UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act File Number: 811-6302
Cohen & Steers Realty Shares, Inc.
(Exact name of registrant as specified in charter)
757 Third Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
Robert H. Steers
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 832-3232
Date of fiscal year end: December 31
Date of reporting period: December 31, 2004
<Page>
Item 1. Reports to Stockholders.
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COHEN & STEERS REALTY SHARES, INC.
February 21, 2005
To Our Shareholders:
We are pleased to submit to you our report for the quarter and year ended
December 31, 2004. The net asset value at that date was $69.66. In addition, a
distribution of $5.23 per share, including a regular quarterly distribution of
$0.56 per share, a short-term capital gains distribution of $0.48 per share, and
a long-term capital gains distribution of $4.19 were declared for shareholders
of record on December 22, 2004 and were paid on December 23, 2004.(a)
INVESTMENT REVIEW
For the quarter, Cohen & Steers Realty Shares had a total return, based on
income and change in net asset value, of 17.6%. This compares to the NAREIT
Equity REIT Index's(b) total return of 15.2%. For the year, the fund's total
return was 38.5%, compared to NAREIT's 31.6%.
One year ago, in our year-end letter to shareholders, we shared our belief
that REITs would experience 'a continuation of strong performance' as a result
of strong expected economic fundamentals. We predicted that GDP would increase
by at least 4% in 2004, creating 1.5 to 2.0 million jobs and leading to
improving real estate fundamentals and accelerating cash flow growth rates for
REITs. We are pleased to report that all of these predictions have been
realized. In our view, the fund was well positioned to benefit from these
factors. As a result, we experienced one of our best years ever in terms of both
absolute and relative performance, outperforming the fund's benchmark by a
substantial margin.
The major theme within the portfolio all year, and in our view the primary
driver of REIT stock price appreciation, was the resurgence in growth, both cash
flow growth and dividend growth. This has been the guiding force in our stock
selection, where we added value in essentially all the property types in our
investment universe. Contrary to many pundits who suggested that the directional
change in interest rates would dominate REIT stock price performance, we
continued to believe that changing interest rates have an indeterminate effect
on REIT prices over the longer term (i.e. the correlation between the two is
low). In our view, performance this year amply demonstrated that real estate
fundamentals are what matter the most. REIT cash flow growth rates had been
decelerating since the last peak in REIT stock prices in early 1998. REIT
earnings growth finally bottomed in the first quarter of 2004, after falling for
six years, and then re-accelerated briskly in the second and third quarters,
sparking a substantial REIT rally.
Additionally, we believe that investors of all types -- individual and
institutional, in the United States and abroad -- continued to gravitate toward
REITs in recognition of their historical investment characteristics,
- -------------------
(a) Please note that distributions paid by the fund to shareholders are subject
to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders after the close of each fiscal
year.
(b) The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly traded REITs that invest predominantly in the equity
ownership of real estate. The index is designed to reflect the performance
of all publicly traded equity REITs as a whole.
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COHEN & STEERS REALTY SHARES, INC.
including a secure and growing dividend stream, diversification away from the
broader stock and bond markets, and competitive total returns. In addition, as
more and more investors came to appreciate the investment characteristics of
real estate, REIT merger and acquisition activity heated up. The prices paid for
real estate companies over the course of 2004 continued to validate the higher
asset values associated with high quality U.S. commercial real estate assets.
Within the REIT sector, regional mall companies continued to lead the REIT
industry in performance. Benefiting from strong sales growth, rapid
consolidation of ownership (resulting in greater leverage with retailers),
strong demand for space by retailers, and a relatively fixed supply of franchise
assets, regional malls returned 45.0%. Our stock selection and overweight in
this sector was the greatest single contributor to the fund's performance. Mills
Corporation was our best performing mall investment, having generated a 52.4%
total return. Shopping centers benefited from some of the same trends in
retailing and returned 36.3%.
The apartment and industrial sectors, both cyclical in nature, benefited
from a strong economy and generated 34.7% and 34.1% total returns respectively.
Our stock selection in the apartment sector and our decision to move from an
underweight to an overweight earlier in the year were, in combination, the
second greatest contributor to our performance this year. AvalonBay Communities,
for example, was the best performing stock in our portfolio, generating a 65.0%
total return. Manufactured housing was the worst performing sector, returning
only 6.4% as lower apartment rents and affordable for-sale housing continued to
disadvantage this low-priced housing alternative.
Office companies also trailed the index on average by a wide margin,
returning 23.3% as a group. Office fundamentals, however, varied widely across
the United States. Several office companies in tightening markets generated
total returns in excess of 30%, while many in markets with a more substantial
vacancy overhang were virtually flat. By owning more of the former and less of
the latter, we were able to add substantial value in this sector as well. Our
average office position generated a total return of 31.5%. SL Green Realty was
our best performing office stock with a 53.5% total return. Conversely, the two
worst performing stocks in our portfolio were office stocks: Brandywine Realty
Trust, 6.1%; and Equity Office Properties, 9.1%. The largest single detractor
from our performance, albeit small, was the cash position in the fund, which
returned 1.3%.
Finally, a review of 2004 would be incomplete without considering an
important milestone in the REIT sector. In late 2001, the broader stock market
implicitly recognized the successful evolution of the U.S. REIT structure when
REITs were included in the S&P 500 Index. In 2004, the rest of the world came to
the same realization. The U.S. REIT had officially gone global. A growing
handful of the most successful U.S. real estate companies began to successfully
export their planning, construction, leasing, re-development and capital
allocation skills to Europe and Asia. Their participation globally is no longer
anecdotal. Their successes have been undeniable and notable for their investment
discipline, product innovation and execution skills. This global expansion has
significantly boosted the growth potential of these companies in our view.
