<PAGE>
COHEN & STEERS
--------------
REALTY SHARES
QUARTERLY REPORT
MARCH 31, 2000
COHEN & STEERS
REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
April 17, 2000
To Our Shareholders:
We are pleased to submit to you our report for the quarter ended March 31,
2000. The net asset value on that date was $36.93. In addition, a regular
quarterly dividend of $0.47 was declared for shareholders of record on
March 22, 2000 and paid on March 23, 2000.
INVESTMENT REVIEW
For the quarter, the Fund had a total return, based on income and change in
net asset value, of 1.4%. This compares the NAREIT Equity REIT Index* total
return of 2.5%.
Despite the near-chaotic behavior in nearly every corner of the financial
markets so far this year, REITs remained steady and produced positive, albeit
modest, returns which were competitive with the overall stock market. The Hotel
and Regional Mall sectors, among the most depressed during 1999, rebounded to be
among the best performers during the quarter as their fundamentals proved to be
much better than expected. The Office sector also performed well as strong
employment growth coupled with a restrained supply picture has continued to
favor office building owners. Meanwhile, the Health Care sector once again
produced negative returns as many of the beleaguered operators of these
facilities continue to undergo financial restructuring.
NAREIT EQUITY REIT INDEX 12 MONTH TOTAL RETURNS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
QUARTER ENDED
- -----------------------------------------------------------------------------------------------------------------
1Q92 1Q93 1Q94 1Q95 1Q96
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.3 13.3 16.3 14.6 38.5 31 34.1 19.7 1.7 6.6 -4.5 3.2 -0.4 3.6 10.7 15.3 18.1 16.5 18.5 35.3
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
- --------------------------------------------------------------------------
1Q97 1Q98 1Q99 1Q00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33.2 33.8 40.5 20.3 18.9 8 -13.5 -17.5 -21.1 -9 -6.5 -4.6 2.6
</TABLE>
Source: NAREIT
In our opinion, investment performance so far in 2000 appears to represent
an important shift in investor sentiment and an improved supply/demand picture
for REIT shares. In addition to the competitive returns in the latest quarter,
and perhaps more importantly, REITs have produced positive 12-month returns for
the first time since mid-1998. As shown in the chart it appears that on a
cyclical basis, the REIT bear market may be coming to an end.
Perhaps predictably, a number of influential Wall Street strategists have
begun to recommend that their clients reduce their overall equity exposure and
add REITs in their place. REITs are apparently again being viewed as both a safe
haven for capital as well as a good source of current income. In a world where
growth has been of foremost significance and current income has simply been
unimportant to most investors, persistent efforts by the Federal Reserve to slow
the economy by raising interest rates may have finally convinced market
participants that
1
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COHEN & STEERS REALTY SHARES, INC.
the Fed will eventually prevail. Such a slowdown would probably favor
income-oriented securities and, as a result, the U.S. Treasury market has
staged a strong rally. This rally, no doubt, has been enhanced by the Treasury's
program of repurchasing securities with funds generated by the budget
surplus. Considering that interest rates are low while the economy is still
showing strong growth, one can only imagine how low interest rates may
ultimately fall to once the economy shows some signs of weakness. With equity
REITs in general currently yielding well over 8%, and with these dividends
having exhibited impressive growth over the past several years, REITs investment
characteristics are becoming more highly valued.
On the supply side, it is also symptomatic of a bottoming of REIT share
prices that capital raising has virtually ground to a halt. As shown in the
table, REITs raised only $646 million in equity (more than half of which was
preferred stock) in the first quarter, a 60% decline from a year ago, and a 93%
decline from two years ago. Debt capital raised declined by a lesser,
but still significant amount. Further, total equity issuance by REITs during
the 12-month period ended March 31, at $5.8 billion, was the lowest 12-month
total since the second quarter of 1993.
<TABLE>
<CAPTION>
Capital Raised by REITs ($millions)
- -------------------------------------------------------
First Quarter of: Debt Equity Total
- -------------------------------------------------------
<S> <C> <C> <C>
1998 $5,427 $9,009 $14,436
- -------------------------------------------------------
1999 4,047 1,600 5,647
- -------------------------------------------------------
2000 1,938 646 2,584
- -------------------------------------------------------
</TABLE>
Source: NAREIT
In addition to the lack of demand for new capital, outflows from real estate
mutual funds slowed to a trickle, and the supply of existing REIT shares
continued to shrink as many companies have persistently repurchased stock in the
open market. By quarter's end, 59 REITs had authorized buybacks totaling nearly
$6 billion. As a consequence of all the above, the REIT industry appears to us
to be at or close to a bottom.
INVESTMENT OUTLOOK
For most of the past two years REITs were unable to raise capital because it
was either not available, or too highly priced. Today, however, it is our
perception that the psychology of REIT management has begun to change. Resigned
to the reality that the capital markets may not always be open to them, and
because there are not a great deal of new investment opportunities, more and
more companies are adopting self-financing business plans. This entails constant
reevaluation of properties held in the portfolio and aggressively selling or
repositioning those that do not meet their investment criteria. Proceeds from
these sales are commonly used to fund higher return opportunities, repay debt or
repurchase stock. Many other companies are finding privately financed joint
ventures to be a preferable way to take advantage of opportunities. In short,
many companies are learning to live well without constantly tapping the capital
markets.
