. We also expect that 1998 will be a year in which REITs make
significant acquisitions from non-real estate companies that view a sale of
properties such as office, warehouse and distribution facilities to be an
efficient source of capital. Ironically, the elevated level of stock prices and
P/E ratios in general signify investor expectations of high returns on equity
and increased earnings growth. As a result, many companies may find that their
financial resources are better devoted to high return operational aspects of
their business rather than capital intensive facilities. Consequently, we expect
that both new and existing REITs will become an important source of capital to a
host of American industries and companies.

The long-term nature of real estate leases and the income generated in such
transactions will be viewed very favorably by investors, in our opinion. In a
slowing economy, longer-term leases provide greater stability than leases that
can be canceled or are up for regular renewal. It is for this reason that we
continue to view the office sector very favorably. In addition to the long-term
nature of office leases, there continues to be greater absorption of space than
construction of new supply, and there is still room for rental rates to increase
in most major

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COHEN & STEERS REALTY SHARES, INC.
markets. We believe that even if the prominent office building owners slowed
their pace of property acquisitions, they would still enjoy healthy earnings
growth for the next several years.

Finally, we believe that what some have described as a 'shortage of yield'
will favor REITs in 1998. With government deficits nearly absent and the
unprecedented high level of liquidity in corporate America, investors have begun
looking for investments that can provide current returns that are higher than
the risk-free rate. As was the case in 1997, REITs remain among the highest
yielding common stocks, and other securities issued by REITs offer yields that
are superior to comparable securities issued by non-real estate companies.

In our view, the greatest accomplishment of REITs in the last several years
as well as the past 20 years is that they have produced consistently outstanding
returns while providing significant portfolio diversification. When one examines
the investment track records of most other asset classes that have been
perceived to be strong diversifiers, such as precious metals, commodities,
foreign stocks (and direct real estate, for that matter), they have largely
failed to deliver any significant investment benefits other than for some very
brief periods. We therefore believe that because of their investment
characteristics, combined with the current cyclical and financial market
conditions, REITs can once again provide satisfactory investment results in
1998.

Sincerely,

/s/ MARTIN COHEN /s/ 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 1997 exceeded its real estate
securities benchmarks. Real estate securities (and the Fund) provided
satisfactory returns in 1997, 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 office building owners.

The performance of the Fund's cumulative return since its inception in 1991
has comfortably exceeded that of its benchmarks and the stock market in general.

----------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED DEC. 31, 1997
----------------------------------------------------------
1 YEAR SINCE INCEPTION 7/2/91
----------------------------------------------------------
Fund 21.16% 19.06%
----------------------------------------------------------
NAREIT All 18.86% 16.97%
----------------------------------------------------------
Wilshire 19.80% 13.84%
----------------------------------------------------------
S&P 500 33.36% 18.97%
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[GRAPH]

