<PAGE>
<PAGE>
COHEN & STEERS
---------------
REALTY SHARES
QUARTERLY REPORT
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
COHEN & STEERS
REALTY SHARES First Class Mail
757 THIRD AVENUE U.S. Postage
NEW YORK, NY 10017 PAID
Boston, MA
Permit No. 56712
</TABLE>
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
October 15, 1998
To Our Shareholders:
We are pleased to submit to you our report for the quarter and nine months
ended September 30, 1998. The net asset value per share at that date was
$40.21. In addition, a regular quarterly dividend of $0.47 was declared for
shareholders of record on September 23, 1998 and paid on September 24, 1998.
INVESTMENT REVIEW
For the quarter ended September 30, 1998, the Fund had a total return of
- -11.9%, based on income and change in net asset value, compared to the NAREIT
Equity REIT Index total return of -10.5%. The Fund's year-to-date return was
- -17.3% compared to the NAREIT Equity REIT Index total return of -15.0%.
Never before has the state of real estate finance deteriorated as quickly
and dramatically as in the latest three-month period. Whereas at mid-year the
equity market was beginning to close to REITs in need of capital, the decline
in REIT share prices in the third quarter completely shut off access to equity
capital for all publicly traded real estate companies. Despite a sharp rally in
mid-September, this year's price decline remains on track to be the worst in
REIT history.
Of greater near-term consequence, however, is the recent shut-down of the
real estate debt markets. It is estimated that somewhere between $30 and $40
billion of mortgage loans and commitments have been made by financial
institutions to real estate developers and owners. These loans, which are now
held on the books of these financial institutions, were expected to be
'securitized' and sold to investors in the form of commercial mortgage backed
securities ('CMBS'). The recent widening of yield spreads between U.S.
government debt securities and nearly all other debt has left these securities
unsold, and in many instances unsalable. The financial institutions holding
this paper face substantial losses and, moreover, can no longer make any
further loan commitments. Whereas the problems in the equity market primarily
affected public companies, the difficulties in the debt market affect the
entire real estate industry.
As a result, the real estate industry is facing a liquidity crisis that is
typical for this stage of the economic and real estate cycle. Unlike the end of
nearly all other real estate cycles, however, property market conditions are
exceptionally good: vacancy rates are low, rents are rising and new
construction is sufficient only to meet existing strong demand for space --
hardly the circumstances which should cause investor concern. This has led many
in the real estate industry -- both public and private -- to question the
wisdom of the financial market mechanism.
We believe that the absence of demand for both debt and equity real estate
securities is a reflection of the market's concern with respect to three
issues. First is the future course of the economy. If the weakness in the stock
market and strength of the government bond market signal an economic recession,
then the resulting decline in demand for space would clearly remove the
strongest underpinning of the real estate recovery of the past several years.
Second, the dramatic growth of the real estate equity and debt markets over the
past several years has raised the specter of potential financial excesses in
the real estate markets; simply put, too much money has
- ------------------------------------------------------------------------------
1
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
been chasing real estate. And third, the threat of deflationary pressures on
the prices of both hard and financial assets is potentially a devastating one
for all investors, particularly those in real estate.
In contrast to the opinions of many, we believe that the capital markets
have behaved magnificently with respect to real estate. Cutting off funding of
new development before severe over-building could take place, for example, has
dramatically improved the probability of a more mild real estate downturn, if
there is to be one at all. Similarly, the closing of the debt markets is
punishing both those resorting to high leverage as well as their lenders for
imprudent financial practices. Finally, the liquidity squeeze has put an end to
an upward spiral of property prices which, if allowed to go any further, would
have reached an unsustainable high level.
INVESTMENT OUTLOOK
Although REIT investors have clearly suffered short-term pain, the
longer-term outlook has dramatically improved. As we have mentioned in the past,
we believe that the valuation level of REITs, by just about every measure, is
as attractive as ever. The decline in prices during the third quarter has only
improved that valuation picture. It is therefore our contention that much of
the fundamental risk facing the industry is already discounted in the currently
depressed share prices. Nonetheless, we believe there may still be some market
turbulence before year-end due to potential further fallout from the credit
crunch, particularly if one or more major financial institutions were to fail
or if widespread concern about an economic slowdown turns into fear of a severe
recession. In addition, there may be tax-loss selling before year-end that
could further depress stock prices. We would view any further weakness in the
REIT group, however, as the final phase of a correction that could lead to a
period of strong and sustainable earnings growth and stock market performance.
The conditions described above have vastly broadened the range of
high-return opportunities available to the leading public real estate
companies. Competition from debt-financed private competitors has been
eliminated, while the property portfolios amassed by many of them will soon be
available for acquisition either through outright sale or by foreclosure due to
mortgages in default. Though not as severe as the conditions that prevailed in
the early 1990's, the improved position of many REITs since that period will
enable them to experience substantial growth, just as they did then.