Foreigners, who, with a few notable exceptions have traditionally invested
in U.S. real estate through direct ownership, are now investing in U.S. REITs in
a significant way. Liquidity, income potential and access to local management
talent top the list of reasons given for foreign investment in REITs.
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COHEN & STEERS REALTY SHARES, INC.
Many foreign countries are paying the greatest possible compliment to the
U.S. REIT structure by attempting to emulate its success in their own country.
Following the adoption of the REIT structure by France and others, Germany, the
U.K., Italy and Spain are notable examples of the many governments that have a
U.S.-style REIT structure on their legislative agendas. We believe there may be
significant IPO and securitization activity in these and other countries as
property investors avail themselves of the benefits of the public REIT format.
Over time we anticipate that an increasing amount of the world's income
producing property will find its way into REIT-like vehicles, providing
investors with truly global real estate investment opportunities.
INVESTMENT OUTLOOK
Our superior investment results in 2004 began with getting the big picture
right. Starting with the right macroeconomic assumptions was instrumental in
anticipating how the REIT sector would behave and we believe this will be
equally important in 2005. Quite simply, we anticipate that economic
fundamentals in 2005 will be substantially similar to 2004 and in a few ways
even better. We believe that GDP growth will be in the 3.5% range this year with
job growth of about 2 million. In our view, barring any large, exogenous
economic shocks, this will result in continuing improvement in the unemployment
rate and real wage gains. In short, we believe the economic recovery should
become self-sustaining and somewhat steadier.
This should provide a continued positive backdrop for real estate
fundamentals, characterized by higher occupancies, rents and cash flows for most
property types and in most regions of the country. As a result, our estimates
indicate that REIT cash flows and dividends will continue their re-acceleration
through 2005 and 2006.
CASH FLOW, DIVIDENDS AND TOTAL RETURNS IN THE MODERN REIT ERA
[BAR CHART]
<Table>
<Caption>
8.6% Annual 5.7% Annual
Cash Flow Dividend
Growth Rate Growth Rate
---------------------------------
Cash Flow/Share Dividend/Share
--------------- --------------
1993 $1.00 $0.86
1994 $1.16 $0.91
1995 $1.28 $0.97
1996 $1.41 $1.02
1997 $1.59 $1.10
1998 $1.86 $1.18
1999 $2.05 $1.27
2000 $2.24 $1.36
2001 $2.33 $1.41
2002 $2.36 $1.44
2003 $2.39 $1.51
2004E $2.46 $1.57
2005E $2.68 $1.66
2006E $2.94 $1.76
</Table>
Source: NAREIT; Cohen & Steers estimates for 2004, 2005 and 2006.
<Table>
<Caption>
Cash Flow Growth Dividend Growth Payout Ratio NAREIT Returns
---------------- --------------- ------------ --------------
1993 86% 19.7%
1994 15.5% 6.0% 78% 3.2%
1995 10.8% 6.8% 76% 15.3%
1996 10.4% 4.9% 72% 35.3%
1997 12.4% 7.4% 69% 20.3%
1998 16.8% 8.0% 63% -17.5%
1999 10.4% 7.7% 62% -4.6%
2000 9.3% 6.8% 61% 26.4%
2001 3.8% 3.8% 60% 13.9%
2002 1.7% 1.9% 61% 3.8%
2003 1.3% 5.2% 63% 37.1%
2004E 2.6% 3.6% 64% 31.6%
2005E 9.2% 6.0% 62% ----
2006E 9.5% 6.2% 60% ----
</Table>
Source: NAREIT; Cohen & Steers estimates for 2004, 2005 and 2006.
Although past performance is no guarantee of future results, history has
shown that accelerating cash flow and dividend growth rates, which we anticipate
for at least the next two years, can have a salutary effect on stock
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COHEN & STEERS REALTY SHARES, INC.
prices. For REITs as with other stocks, it has generally been when growth rates
peaked and began declining that stock prices also peaked and began declining.
Not coincidentally, when REIT cash flow growth rates last peaked in early 1998,
the REIT index peaked as well, and total returns turned negative. By 1998, real
estate in the United States had been in recovery for several years and growth
rates had been accelerating. But with rents having escalated dramatically in
1996 and 1997, an explosion of new construction in 1998 began to attenuate the
dramatic market rental rate increases that commercial landlords had been
experiencing. In short, real estate had fully recovered and even though demand
from the economy was chugging along nicely, supply had risen up to meet that
demand, causing earnings growth rates to peak.
Accordingly, if the current real estate cycle continues to improve and
economic growth remains steady in the 2.5% to 4% range, we believe that real
estate stocks can continue to perform well, until such time as market rents rise
to the level where developers are induced to build new buildings and rental
increases are stifled by new competitive product. We believe that this
eventuality is still a couple of years away. Rents, though rising in most
markets, are generally nowhere near levels that would justify new construction
and will not be for some time in our view. In most instances, we believe it will
be several years before new construction makes sense, given that the price of
building a building has also escalated dramatically in accordance with the price
of steel, concrete, lumber and labor.
In summary, we anticipate that a steadily growing economy will support
demand for real estate and muted new construction will constrain the supply of
real estate in many markets. With respect to REITs we believe that cash flow
growth will accelerate along with dividend growth. We further believe that
correctly anticipating these changing growth rates will be the key to REIT stock
price performance again in 2005. Valuations, though above historical averages,
are partially reflecting some of these positives in our view. However,
valuations are also not at levels that indicate to us a peak in stock prices. As
a result, we believe REITs may deliver attractive total returns in 2005,
although investors are cautioned not to assume that returns will continue at the
pace of the past two years.