NAREIT
COHEN & STEERS ALL REIT WILSHIRE REAL ESTATE
REALTY SHARES, INC. INDEX SECURITIES INDEX S&P 500
------------------- ------- -------------------- ----------
<S> <C> <C> <C> <C>
7/2/91 10,000.0 10,000.0 10,000.0 10,000.0
9/30/91 10,112.0 10,396.0 9,725.0 10,535.0
12/31/91 10,792.0 10,823.0 9,906.0 11,418.0
3/31/92 10,962.0 10,930.0 10,121.0 11,129.0
6/30/92 11,226.0 11,170.0 9,692.0 11,340.0
9/30/92 12,111.0 11,723.0 9,988.0 11,698.0
12/31/92 12,959.0 12,142.0 10,680.0 12,287.0
3/31/93 15,615.0 14,462.0 12,779.0 12,824.0
6/30/93 15,014.0 14,056.0 12,176.0 12,887.0
9/30/93 16,523.0 15,304.0 13,258.0 13,219.0
12/31/93 15,389.0 14,394.0 12,308.0 13,526.0
3/31/94 16,314.0 14,723.0 12,585.0 13,014.0
6/30/94 16,517.0 14,935.0 12,735.0 13,068.0
9/30/94 16,219.0 14,675.0 12,542.0 13,707.0
12/31/94 16,669.0 14,515.0 12,511.0 13,704.0
3/31/95 16,268.0 14,677.0 12,558.0 15,038.0
6/30/95 16,996.0 15,645.0 13,105.0 16,474.0
9/30/95 17,910.0 16,421.0 13,726.0 17,784.0
12/31/95 18,523.0 17,173.0 14,219.0 18,854.0
3/31/96 18,853.0 17,611.0 14,819.0 19,866.0
6/30/96 19,982.0 18,398.0 15,521.0 20,758.0
9/30/96 21,435.0 19,647.0 16,439.0 21,400.0
12/30/96 25,651.0 23,314.0 19,462.0 23,185.0
3/31/97 26,254.0 23,374.0 19,820.0 23,806.0
6/30/97 27,369.0 24,704.0 20,732.0 27,963.0
9/30/97 30,334.0 27,422.0 23,350.0 30,057.0
12/30/97 31,077.0 28,793.0 23,315.0 30,920.0
</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 210 real estate investment trusts.
The Wilshire Real Estate Securities Index is comprised of 123 companies
operating in the real estate industry and includes REITs. This Index does
not include REITs with investments in health care facilities. 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, 1997

<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- --------------
<S> <C> <C>
EQUITIES 97.52%
APARTMENT/RESIDENTIAL 13.91%
'D'Apartment Investment & Management Co. -- Class A........ 2,218,000 $ 81,511,500
'D'Avalon Properties....................................... 2,722,800 84,236,625
Bay Apartment Communities.................................. 784,300 30,587,700
BRE Properties -- Class A.................................. 467,100 13,137,187
'D'Charles E. Smith Residential Realty..................... 915,900 32,514,450
Colonial Properties Trust.................................. 958,200 28,865,775
'D'Essex Property Trust.................................... 1,335,700 46,749,500
'D'Irvine Apartment Communities............................ 1,206,800 38,391,325
Post Properties............................................ 1,313,200 53,348,750
Security Capital Pacific Trust............................. 1,286,500 31,197,625
'D'Sun Communities......................................... 1,030,100 37,019,219
--------------
477,559,656
--------------
DIVERSIFIED 12.90%
*Catellus Development Corp. ............................... 3,600,500 72,010,000
*Crescent Operating........................................ 382,700 9,376,150
LNR Property Corp.......................................... 1,471,900 34,773,638
Newhall Land & Farming Company............................. 1,889,700 56,691,000
*'D'Security Capital Group -- Class B...................... 1,157,300 37,612,250
*Security Capital Group -- Class B Warrants (expire
9/18/98)................................................ 181,261 951,620
*Security Capital U.S. Realty.............................. 2,168,500 30,792,700
'D'Vornado Realty Trust.................................... 4,273,400 200,582,712
--------------
442,790,070
--------------
HEALTH CARE 5.29%
Healthcare Realty Trust.................................... 490,400 14,190,950
Meditrust Corp............................................. 2,742,100 100,429,413
*'D'Sunrise Assisted Living................................ 1,553,500 66,994,687
--------------
181,615,050
--------------
HOTEL 5.44%
*Bristol Hotel Co.......................................... 1,578,100 45,863,531
*ITT Corp.................................................. 291,600 24,166,350
Starwood Hotels & Resorts Trust............................ 2,012,500 116,473,438
--------------
186,503,319
--------------
</TABLE>