This renewed opportunity set will likely attenuate the widely anticipated
slowdown in profits due to the maturing real estate cycle and the narrowing of
acquisition opportunities. In the environment that we foresee in the next year,
we believe that REITs may reemerge as vehicles that can provide above-average
current income and experience accelerating growth. Further, these conditions
will enhance the position of REITs as the country's most powerful and efficient
real estate owners and managers.
We suspect that this point of view probably represents a minority opinion.
In addition, the industry continues to face several hurdles that could suppress
investor enthusiasm. Foremost is the continuous need that REITs have for both
equity and debt capital which regularly seems to place an effective ceiling on
their share prices. In periods such as this past year, capital became
unavailable to REITs not just as a result of a supply-demand imbalance but also
because the market perceived that REITs lacked good investment opportunities.
We believe that just the
- -------------------------------------------------------------------------------
2
<PAGE>
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
opposite may occur in the coming months; if the opportunity set for REITs
expands, so will their P/E ratios, and capital availability will no longer be
an issue.
Interestingly, especially at current prices, a slowdown in economic growth
may not have a meaningful impact on REIT share prices for three reasons. First,
REITs are cheaper today than at any time in the past, including before and
during economic recessions. Second, REIT dividends are extremely secure due to
the long-term nature of leases that produce earnings, the low pay-out ratios
that are prevalent in the industry and the modest use of leverage. Further,
economic weakness appears certain to precipitate further interest rate declines
and in this environment, REITs will be very attractive to both equity and
income-oriented investors alike. And third, worsening economic conditions will
further expand the range of acquisition opportunities available to REITs,
again, just like in the early 1990's.
From an investment strategy standpoint, it is important to note that in
the environment we foresee, not all REITs will emerge as winners.
Unfortunately, there are many companies that used excessive leverage, pursued
irrational business plans and failed to adhere to practices that would have
enhanced shareholder value. The experience of the past year has served to
clearly distinguish companies and managements that are capable of weathering
economic storms and exercising financial discipline. These are the biggest
potential winners in the real estate industry in the next few years, and they
will lead the industry to even greater prominence. These too are the companies
that are the focus of our portfolio. In addition, as we have mentioned in the
past, this is the reason that we have dramatically reduced the number of
holdings in our portfolio.
Perhaps the biggest hurdle that REITs will have to overcome is that they
have performed so poorly recently and have failed to provide the defensive
characteristics that have been their hallmark for many years. Their decline, in
our opinion, had nothing to do with their intrinsic nature, but had everything
to do with the position of the real estate cycle. If we are correct in assuming
that we are about to enter a new phase of that cycle, and that there is the
prospect of renewed growth, investors will regain confidence in the ability of
REITs to provide consistently satisfactory returns going forward.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
Cohen & Steers is now online at WWW.COHENANDSTEERS.COM. Visit our website
for daily navs, portfolio information, performance information, recent
news articles, literature and insights on the REIT market.
- -------------------------------------------------------------------------------
3
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------------
<S> <C> <C> <C>
EQUITIES 96.20%
APARTMENT/RESIDENTIAL 13.50%
Apartment Investment & Management Co. -- Class A............. 2,882,500 $ 108,814,375
Archstone Communities Trust.................................. 2,602,300 53,021,862
AvalonBay Communities........................................ 2,455,097 83,626,741
Charles E. Smith Residential Realty.......................... 605,900 18,404,212
Essex Property Trust......................................... 1,244,200 38,570,200
Irvine Apartment Communities................................. 2,000 53,750
--------------
302,491,140
--------------
DIVERSIFIED 10.61%
*Crescent Operating........................................... 301,200 2,108,400
LNR Property Corp............................................ 2,588,100 49,982,681
Newhall Land & Farming Company............................... 633,700 14,812,738
*Reckson Services Industries.................................. 1,612,608 3,779,550
Vornado Realty Trust......................................... 5,037,800 166,877,125
--------------
237,560,494
--------------
HEALTH CARE 3.16%
Healthcare Realty Trust...................................... 921,400 23,495,700
Meditrust Corp............................................... 1,405,200 23,976,225
Nationwide Health Properties................................. 1,041,600 23,436,000
--------------
70,907,925
--------------
HOTEL 5.54%
Starwood Hotels & Resorts Trust.............................. 4,065,600 124,000,800
--------------
INDUSTRIAL 8.53%
#AMB Property Corp. 144....................................... 388,365 9,222,698