Sincerely,
<Table>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JAMES S. CORL
JAMES S. CORL
Portfolio Manager
</Table>
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COHEN & STEERS REALTY SHARES, INC.
VISIT COHEN & STEERS ONLINE AT COHENANDSTEERS.COM
For more information about any of our funds, visit
cohenandsteers.com, where you'll find daily net asset
values, fund fact sheets and portfolio highlights. You can
also access newsletters, education tools and market updates
covering the REIT, utility and preferred securities sectors.
In addition, our Web site contains comprehensive information
about our firm, including our most recent press releases,
profiles of our senior investment professionals, and an
overview of our investment approach.
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COHEN & STEERS 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 advisor 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, growth potential, and valuations.
In 2004, the fund's total return was 38.48%, compared to 31.58% for the
NAREIT Equity REIT Index and 10.88% for the S&P 500. We experienced one of our
best years ever in terms of both absolute and relative performance,
outperforming the fund's benchmark by a substantial margin. The major theme
within the portfolio all year, and in our view the primary driver of REIT stock
price appreciation, was the resurgence in growth, both cash flow growth and
dividend growth. This has been the guiding force in our stock selection, where
we added value in essentially all the property types in our investment universe.
Our stock selection and overweight in the mall sector was the greatest single
contributor to the fund's performance. Our stock selection in the apartment
sector and our decision to move from an underweight to an overweight earlier in
the year were, in combination, the second greatest contributor to our
performance this year. We were able to add substantial value in the office
sector as well. The largest single detractor from our performance, albeit small,
was the cash position in the fund.
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COHEN & STEERS REALTY SHARES, INC.
PERFORMANCE REVIEW -- (CONTINUED)
<Table>
<Caption>
Average Annual Total Returns
For Periods Ended Dec. 31, 2004
------------------------------------------
1 Year 5 Years 10 Years Since Inception (2/14/00)(b)
------ ------- -------- ----------------------------
Fund 38.48% 21.34% 15.23% 15.36%
NAREIT Equity(a) 31.58% 21.95% 14.80% 14.42%
S&P 500(a) 10.88% -2.29% 12.07% 11.24%
</Table>
[LINE GRAPH]
Growth of a $10,000 Investment
Since Inception
Cohen & Steers NAREIT Equity S&P
Realty Shares REIT Index(a) 500(b)
------------- ------------- -----
7/2/91(b) 10,000 10,000 10,000
10,120 10,409 10,346
12/31/91 10,800 10,970 11,213
10,971 11,043 10,929
11,235 11,334 11,137
12,120 12,108 11,488
12/31/92 12,969 12,571 12,066
15,627 15,291 12,593
15,026 14,852 12,655
16,536 16,241 12,979
12/31/93 15,402 15,041 13,280
16,327 15,553 12,776
16,530 15,840 12,830
16,232 15,516 13,457
12/31/94 16,682 15,518 13,455
16,281 15,492 14,764
17,009 16,403 16,174
17,924 17,176 17,460
12/31/95 18,537 17,888 18,511
18,867 18,294 19,505
19,997 19,108 20,380
21,451 20,359 21,006
12/31/96 25,651 24,196 22,758
26,254 24,364 23,368
27,369 25,576 27,448
30,333 28,598 29,504
12/31/97 31,076 29,098 30,351
30,613 28,962 34,585
29,168 27,634 35,726
25,703 24,726 32,171
12/31/98 25,462 24,005 39,024
24,591 22,848 40,967
27,638 25,152 43,855
25,131 23,129 41,114
12/31/99 26,146 22,896 47,232
26,499 23,444 48,318
28,677 25,914 47,038
31,795 27,895 46,582
12/31/00 33,108 28,933 42,939
32,244 29,047 37,846
35,403 32,245 40,060
33,888 31,400 34,180
12/31/01 34,996 32,964 37,833
37,884 35,685 37,939
39,619 37,474 32,855
36,124 34,084 27,178
12/31/02 35,973 34,224 29,469
36,145 34,455 28,541
41,054 38,971 32,939
45,151 42,680 33,812
12/31/03 49,680 46,932 37,930
55,616 52,572 38,571
53,364 49,518 39,235
58,513 53,592 38,501
12/31/04 68,794 61,752 42,054
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN WILL VARY AND THE PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE AND SHARES, IF REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE DATA QUOTED. MONTH-END PERFORMANCE INFORMATION CAN BE
OBTAINED BY VISITING OUR WEBSITE AT COHENANDSTEERS.COM. THE PERFORMANCE TABLE
AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS ON THE REDEMPTION OF FUND SHARES.
(a) The comparative indexes 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 Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly traded REITs that invest predominantly in the equity
ownership of real estate. The index is designed to reflect the performance
of all publicly traded REITs as a whole. The S&P 500 Index is an unmanaged
index 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.
(b) Commencement of operations.
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7
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COHEN & STEERS REALTY SHARES, INC.
EXPENSE EXAMPLE
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including redemption fees; and (2) ongoing costs, including management
fees and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period (July 1, 2004 to December 31, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading entitled 'Expenses Paid During Period' to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing cost of
investing in the fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as
redemption fees. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
JUNE 30, 2004 DECEMBER 31, 2004 ENDED 12/31/04(a)
----------------- ----------------- ---------------
Actual................................. $1,000.00 $1,289.10 $5.64
Hypothetical (5%) return before
expenses............................. $1,000.00 $1,020.15 $4.99
</Table>
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(a) Expenses are equal to the fund's annualized expense ratio, multiplied by the
average account value over the period, multiplied by the number of days in
the most recent six month period, then divided by 366.