See accompanying notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- --------------
<S> <C> <C>
INDUSTRIAL 8.08%
#AMB Property Corp......................................... 388,366 $ 8,977,080
'D'CenterPoint Properties Corp............................. 1,621,500 56,955,188
EastGroup Properties....................................... 707,100 15,291,037
'D'First Industrial Realty Trust........................... 2,006,500 72,484,813
Meridian Industrial Trust.................................. 1,006,000 25,653,000
Security Capital Industrial Trust.......................... 3,944,600 98,121,925
--------------
277,483,043
--------------
OFFICE 19.68%
'D'Arden Realty Group...................................... 3,125,900 96,121,425
'D'Brandywine Realty Trust................................. 1,368,700 34,388,588
CarrAmerica Realty Corp.................................... 647,200 20,508,150
Cousins Properties......................................... 1,564,500 45,859,406
Crescent Real Estate Equities.............................. 2,989,300 117,703,687
Equity Office Properties Trust............................. 3,191,100 100,719,103
'D'Highwoods Properties.................................... 2,483,300 92,347,719
'D'Mack-Cali Realty Corp................................... 3,540,400 145,156,400
'D'SL Green Realty Corp.................................... 882,000 22,876,875
--------------
675,681,353
--------------
OFFICE/INDUSTRIAL 8.01%
'D'Prime Group Realty Trust................................ 962,400 19,488,600
'D'Reckson Associates Realty Corp.......................... 3,485,300 88,439,488
'D'Spieker Properties...................................... 2,859,300 122,592,487
'D'TriNet Corporate Realty Trust........................... 1,149,500 44,471,281
--------------
274,991,856
--------------
SELF STORAGE 3.85%
Public Storage............................................. 4,500,900 132,213,937
--------------

SHOPPING CENTER 20.36%
COMMUNITY CENTER 5.28%
'D'Developers Diversified Realty Corp...................... 2,149,500 82,218,375
'D'Kimco Realty Corp....................................... 2,093,400 73,792,350
Regency Realty Corp........................................ 908,500 25,154,094
--------------
181,164,819
--------------
</TABLE>

See accompanying notes to financial statements.
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<CAPTION>
PRINCIPAL
AMOUNT
------------
COMMERCIAL PAPER 2.47%
Acquisition Holdings, 6.10%, 1/2/98..................... $ 4,609,000 4,608,219
American Home Products, 6.10%, 1/2/98................... 19,940,000 19,936,621
Leggett & Platt, 6.10%, 1/2/98.......................... 60,300,000 60,289,783
--------------
TOTAL COMMERCIAL PAPER (Identified Cost --
$84,834,623)................................. 84,834,623
--------------
TOTAL INVESTMENTS (Identified cost -- $2,721,739,174)....... 99.99% 3,432,660,226
OTHER ASSETS IN EXCESS OF LIABILITIES....................... 0.01% 334,596
------ --------------
NET ASSETS (Equivalent to $50.18 per share based on
68,415,020 shares of capital stock outstanding).......... 100.00% $3,432,994,822
------ --------------
------ --------------
</TABLE>

- ------------

* Non-income producing security.

'D' The Fund owns 5% or more of this company's outstanding voting securities
(Note 5).

# As of December 31, 1997, security is restricted and is subject to registration
with the Securities and Exchange Commission.

See accompanying notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $2,721,739,174) (Notes 1 and 5).... $3,432,660,226
Cash....................................................................................... 351
Receivable for fund shares sold............................................................ 24,169,093
Receivable for investment securities sold.................................................. 14,226,059
Dividends receivable....................................................................... 13,280,271
Other assets............................................................................... 53,738
--------------
Total Assets......................................................................... 3,484,389,738
--------------
LIABILITIES:
Payable for investment securities purchased................................................ 44,616,303
Payable for fund shares redeemed........................................................... 2,956,111
Payable to investment adviser.............................................................. 2,316,632
Payable to administrator................................................................... 744,920
Other liabilities.......................................................................... 760,950
--------------
Total Liabilities.................................................................... 51,394,916
--------------
NET ASSETS applicable to 68,415,020 shares of $0.001 par value common stock
outstanding (Note 4)....................................................................... $3,432,994,822
--------------
--------------
NET ASSET VALUE PER SHARE:
($3,432,994,822[div]68,415,020 shares outstanding)......................................... $ 50.18
--------------
--------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................ $2,684,592,331
Undistributed net realized gain on investments sold........................................ 37,481,439
Net unrealized appreciation on investments................................................. 710,921,052
--------------
$3,432,994,822
--------------
--------------
</TABLE>