2
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COHEN & STEERS REALTY SHARES, INC.
To the extent that this thinking prevails, the supply side of the REIT share
equation will continue to improve. The commonly held belief that at the first
uptick in prices, REITs will flood the market with new stock issuance, has often
helped to abort any meaningful recovery in their prices. A wide adoption of this
new business model would be a clear departure from recent thinking. There are
two other factors worthy of mention. First, the shares of nearly all REITs began
the year at such unprecedented low valuations that even a strong price rally
would still leave them undervalued. Second, because many companies have just
recently implemented extensive repurchase programs of their own stock, it would
be illogical for them to quickly reissue that equity unless they were confronted
with some extraordinary investment opportunities. In these cases, however, it
would be highly likely that any top tier company would be able to access capital
privately in both a more efficient and low cost manner.
Meanwhile, without the benefit of a great deal of new investments and little
or no additional capital, the REIT industry has continued to enjoy healthy
growth in earnings. Funds from operations (FFO) per share grew at an average of
10% in 1999 and are widely expected to grow by a further 9% in 2000. This growth
potential is not confined to any single property type or geographic region -- it
is an industry-wide phenomenon that is the result of the strong economy and
discipline with respect to new construction. We do, however, expect the Office,
Industrial and Apartment sectors to enjoy the highest growth rates and have
accordingly maintained a strong weighting in these property types. We are
particularly optimistic about owners of office buildings in major cities due to
the demand for space fueled by employment growth, the impediments to new
construction and the long lead times required to bring on new supply. We are
somewhat concerned about the retail environment and have consequently maintained
an under-weighted position in the sector. Following the strongest sales growth
in a decade, the prospect of slower economic growth and the continued pressure
of the Internet on both retail sales and margins, we expect investor psychology
to be less positive on this sector than on many others.
Two trends that we expect to continue are the emergence of more technology
initiatives by property owners, and a clarification of plans by many REITs to
establish taxable subsidiaries that will be allowed to operate beginning in
2001. Property owners are increasingly able to deliver goods and services to
tenants and, in addition, manage their properties more efficiently due to
advances in technology and the Internet. These initiatives enable the property
owners to potentially increase revenue and reduce costs. For example, it appears
that some REITs are targeting taxable subsidiaries as a means of either 1)
providing services to tenants, 2) holding properties on a shorter-term basis
than what is allowed in the REIT itself, or 3) purchasing properties that are
expected to produce a high return but may be outside of the mainstream of the
company's existing portfolio. Importantly, these initiatives are not only
potentially additive to earnings but are also enabling many companies to employ
'new economy' strategies using their 'old economy' asset bases.
It is always difficult to reconcile the efficiency of the financial market
with the emotional extremes to which it tends to move. Just as many have
questioned
3
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COHEN & STEERS REALTY SHARES, INC.
the low valuations of realty stocks in light of their strong fundamentals. We
believe that recent market activity is bringing valuations of both groups more
in line with true underlying fundamentals. If these trends continue, it is our
hope that the Fund will be able to deliver rewarding returns on both an absolute
and relative basis.
Sincerely,
Martin Cohen Robert H. Steers
MARTIN COHEN ROBERT H. STEERS
President Chairman
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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.
- --------------------------------------------------------------------------------
* The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly-traded REITs that invest predominately in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
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4
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------------
<S> <C> <C> <C>
EQUITIES 98.00%
APARTMENT/RESIDENTIAL 17.24%
Apartment Investment & Management
Co. -- Class A....................... 1,894,900 $ 72,361,494
AvalonBay Communities................... 1,923,202 70,437,256
Charles E. Smith Residential Realty..... 476,900 17,228,013
Equity Residential Properties Trust..... 210,800 8,471,525
Essex Property Trust.................... 566,800 20,404,800
--------------
188,903,088
--------------
HEALTH CARE 7.48%
Health Care Property Investors.......... 1,120,100 28,492,543
*Manor Care.............................. 1,442,000 19,467,000
Nationwide Health Properties............ 2,105,600 21,977,200
*Ventas.................................. 3,641,100 12,061,144
--------------
81,997,887
--------------
HOTEL 8.92%
Host Marriott Corp...................... 2,048,100 18,176,888
MeriStar Hospitality Corp............... 691,100 12,051,056
Starwood Hotels & Resorts Worldwide..... 2,570,800 67,483,500
--------------