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COHEN & STEERS REALTY SHARES, INC.
DECEMBER 31, 2004
TOP TEN HOLDINGS
(UNAUDITED)
<Table>
<Caption>
MARKET % OF
VALUE NET ASSETS
SECURITY ------------ ----------
1. Boston Properties...................................... $156,249,187 6.90%
2. ProLogis............................................... 139,019,972 6.14
3. Vornado Realty Trust................................... 126,307,283 5.58
4. Simon Property Group................................... 122,161,630 5.39
5. AvalonBay Communities.................................. 119,787,240 5.29
6. Host Marriott Corp..................................... 83,425,790 3.68
7. Mills Corp............................................. 83,194,048 3.67
8. Equity Residential..................................... 79,776,900 3.52
9. Archstone-Smith Trust.................................. 72,088,260 3.18
10. Brookfield Properties Corp............................. 59,776,420 2.64
</Table>
SECTOR BREAKDOWN
(Based on Net Assets)
(Unaudited)
[PIE CHART]
<Table>
Cash & Other Assets in Excess of Liabilities 1.58%
Self Storage 4.80%
Diversified 5.58%
Hotel 7.79%
Residential 21.40%
Shopping Center 22.15%
Office/Industrial 35.17%
Health Care 1.53%
</Table>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- --------------
EQUITIES 98.42%(a)
DIVERSIFIED 5.58%
Vornado Realty Trust............................ 1,659,100 $ 126,307,283
--------------
HEALTH CARE 1.53%
Ventas.......................................... 1,261,900 34,588,679
--------------
HOTEL 7.79%
Hilton Hotels Corp.............................. 1,517,500 34,507,950
Host Marriott Corp.............................. 4,822,300 83,425,790
Starwood Hotels & Resorts Worldwide............. 999,600 58,376,640
--------------
176,310,380
--------------
INDUSTRIAL 10.03%
AMB Property Corp............................... 1,081,000 43,661,590
Catellus Development Corp. ..................... 1,455,713 44,544,818
ProLogis........................................ 3,208,400 139,019,972
--------------
227,226,380
--------------
OFFICE 23.99%
Arden Realty.................................... 734,500 27,705,340
BioMed Realty Trust............................. 310,600 6,898,426
Boston Properties............................... 2,416,100 156,249,187
Brandywine Realty Trust......................... 412,600 12,126,314
Brookfield Properties Corp...................... 1,598,300 59,776,420
CarrAmerica Realty Corp......................... 837,700 27,644,100
Equity Office Properties Trust.................. 1,579,399 45,992,099
Highwoods Properties............................ 474,500 13,143,650
Kilroy Realty Corp.............................. 583,400 24,940,350
Mack-Cali Realty Corp........................... 590,300 27,171,509
Maguire Properties.............................. 866,200 23,785,852
Prentiss Properties Trust....................... 527,100 20,135,220
Reckson Associates Realty Corp.................. 1,118,000 36,681,580
SL Green Realty Corp............................ 948,600 57,437,730
Trizec Properties............................... 189,000 3,575,880
--------------
543,263,657
--------------
</Table>
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(a) Percentages indicated are based on the net assets of the fund.
See accompanying notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- --------------
OFFICE/INDUSTRIAL 1.15%
Liberty Property Trust.......................... 600,400 $ 25,937,280
--------------
RESIDENTIAL 21.40%
APARTMENT 19.58%
Apartment Investment & Management Co............ 422,700 16,290,858
Archstone-Smith Trust........................... 1,882,200 72,088,260
AvalonBay Communities........................... 1,590,800 119,787,240
BRE Properties.................................. 1,303,400 52,540,054
Equity Residential.............................. 2,205,000 79,776,900
Essex Property Trust............................ 400,700 33,578,660
GMH Communities Trust........................... 400,400 5,645,640
Post Properties................................. 1,026,300 35,817,870
Summit Properties............................... 860,200 28,008,112
--------------
443,533,594
--------------
MANUFACTURED HOME 1.82%
Affordable Residential Communities.............. 599,300 8,599,955
Sun Communities................................. 812,200 32,691,050
--------------
41,291,005
--------------
TOTAL RESIDENTIAL............................... 484,824,599
--------------
SELF STORAGE 4.80%
Public Storage.................................. 1,060,100 59,100,575
Shurgard Storage Centers........................ 1,125,300 49,524,453
--------------
108,625,028
--------------
SHOPPING CENTER 22.15%
COMMUNITY CENTER 4.49%
Developers Diversified Realty Corp.............. 654,700 29,049,039
Federal Realty Investment Trust................. 642,500 33,185,125
Pan Pacific Retail Properties................... 369,000 23,136,300
Regency Centers Corp............................ 295,000 16,343,000
--------------
101,713,464
--------------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- --------------
REGIONAL MALL 17.66%
CBL & Associates Properties..................... 464,100 $ 35,434,035
General Growth Properties....................... 1,597,400 57,761,984
Macerich Co..................................... 932,900 58,586,120
Mills Corp...................................... 1,304,800 83,194,048
Simon Property Group............................ 1,889,000 122,161,630
Taubman Centers................................. 1,432,700 42,909,365
--------------
400,047,182
--------------
TOTAL SHOPPING CENTER........................... 501,760,646
--------------
TOTAL EQUITIES (Identified
cost -- $1,307,453,518).................. 2,228,843,932
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER 1.01%
State Street Corp., 1.70%, due 01/03/2005
(Identified cost -- $22,905,836).............. $22,908,000 22,905,836
----------- --------------
TOTAL INVESTMENTS (Identified
cost -- $1,330,359,354)....................... 99.43% 2,251,749,768
OTHER ASSETS IN EXCESS OF LIABILITIES........... 0.57% 12,929,810
------ --------------
NET ASSETS (Equivalent to $69.66 per share based
on 32,508,530 shares of capital stock
outstanding).................................. 100.00% $2,264,679,578
------ --------------
------ --------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $1,330,359,354) (Note 1)..................... $2,251,749,768
Dividends receivable.................................... 12,151,429
Receivable for fund shares sold......................... 5,756,016
Receivable for investment securities sold............... 68,026
Other assets............................................ 40,520
--------------
Total Assets....................................... 2,269,765,759
--------------
LIABILITIES:
Payable for fund shares redeemed........................ 2,409,829
Payable to investment advisor........................... 1,544,782
Payable for investment securities purchased............. 533,259
Payable to subadministrator............................. 47,498
Payable to administrator................................ 37,802
Payable to custodian.................................... 34,218
Payable to directors.................................... 2,203
Other liabilities....................................... 476,590