See accompanying notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
Investment Income:
Dividend income (includes $60,330,447 received from affiliated issuers)...................... $136,800,642
Interest income.............................................................................. 8,827,038
------------
Total Income........................................................................... 145,627,680
------------
Expenses:
Investment advisory fees (Note 2)............................................................ 23,991,224
Administration and transfer agent fees (Note 2).............................................. 3,731,170
Custodian fees and expenses.................................................................. 982,078
Registration and filing fees................................................................. 560,383
Reports to shareholders...................................................................... 452,244
Professional fees............................................................................ 120,753
Directors' fees and expenses (Note 2)........................................................ 34,116
Miscellaneous................................................................................ 462,385
------------
Total Expenses......................................................................... 30,334,353
Reduction of expenses (Note 6)............................................................... (344,488)
------------
Net Expenses........................................................................... 29,989,865
------------
Net Investment Income.............................................................................. 115,637,815
------------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments (includes realized gains of $22,814,678 on
sales of investments in affiliated issuers)............................................... 163,378,333
Net change in unrealized appreciation on investments......................................... 291,842,960
------------
Net realized and unrealized gain on investments........................................ 455,221,293
------------
Net Increase in Net Assets Resulting from Operations............................................... $570,859,108
------------
------------
</TABLE>

See accompanying notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................. $ 115,637,815 $ 60,374,863
Net realized gain on investments....................... 163,378,333 31,989,185
Net change in unrealized appreciation on investments... 291,842,960 370,632,346
----------------- -----------------
Net increase in net assets resulting from
operations.................................... 570,859,108 462,996,394
----------------- -----------------
Dividends and Distributions to Shareholders from (Note 1):
Net investment income.................................. (116,292,923) (57,513,352)
Net realized gain on investments....................... (149,113,688) (23,648,701)
Tax return of capital.................................. -- (3,926,373)
----------------- -----------------
Total dividends and distributions to
shareholders.................................. (265,406,611) (85,088,426)
----------------- -----------------
Capital Stock Transactions (Note 4):
Increase in net assets from Fund share transactions.... 1,091,163,740 865,386,543
----------------- -----------------
Total increase in net assets..................... 1,396,616,237 1,243,294,511
Net Assets:
Beginning of year...................................... 2,036,378,585 793,084,074
----------------- -----------------
End of year............................................ $ 3,432,994,822 $ 2,036,378,585
----------------- -----------------
----------------- -----------------
</TABLE>