97,711,444
--------------
INDUSTRIAL 6.01%
AMB Property Corp....................... 1,325,800 28,504,700
First Industrial Realty Trust........... 124,500 3,392,625
ProLogis Trust.......................... 1,763,100 33,939,675
--------------
65,837,000
--------------
OFFICE 32.09%
Arden Realty Group...................... 2,181,000 45,528,375
Boston Properties....................... 400,800 12,750,450
**Brookfield Properties Corp.............. 1,030,200 11,885,831
Cousins Properties...................... 255,900 9,420,319
Crescent Real Estate Equities Co........ 772,700 13,522,250
Equity Office Properties Trust Co....... 1,684,900 42,333,113
Highwoods Properties.................... 926,100 19,679,625
Mack-Cali Realty Corp................... 2,203,800 56,196,900
SL Green Realty Corp.................... 1,091,300 25,918,375
Vornado Realty Trust.................... 3,413,700 114,358,950
--------------
351,594,188
--------------
</TABLE>
5
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------------
<S> <C> <C> <C>
OFFICE/INDUSTRIAL 13.62%
Prime Group Realty Trust................ 1,073,600 $ 15,365,900
PS Business Parks....................... 775,000 15,790,625
Reckson Associates Realty Corp.......... 2,581,000 48,393,750
Spieker Properties...................... 1,566,200 69,695,900
--------------
149,246,175
--------------
SELF STORAGE 0.33%
Public Storage.......................... 170,500 3,580,500
--------------
SERVICES & TECHNOLOGY 4.35%
*CAIS Internet.......................... 363,600 8,794,575
*Crescent Operating..................... 170,900 491,337
*FrontLine Capital Group................ 871,700 38,354,800
--------------
47,640,712
--------------
SHOPPING CENTER 7.96%
COMMUNITY CENTER 2.19%
Kimco Realty Corp....................... 639,700 23,988,750
--------------
REGIONAL MALL 5.77%
General Growth Properties............... 786,500 23,939,094
Macerich Co............................. 955,300 19,703,062
Rouse Co................................ 269,700 5,697,413
Simon Property Group.................... 579,600 13,910,400
--------------
63,249,969
--------------
TOTAL SHOPPING CENTER................... 87,238,719
--------------
TOTAL EQUITIES (Identified
cost -- $1,113,458,953).......... 1,073,749,713
--------------
</TABLE>
6
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER 1.44%
Republic Industries Funding, 6.15%,
due 4/3/00
(Identified cost -- $15,750,616)... $ 15,756,000 $ 15,750,616
--------------
TOTAL INVESTMENTS (Identified
cost -- $1,129,209,569).............. 99.44% 1,089,500,329
OTHER ASSETS IN EXCESS OF
LIABILITIES.......................... 0.56% 6,163,607
------ --------------
NET ASSETS (Equivalent to $36.93 per
share on
29,667,682 shares of capital stock
outstanding)......................... 100.00% $1,095,663,936
------ --------------
------ --------------
</TABLE>
- ---------
* Non-income producing security.
** Brookfield Properties Corp. is a Canadian company listed on the Toronto and
New York Stock Exchanges. The Toronto Stock Exchange is deemed the principal
exchange for valuation purposes. The market value of the Fund's position in
Canadian dollars on March 31, 2000 was $17,255,850 based on an exchange rate
of 0.689 Canadian dollars to 1 U.S. dollar.
7
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS'D'
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
------------------------------ ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/99................ $1,464,993,723 $36.91
Net investment income.................... $ 15,012,775 $ 0.51
Net realized and unrealized loss on
investments............................ (12,196,680) (0.02)
Distributions from net investment
income................................. (13,967,338) (0.47)
------
Capital stock transactions:
Sold................................. 126,751,547
Distributions reinvested............. 11,973,040
Redeemed............................. (496,903,131)
-------------
Net increase/(decrease) in net asset value... (369,329,787) 0.02
-------------- ------
End of period: 3/31/00....................... $1,095,663,936 $36.93
-------------- ------
-------------- ------
</TABLE>
- ---------
'D' Financial information included in this report has been taken from the
records of the Fund without examination by independent accountants.
AVERAGE ANNUAL TOTAL RETURNS
(PERIODS ENDED MARCH 31, 2000)
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS SINCE INCEPTION (7/2/91)
- -------- ---------- -------------------------
<S> <C> <C>
7.75% 10.25% 11.78%
</TABLE>
8
<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.
Martin Cohen 757 Third Avenue
Director and President New York, NY 10017
(212) 832-3232
Gregory C. Clark
Director FUND SUB-ADMINISTRATOR AND TRANSFER
AGENT
George Grossman Chase Global Funds Services Co.
Director 73 Tremont Street
Boston, MA 02108
Jeffrey H. Lynford (800) 437-9912
Director
CUSTODIAN
Willard H. Smith, Jr. The Chase Manhattan Bank
Director One Chase Manhattan Plaza
New York, NY 10081
Elizabeth O. Reagan
Vice President LEGAL COUNSEL
Simpson Thacher & Bartlett
Adam Derechin 425 Lexington Avenue
Vice President and Assistant Treasurer New York, NY 10017
Lawrence B. Stoller DISTRIBUTOR
Assistant Secretary Cohen & Steers Securities, Inc.
757 Third Avenue
New York, NY 10017
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. Past
performance, of course, is no
guarantee of future results and your
investment may be worth more or less
at the time you sell.
</TABLE>
9
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as....................................'D'