--------------
Total Liabilities.................................. 5,086,181
--------------
NET ASSETS applicable to 32,508,530 shares of $0.001 par
value common stock outstanding (Note 5)................... $2,264,679,578
--------------
--------------
NET ASSET VALUE PER SHARE:
($2,264,679,578 32,508,530 shares outstanding)......... $ 69.66
--------------
--------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 5)......................... $1,350,400,659
Accumulated net realized loss on investments............ (7,111,495)
Net unrealized appreciation on investments.............. 921,390,414
--------------
$2,264,679,578
--------------
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
Investment Income (Note 1):
Dividend income (net of $143,553 of foreign withholding
tax)................................................. $ 54,612,263
Interest income......................................... 377,411
------------
Total Income....................................... 54,989,674
------------
Expenses:
Investment advisory fees (Note 2)....................... 15,188,419
Administration and transfer agent fees (Note 2)......... 2,233,890
Reports to shareholders................................. 397,776
Custodian fees and expenses............................. 145,246
Professional fees....................................... 133,275
Line of credit fees and expenses (Note 7)............... 96,720
Registration and filing fees............................ 79,582
Directors' fees and expenses (Note 2)................... 46,587
Miscellaneous........................................... 120,329
------------
Total Expenses..................................... 18,441,824
Reduction of Expenses (Note 6).......................... (5,917)
------------
Net Expenses....................................... 18,435,907
------------
Net Investment Income....................................... 36,553,767
------------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments........................ 163,858,811
Net change in unrealized appreciation on investments.... 416,457,207
------------
Net realized and unrealized gain on investments.... 580,316,018
------------
Net Increase in Net Assets Resulting from Operations........ $616,869,785
------------
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- ------------------
Change in Net Assets:
From Operations:
Net investment income.................. $ 36,553,767 $ 41,356,107
Net realized gain on investments....... 163,858,811 70,337,803
Net change in unrealized appreciation
on investments...................... 416,457,207 347,464,561
-------------- --------------
Net increase in net assets
resulting from operations....... 616,869,785 459,158,471
-------------- --------------
Dividends and Distributions to Shareholders
from (Note 1 and 4):
Net investment income.................. (36,553,767) (53,586,419)
Net realized gain on investments....... (161,275,302) (56,364,760)
Tax return of capital.................. (11,713,058) --
-------------- --------------
Total dividends and distributions
to shareholders................. (209,542,127) (109,951,179)
-------------- --------------
Capital Stock Transactions (Note 5):
Increase in net assets from fund share
transactions........................ 176,097,871 76,604,759
-------------- --------------
Total increase in net assets...... 583,425,529 425,812,051
Net Assets:
Beginning of year...................... 1,681,254,049 1,255,441,998
-------------- --------------
End of year............................ $2,264,679,578 $1,681,254,049
-------------- --------------
-------------- --------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
<Page>
COHEN & STEERS REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 2004 2003 2002 2001 2000
- -------------------------------- ------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year.... $ 55.64 $ 43.34 $ 44.41 $ 44.26 $ 36.91
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 1.21 1.47 1.72 1.77 1.92
Net realized and unrealized
gain/(loss) on investments....... 19.71 14.63 (0.42) 0.65 7.67
-------- -------- -------- -------- --------
Total income from investment
operations................... 20.92 16.10 1.30 2.42 9.59
-------- -------- -------- -------- --------
Less dividends and distributions to
shareholders from:
Net investment income.............. (1.21) (1.88) (2.38) (1.74) (1.91)
Net realized gain on investments... (5.32) (1.93) -- -- --
Tax return of capital.............. (0.38) -- -- (0.53) (0.33)
-------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders................. (6.91) (3.81) (2.38) (2.27) (2.24)
-------- -------- -------- -------- --------
Redemption fees retained by fund...... 0.01 0.01 0.01 -- --
-------- -------- -------- -------- --------
Net increase/(decrease) in net
assets....................... 14.02 12.30 (1.07) 0.15 7.35
-------- -------- -------- -------- --------
Net asset value, end of year.......... $ 69.66 $ 55.64 $ 43.34 $ 44.41 $ 44.26
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------
Total investment return............... 38.48% 38.09% 2.79% 5.70% 26.63%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of year (in millions). 2,264.7 1,681.3 1,255.4 1,387.1 1,309.0
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average daily net
assets
(before expense reduction)........... 1.01% 1.07% 1.08% 1.09% 1.07%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average daily net
assets (net of expense reduction).... 1.01% 1.07% 1.08% 1.09% 1.07%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income to
average daily net assets (before
expense reduction)................... 2.00% 2.96% 3.70% 4.02% 4.53%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income to
average daily net assets (net of
expense reduction)................... 2.00% 2.96% 3.70% 4.02% 4.53%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Portfolio turnover rate............... 28.84% 36.64% 37.30% 44.52% 33.49%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16
<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, nondiversified
management investment company.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America (GAAP). The preparation of the financial statements in
accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting year. Actual results could differ from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day or, if no asked price is available, at the bid price.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. (Nasdaq) national
market system are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by Cohen & Steers
Capital Management, Inc. to be over-the-counter, but excluding securities
admitted to trading on the Nasdaq national list, are valued at the official
closing prices as reported by Nasdaq, the National Quotation Bureau, or such
other comparable sources as the board of directors deems appropriate to reflect
their fair market value. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices for the day or, if no
asked price is availabe, at the bid price. Where securities are traded on more
than one exchange and also over-the-counter, the securities will generally be
valued using the quotations the board of directors believes most closely reflect
the value of such securities.