See accompanying 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>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1997 1996 1995 1994 1993
- ------------------------------------------------------ ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $ 45.09 $ 34.62 $ 32.90 $ 31.92 $ 29.58
---------- ---------- -------- -------- --------
Income from investment operations
Net investment income............................ 1.87 1.86 1.86 1.66 1.29
Net realized and unrealized gains on
investments................................... 7.40 11.04 1.69 0.98 4.24
---------- ---------- -------- -------- --------
Total from investment operations........... 9.27 12.90 3.55 2.64 5.53
---------- ---------- -------- -------- --------
Less dividends and distributions to shareholders from:
Net investment income............................ (1.88) (1.76) (1.33) (1.09) (1.27)
Realized gains on investments.................... (2.30) (0.55) -- -- (1.64)
In excess of net realized gains.................. -- -- -- -- (0.04)
Tax return of capital............................ -- (0.12) (0.50) (0.57) (0.24)
---------- ---------- -------- -------- --------
Total dividends and distributions to
shareholders............................ (4.18) (2.43) (1.83) (1.66) (3.19)
---------- ---------- -------- -------- --------
Net asset value, end of year.......................... $ 50.18 $ 45.09 $ 34.62 $ 32.90 $ 31.92
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
----------------------------------------------------------------------------------------------------------------
Total investment return............................... 21.16% 38.48% 11.13% 8.31% 18.76%
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year (in millions)............ $3,432.995 $2,036.379 $793.084 $458.098 $163.478
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Ratios of expenses to average daily net assets
(before expense reduction).................... 1.06% 1.10% 1.16% 1.26% 1.35%
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Ratios of expenses to average daily net assets
(net of expense reduction).................... 1.05% 1.08% 1.12% 1.14% 1.18%
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Ratio of net investment income to average daily
net assets (net of expense reduction)......... 4.04% 5.28% 6.05% 5.71% 4.57%
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Ratio of net investment income to average daily
net assets (before expense reduction)......... 4.02% 5.27% 6.01% 5.59% 4.40%
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Portfolio turnover rate.......................... 40.44% 33.23% 22.68% 39.00% 65.28%
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Average Commission Rate(a)....................... $ 0.0626 $ 0.0678 N/A N/A N/A
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
</TABLE>

- ------------------------
(a) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate per share it paid for trades on
which commissions were charged.

See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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 consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The preparation of the financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.

Portfolio Valuation: 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>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Dividends 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
ex-dividend 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,
1997, the Fund increased distributions in excess of net investment income by
$655,108 and decreased undistributed net realized gain on investments sold by
$655,108. 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.

NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATION 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 0.85% for the first $2.5 billion and 1/12th
of 0.75% thereafter of the average daily net assets of the Fund. For the year
ended December 31, 1997, the Fund incurred $23,991,224 in advisory fees.

Administration Fees: The Fund has entered into an administrative agreement
with the Adviser under which the Adviser performs certain administrative
functions for the Fund and receives a fee of 0.02% of the Fund's average daily
net assets. For the year ended December 31, 1997, the Fund paid the Adviser
$572,847 in fees under this administrative agreement.

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. Similarly, none of the
Fund's officers received compensation from the Fund. Fees and related expenses
accrued for non-affiliated directors totaled $34,116 for the year ended December
31, 1997.

- --------------------------------------------------------------------------------
14

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities, excluding short-term investments, for
the year ended December 31, 1997 totaled $2,081,573,316 and $1,090,765,920,
respectively.

At December 31, 1997, 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....................................................................... $2,689,299,565
--------------
Gross unrealized appreciation........................................................ $ 747,501,672
Gross unrealized depreciation........................................................ $ (4,141,011)
--------------
Net unrealized appreciation.......................................................... $ 743,360,661
--------------
--------------
</TABLE>

NOTE 4. CAPITAL STOCK

The Fund is authorized to issue 200 million shares of capital stock, par
value $0.001 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>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Sold................................... 42,163,082 $1,966,764,076 28,020,205 $1,072,865,893
Issued as reinvestment of dividends.... 4,893,086 236,192,855 1,840,925 74,067,867
Redeemed............................... (23,803,456) (1,111,793,191) (7,606,587) (281,547,217)
----------- -------------- ---------- --------------
Net increase........................... 23,252,712 $1,091,163,740 22,254,543 $ 865,386,543
----------- -------------- ---------- --------------
----------- -------------- ---------- --------------
</TABLE>

NOTE 5. INVESTMENT IN AFFILIATES

The market value of investments in affiliates (as defined in the Investment
Company Act of 1940, 'Affiliated Companies' are those in which the Fund holds 5%
or more of the outstanding voting securities) at December 31, 1997 totaled
$1,937,834,382.