CenterPoint Properties Corp.................................. 780,300 28,285,875
First Industrial Realty Trust................................ 2,552,300 65,083,650
ProLogis Trust............................................... 3,907,200 88,400,400
--------------
190,992,623
--------------
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------------
<S> <C> <C> <C>
OFFICE 22.67%
Arden Realty Group........................................... 4,309,800 $ 96,162,412
Brandywine Realty Trust...................................... 608,800 11,643,300
Cousins Properties........................................... 1,165,100 32,695,619
Crescent Real Estate Equities Co............................. 3,914,500 98,841,125
Equity Office Properties Trust............................... 891,300 21,836,850
Highwoods Properties......................................... 3,177,700 88,181,175
Mack-Cali Realty Corp........................................ 4,319,100 129,573,000
SL Green Realty Corp......................................... 1,376,500 28,906,500
--------------
507,839,981
--------------
OFFICE/INDUSTRIAL 11.97%
Prime Group Realty Trust..................................... 1,865,700 31,250,475
PS Business Parks............................................ 1,034,300 21,203,150
Reckson Associates Realty Corp............................... 3,359,600 78,950,600
Spieker Properties........................................... 2,403,700 88,335,975
TriNet Corporate Realty Trust................................ 1,477,500 48,203,438
--------------
267,943,638
--------------
SELF STORAGE 2.05%
Public Storage............................................... 1,713,700 45,948,581
--------------
SHOPPING CENTER 18.17%
COMMUNITY CENTER 7.74%
Developers Diversified Realty Corp........................... 4,329,300 79,009,725
Kimco Realty Corp............................................ 2,482,000 94,316,000
--------------
173,325,725
--------------
REGIONAL MALL 10.43%
General Growth Properties.................................... 2,244,300 79,953,188
JP Realty.................................................... 1,020,900 22,715,025
Macerich Co.................................................. 2,227,100 59,853,313
Rouse Co..................................................... 2,455,000 66,131,563
Simon Property Group......................................... 170,300 5,066,425
--------------
233,719,514
--------------
TOTAL SHOPPING CENTER............................... 407,045,239
--------------
TOTAL EQUITIES (Identified
cost -- $2,195,929,656)..................... 2,154,730,421
--------------
</TABLE>
- -------------------------------------------------------------------------------
5
<PAGE>
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER 4.11%
Aluminum Company of America, 5.60%, 10/01/98................. $11,624,000 $ 11,624,000
Equilon Enterprises LLC, 5.60%, 10/01/98..................... 50,314,000 50,314,000
TRW, 5.60%, 10/01/98......................................... 30,000,000 30,000,000
--------------
TOTAL COMMERCIAL PAPER (Identified cost -- $91,938,000)...... 91,938,000
--------------
TOTAL INVESTMENTS (Identified cost -- $2,287,867,656).......... 100.31% 2,246,668,421
LIABILITIES IN EXCESS OF OTHER ASSETS.......................... (0.31)% (6,921,313)
------ --------------
NET ASSETS (Equivalent to $40.21 per share based on 55,696,442
shares of capital stock outstanding)......................... 100.00% $2,239,747,108
------ --------------
------ --------------
</TABLE>
- ------------
* Non-income producing security.
# As of September 30, 1998, security is restricted and is subject to
registration with the Securities and Exchange Commission.
FINANCIAL HIGHLIGHTS'D'
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
---------------------------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/97................................ $ 3,432,994,822 $50.18
Net investment income................................... $ 82,087,567 $ 1.35
Net realized and unrealized loss on investments......... (612,428,510) (9.91)
Distributions from net investment income................ (85,273,667) (1.41)
------
Capital stock transactions:
Sold.............................................. 744,046,595
Distributions reinvested.......................... 71,301,711
Redeemed.......................................... (1,392,981,410)
---------------
Net decrease in net asset value.............................. (1,193,247,714) (9.97)
--------------- ------
End of period: 9/30/98....................................... $ 2,239,747,108 $40.21
--------------- ------
--------------- ------
</TABLE>
- ------------
'D' Financial information included in this report has been taken from the
records of the Fund without examination by independent accountants.
- -------------------------------------------------------------------------------
6
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Willard H. Smith, Jr.
Director
Elizabeth O. Reagan
Vice President
Adam Derechin
Vice President and
Assistant Treasurer
William Goodwin
Assistant Secretary
KEY INFORMATION
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
SUB-ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, MA 02108
(800) 437-9912
CUSTODIAN
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20006
NASDAQ Symbol: CSRSX
Website: www.cohenandsteers.com
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 only to shareholders of Cohen & Steers
Realty Shares, Inc. unless accompanied or preceded by the delivery of a
currently effective prospectus setting forth details of the Fund.
7
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as..................................... 'D'