Unrealized gains and losses on securities that result from changes in
foreign exchange rates, as well as changes in market prices of securities, are
included in unrealized appreciation/(depreciation) on investments.
Short-term debt securities, which have a maturity value of 60 days or less,
are valued at amortized cost, which approximates value.
- --------------------------------------------------------------------------------
17
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Any securities for which market quotations are not readily available shall
be valued in accordance with the procedures approved by the board of directors.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. The fund
records distributions received in excess of income from underlying investments
as a reduction of cost of investments and/or realized gain. Such amounts are
based on estimates if actual amounts are not available and actual amounts of
income, realized gain and return of capital may differ from the estimated
amounts. The fund adjusts the estimated amounts of the components of
distributions (and consequently its net investment income) as an increase to
unrealized appreciation/(depreciation) and realized gain/(loss) on investments
as necessary once the issuers provide information about the actual composition
of the distributions.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. Distributions to shareholders are
recorded on the ex-dividend date. Dividends will automatically be reinvested in
full and fractional shares of the fund based on 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.
A portion of the fund's dividend may consist of amounts in excess of net
investment income derived from nontaxable components of the dividends from the
fund's portfolio investments. Net realized capital gains, unless offset by any
available capital loss carryforward, are distributed to shareholders annually.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. federal income tax regulations, which may differ from GAAP.
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
advisor) serves as the fund's investment advisor pursuant to an investment
advisory agreement (the advisory agreement). Under the terms of the advisory
agreement, the advisor 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 advisor received a monthly
fee in an amount equal to 1/12th of 0.85% for the first $1.5 billion and 1/12th
of 0.75% thereafter of the average daily net assets of the fund. For the year
ended December 31, 2004, the fund incurred $15,188,419 in advisory fees.
- --------------------------------------------------------------------------------
18
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Administration Fees: The fund has entered into an administration agreement
with the advisor under which the advisor 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, 2004, the fund paid the advisor
$365,025 fees under this administration agreement.
Directors' Fees: Certain directors and officers of the fund are also
directors, officers, and/or employees of the advisor. None of the directors and
officers so affiliated received compensation from the fund for their services.
For the year ended December 31, 2004, fees and related expenses accrued for
nonaffiliated directors totaled $46,587.
Other: During the period, the Fund may have purchased securities in which an
affiliate of the investment manager served as placement agent for the issuer.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
year ended December 31, 2004 totaled $546,724,484 and $520,783,488,
respectively.
NOTE 4. INCOME TAXES
The fund had a return of capital of $11,713,058 for the year ended
December 31, 2004 which has been deducted from paid-in capital. Short-term
capital gains are reflected in the financial statements as realized gains on
investments but are typically treated as ordinary income for tax purposes.
The dividends and distributions to shareholders are characterized for tax
purposes as follows:
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
2004 2003
---- ----
Ordinary income............................... $ 53,470,360 $ 53,586,419
Capital gain.................................. 144,358,709 56,364,760
Tax return of capital......................... 11,713,058 --
------------ ------------
Total dividends and distributions to
shareholders........................... $209,542,127 $109,951,179
------------ ------------
------------ ------------
</Table>
- --------------------------------------------------------------------------------
19
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2004, the cost of investments and net unrealized
appreciation for federal income tax purposes were as follows:
<Table>
Aggregate cost................................... $1,337,470,850
--------------
Gross unrealized appreciation.................... $ 915,403,431
Gross unrealized depreciation.................... $ (1,124,513)
--------------
Net unrealized appreciation...................... $ 914,278,918
--------------
--------------
</Table>
Differences between book and tax basis unrealized appreciation are primarily
due to wash sales on portfolio securities.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily due to wash sales on portfolio securities. To the
extent such differences are permanent in nature, such amounts are reclassified
within the capital accounts. During the year ended December 31, 2004, the fund
increased accumulated net realized loss on investments by $2,016,131 and
increased paid-in capital by $2,016,131, related primarily to differing book and
tax treatment of redemptions in-kind.
For the year ended December 31, 2004, the Fund did not have any
undistributed ordinary income or capital gains.