- --------------------------------------------------------------------------------
15

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Affiliates, their investment income, and gain/(loss) from sales of
affiliates are as follows (in thousands):
<TABLE>
<CAPTION>
BEGINNING PURCHASE SALE ENDING PURCHASE SALES GAIN/(LOSS)
EQUITIES SHARES SHARES SHARES SHARES COST COST ON SALES
- ------------------------------------------- --------- -------- ------ ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Apartment Investment & Management Co. ..... -- 2,218 -- 2,218 $ 73,064 $ -- $ --
Arden Realty Group......................... -- 3,126 -- 3,126 83,051 -- --
Avalon Properties.......................... 1,904 819 -- 2,723 22,493 -- --
Brandywine Realty Trust.................... -- 1,369 -- 1,369 28,222 -- --
CenterPoint Properties Corp................ 1,140 502 20 1,622 15,793 468 160
Charles E. Smith Residential Realty........ 516 400 -- 916 11,351 -- --
Developers Diversified Realty Corp......... 938 1,258 46 2,150 47,336 1,415 392
Essex Property Trust....................... -- 1,336 -- 1,336 39,069 -- --
First Industrial Realty Trust.............. -- 2,007 -- 2,007 67,017 -- --
General Growth Properties.................. 540 2,414 -- 2,954 77,476 -- --
Highwoods Properties....................... 3,131 67 715 2,483 2,333 17,240 6,842
Irvine Apartment Communities............... 1,014 268 75 1,207 6,898 1,509 723
JP Realty.................................. 896 206 49 1,053 5,484 856 320
Kimco Realty Corp.......................... 1,544 632 83 2,093 20,493 1,720 1,133
Macerich Co................................ 1,747 182 50 1,879 4,880 963 368
Mack-Call Realty Corp...................... -- 3,540 -- 3,540 96,711 -- --
Prime Group Realty Trust................... -- 962 -- 962 19,299 -- --
Reckson Associates Realty Corp............. 840 2,759 114 3,485 46,122 1,400 1,497
Rouse Co................................... 2,272 3,110 90 5,292 92,757 1,650 1,020
Security Capital Group - Class B........... -- 1,157 -- 1,157 38,523 -- --
SL Green Realty Corp....................... -- 882 -- 882 21,680 -- --
Spieker Properties......................... 2,290 1,023 454 2,859 35,554 9,960 7,693
Sunrise Assisted Living.................... 1,268 286 -- 1,554 7,888 -- --
Sun Communities............................ 620 410 -- 1,030 13,723 -- --
TriNet Corporate Realty Trust.............. -- 1,150 -- 1,150 38,663 -- --
Vornado Realty Trust....................... 1,277 3,093 97 4,273 54,991 1,892 2,667
-------- ------- -----------
$970,871 $39,073 $22,815
-------- ------- -----------
-------- ------- -----------

<CAPTION>
DIVIDEND
EQUITIES INCOME
- ------------------------------------------- --------
<S> <C>
Apartment Investment & Management Co. ..... $ 945
Arden Realty Group......................... 2,447
Avalon Properties.......................... 4,019
Brandywine Realty Trust.................... 1,156
CenterPoint Properties Corp................ 2,522
Charles E. Smith Residential Realty........ 1,662
Developers Diversified Realty Corp......... 4,276
Essex Property Trust....................... 1,783
First Industrial Realty Trust.............. 1,063
General Growth Properties.................. 5,041
Highwoods Properties....................... 5,658
Irvine Apartment Communities............... 1,646
JP Realty.................................. 1,912
Kimco Realty Corp.......................... 3,260
Macerich Co................................ 3,397
Mack-Call Realty Corp...................... 1,668
Prime Group Realty Trust................... 160
Reckson Associates Realty Corp............. 3,363
Rouse Co................................... 4,366
Security Capital Group - Class B........... --
SL Green Realty Corp....................... 433
Spieker Properties......................... --
Sunrise Assisted Living.................... --
Sun Communities............................ 1,511
TriNet Corporate Realty Trust.............. 2,908
Vornado Realty Trust....................... 5,134
--------
$ 60,330
--------
--------
</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, 1997, the Fund's
expenses were reduced by $344,488 under this arrangement.

NOTE 7. BORROWINGS

The Fund has entered into a Line of Credit Agreement with Chase Manhattan
Bank for $100,000,000. During the year ended December 31, 1997, the Fund did not
have any loans outstanding. The loan, if used, will be collateralized by the
Fund's portfolio.

- --------------------------------------------------------------------------------
16

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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, 1997, 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, 1997, 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, 1997, 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, 1998

- --------------------------------------------------------------------------------
17

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.

VOTING RESULTS OF SPECIAL MEETING OF SHAREHOLDERS

The proposals described below were submitted to a vote of shareholders of
Cohen & Steers Realty Shares, Inc. at a special meeting held on April 23, 1997
(the 'Meeting'):

Proposal No. 1 -- To elect six Directors of the Fund, each to hold office
an indefinite period and until his successor is duly elected and qualified:

At the Meeting, the shareholders approved Proposal No. 1 as follows:

<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C> <C>
Election of Mr. Greg C. Clark.......................... 27,773,860 -- 434,426
Election of Mr. Martin Cohen........................... 27,824,554 -- 383,732
Election of Mr. George Grossman........................ 27,531,663 -- 676,623
Election of Mr. Jeffrey H. Lynford..................... 27,544,017 -- 664,269
Election of Mr. Willard H. Smith Jr.................... 27,772,662 -- 435,624
Election of Mr. Robert H. Steers....................... 27,827,334 -- 380,952
</TABLE>

Proposal No. 2 -- To eliminate the fundamental investment restriction
prohibiting the Fund from purchasing more than 10% of the voting securities of
any issuer:

At the Meeting, the shareholders approved Proposal No. 2 as follows:

<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- --------- ---------
<S> <C> <C> <C>
23,874,861 2,758,099 1,575,326
</TABLE>

Proposal No. 3 -- To amend the Fund's fundamental investment restrictions
to permit the Fund to invest up to 15% of its net assets in illiquid securities:

At the Meeting, the shareholders approved Proposal No. 3 as follows:

<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- --------- ---------
<S> <C> <C> <C>
22,891,072 3,714,109 1,603,105
</TABLE>

Proposal No. 4 -- To amend the Fund's fundamental investment restrictions
to permit the Fund to invest in financial futures contracts, options thereon and
similar instruments:

At the Meeting, the shareholders approved Proposal No. 4 as follows:

<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- --------- ---------
<S> <C> <C> <C>
21,702,524 4,784,969 1,720,793
</TABLE>

- --------------------------------------------------------------------------------
18

<PAGE>

<PAGE>
- --------------------------------------------------------------------------------
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.
Martin Cohen 757 Third Avenue
Director and President New York, NY 10017
Gregory C. Clark (212) 832-3232
Director FUND ADMINISTRATOR AND TRANSFER AGENT
George Grossman Chase Global Funds Services Co.
Director 73 Tremont Street
Jeffrey H. Lynford Boston, MA 02108
Director (800) 437-9912
Willard H. Smith, Jr. CUSTODIAN
Director The Chase Manhattan Bank, N.A.
Elizabeth O. Reagan 3 Chase MetroTech Center
Vice President Brooklyn, NY 11245
Adam Derechin LEGAL COUNSEL
Vice President and Dechert Price & Rhoads
Assistant Treasurer 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 Cohen & Steers.
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>

- --------------------------------------------------------------------------------
19

<PAGE>

[Graphic of an open door in a field with
buildings visible through door.]

COHEN & STEERS
REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017

First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712

COHEN & STEERS
REALTY SHARES

ANNUAL REPORT
DECEMBER 31, 1997

STATEMENT OF DIFFERENCES
------------------------

The dagger symbol shall be expressed as .......................... 'D'
The division sign shall be expressed as ........................... [div]