NOTE 5. CAPITAL STOCK
The fund is authorized to issue 200 million shares of capital stock at a par
value of $0.001 per share. At December 31, 2004 Cohen & Steers Capital
Management, Inc. owned approximately 9,900 shares. 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 FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 30, 2003
-------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- --------------------
Sold....................... 9,189,186 568,728,496 7,576,939 $ 375,138,134
Issued as reinvestment of
dividends................ 2,900,758 193,593,680 1,926,675 99,678,182
Redeemed................... (9,582,741) (574,159,008) (8,252,217) (398,449,177)
Redemptions in-kind(a) (216,917) (12,498,761) -- --
Redemption fees retained by
fund..................... -- 433,464 -- 237,620
---------- ------------- ---------- -------------
Net increase............... 2,290,286 176,097,871 1,251,397 $ 76,604,759
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</Table>
- --------------------------------------------------------------------------------
20
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. DIRECTED BROKERAGE ARRANGEMENTS
The advisor has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the year ended December 31, 2004, the fund's
expenses were reduced by $5,917 under this arrangement.
NOTE 7. BORROWINGS
The fund, in conjunction with Cohen & Steers Institutional Realty Shares,
Inc., Cohen & Steers Realty Focus Fund, Inc., Cohen & Steers Realty Income Fund,
Inc., and Cohen & Steers Utility Fund, Inc. is a party to a $150,000,000
syndicated credit agreement (the credit agreement) with State Street Bank and
Trust Company, as administrative agent and operations agent, and the lenders
identified in the credit agreement.
At December 31, 2004, the fund had no loans outstanding. During the year
ended December 31, 2004, the average daily balance of loans outstanding was
$8,833,333 at a weighted average interest rate of 1.64%. The maximum amount of
loans outstanding at any time during the year ended December 31, 2004 was
$13,800,000 on January 13, 2004, which was 0.83% of net assets. For the year
ended December 31, 2004, the fund paid commitment fees and other expenses of
$96,720.
- -------------------
(a) Certain fund shareholders who met the minimum investment requirements of
Cohen & Steers Institutional Realty Shares, Inc. were permitted to redeem
shares of the fund in-kind and make subsequent in-kind purchases in
Cohen & Steers Institutional Realty Shares, Inc.
- --------------------------------------------------------------------------------
21
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cohen & Steers Realty Shares, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Cohen & Steers Realty Shares, Inc.
(the 'Fund') at December 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 21, 2005
- --------------------------------------------------------------------------------
22
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
TAX INFORMATION -- 2004 (UNAUDITED)
Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the
fund designates qualified dividend income of $2,334,865. Additionally, the fund
designates long term capital gains distributions of $139,976,732 at the 15% rate
and $4,381,977 at the 25% rate or the maximum allowable.
Shareholders are advised to consult with their own tax advisors as to the
Federal, state, and local tax status of the income received.
OTHER INFORMATION
A description of the policies and procedures that the fund uses to determine
how to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com, or (iii) on the Securities and Exchange Commission's (SEC)
Web site at http://www.sec.gov. In addition, the fund's proxy voting record for
the most recent 12-month period ended June 30 is available (i) without charge
upon request, by calling 1-800-330-7348 or (ii) on the SEC's Web site at
http://www.sec.gov.
The fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The fund's Forms
N-Q are available (i) without charge, upon request by calling 1-800-330-7348, or
(ii) on the SEC's website at http://www.sec.gov. In addition, the Forms N-Q may
be reviewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Please note that the distributions paid by the fund to shareholders are
subject to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders on their 1099-DIV forms, which are
mailed to shareholders after the close of each fiscal year. The fund may pay
distributions in excess of the fund's net investment company taxable income and
this excess would be a tax-free return of capital distributed from the fund's
assets. To the extent this occurs, the fund's shareholders of record would be
notified of the approximate amount of capital returned to shareholders for each
such distribution. Distributions of capital decrease the fund's total assets
and, therefore, could have the effect of increasing the fund's expense ratio. In
addition, in order to make these distributions, the fund may have to sell
portfolio securities at a less than opportune time.
- --------------------------------------------------------------------------------
23
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
MANAGEMENT OF THE FUND
The business and affairs of the fund are managed under the direction of the
board of directors. The board of directors approves all significant agreements
between the fund and persons or companies furnishing services to it, including
the Fund's agreements with its advisor, administrator, custodian and transfer
agent. The management of the fund's day-to-day operations is delegated to its
officers, the advisor and the fund's administrator, subject always to the
investment objective and policies of the fund and to the general supervision of
the board of directors.
The directors and officers of the fund and their principal occupations
during the past five years are set forth below. The statement of additional
information (SAI) includes additional information about fund directors and is
available, without charge, upon request by calling 1-800-330-7348.
<Table>
<Caption>
NUMBER OF
FUNDS WITHIN
FUND
COMPLEX
PRINCIPAL OCCUPATION(S) OVERSEEN BY
DURING PAST 5 YEARS DIRECTOR LENGTH
POSITION(S) HELD TERM OF (INCLUDING OTHER (INCLUDING THE OF TIME
NAME, ADDRESS AND AGE* WITH FUND OFFICE DIRECTORSHIPS HELD) FUND) SERVED
- ---------------------- --------- ------ ------------------- ----- ------
Interested Directors(1)
Robert H. Steers ..... Director, chairman Until next Co-chairman and co-chief 14 Since
Age: 51 of the board, election of executive officer of the inception
and secretary directors advisor since 2003 and prior
to that, chairman of the
advisor. President of Cohen &
Steers Securities, LLC, the
fund's distributor.
Martin Cohen ......... Director, Until next Co-chairman and co-chief 14 Since
Age: 55 president and election of executive officer of the inception
treasurer directors advisor since 2003 and prior
to that, president of the
advisor. Vice president of
Cohen & Steers Securities,
LLC, the fund's distributor.
Disinterested
Directors
Bonnie Cohen(2) ...... Director Until next Consultant. Prior thereto, 14 2001 to
Age: 61 election of Undersecretary of State, present
directors United States Department of
State. Director of Wellsford
Real Properties, Inc.
George Grossman ...... Director Until next Attorney-at-law. 14 Since
Age: 50 election of inception
directors
(table continued on next page)
</Table>
- -------------------
* The address for each director is 757 Third Avenue, New York, NY 10017.
(1) 'Interested person,' as defined in the 1940 Act, of the fund because of
affiliation with Cohen & Steers Capital Management, Inc., the fund's
advisor.
(2) Martin Cohen and Bonnie Cohen are unrelated.
- --------------------------------------------------------------------------------
24
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
(table continued from previous page)
<Table>
<Caption>
NUMBER OF
FUNDS WITHIN
FUND
COMPLEX
PRINCIPAL OCCUPATION(S) OVERSEEN BY
DURING PAST 5 YEARS DIRECTOR LENGTH
POSITION(S) HELD TERM OF (INCLUDING OTHER (INCLUDING THE OF TIME
NAME, ADDRESS AND AGE* WITH FUND OFFICE DIRECTORSHIPS HELD) FUND) SERVED
- ---------------------- --------- ------ ------------------- ----- ------
Richard E. Kroon Director Until next Board member of Finlay Enterprises, Inc. 14 2004 to
Age: 62 election of (operator of department store fine present
directors jewelry leased departments), and several
private companies; member of Investment
Subcommittee, Monmouth University;
retired Chairman and Managing Partner of
Sprout Group venture capital funds, then
an affiliate of Donaldson, Lufkin and
Jenrette Securities Corporation; and
former chairman of the National Venture
Capital Association.
Richard J. Norman .... Director Until next Private investor. President of the Board 14 2001 to
Age: 61 election of of Directors of Maryland Public present
directors Television and board member of The
Salvation Army. Prior thereto,
investment representative of Morgan
Stanley Dean Witter.
Frank K. Ross ........ Director Until next Board member of NCRIC Group, Inc. 14 2004 to
Age: 61 election of (insurance) and Pepco Holdings, Inc. present
directors (electric utility). Formerly,
Midatlantic Area Managing Partner for
Audit and Risk Advisory Services at KPMG
LLP and Managing partner of its
Washington, DC office.
Willard H. Smith, Director Until next Board member of Essex Property Trust, 14 1996 to
Jr. .................. election of Inc., Highwoods Properties, Inc., Realty present
Age: 68 directors Income Corporation and Crest Net Lease,
Inc. Managing director at Merrill Lynch
& Co., Equity Capital Markets Division
from 1983 to 1995.
C. Edward Ward, Director Until next Member of the board of trustees of 14 2004 to
Jr. .................. election of Manhattan College, Riverdale, New York. present
Age: 58 directors Formerly head of closed-end fund
listings for the New York Stock
Exchange.
</Table>
- -------------------
* The address for each director is 757 Third Avenue, New York, NY 10017.
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25
<Page>
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COHEN & STEERS REALTY SHARES, INC.
The officers of the fund (other than Messrs. Cohen and Steers, whose
biographies are provided above), their addresses, their ages, and their
principal occupations for at least the past five years are set forth below.
<Table>
<Caption>
POSITION(S) HELD
NAME, ADDRESS AND AGE* WITH FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
---------------------- --------- ----------------------------------------
Joseph M. Harvey ....... Vice president President of the advisor since 2003 and prior to
Age: 40 that, senior vice president and director of
investment research of the advisor.
Adam M. Derechin ....... Vice president and Chief operating officer of the advisor since 2003
Age: 40 assistant and prior to that, senior vice president of the
treasurer advisor.
James S. Corl ........... Vice president Executive vice president and chief investment
Age: 38 officer for real estate securities investments of
the advisor since 2004, and prior to that, senior
vice president of the advisor.
Lawrence B. Stoller ..... Assistant secretary Executive vice president and general counsel of
Age: 41 the advisor, since 2004; Chief legal officer of
Cohen & Steers Securities, LLC. Prior to that,
senior vice president and general counsel of the
advisor, associate general counsel, Neuberger
Berman Management, Inc. (money manager); and
assistant general counsel, The Dreyfus
Corporation (money manager).
John E. McLean .......... Chief compliance Vice president and associate general counsel of
Age: 34 officer Cohen & Steers Capital Management since September
2003. Prior to that, vice president, Law &
Regulation, J. & W. Seligman & Co. Incorporated
(money manager); and associate, Battle Fowler LLP
(law firm).
</Table>
- -------------------
* The address of each officer is 757 Third Avenue, New York, NY 10017
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26
<Page>
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COHEN & STEERS REALTY SHARES, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
<Table>
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
REALTY INCOME FUND REALTY SHARES
DESIGNED FOR INVESTORS SEEKING A HIGH DESIGNED FOR INVESTORS SEEKING MAXIMUM
DIVIDEND YIELD AND CAPITAL APPRECIATION, TOTAL RETURN THROUGH BOTH CURRENT INCOME
INVESTING PRIMARILY IN REITS AND CAPITAL APPRECIATION, INVESTING
A, B, C AND I SHARES AVAILABLE PRIMARILY IN REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX SYMBOL: CSRSX
ALSO AVAILABLE: COHEN & STEERS
INSTITUTIONAL REALTY SHARES (CSRIX)
REQUIRES A HIGHER MINIMUM PURCHASE, BUT
OFFERS A LOWER TOTAL EXPENSE RATIO
FOR TOTAL RETURN: FOR CAPITAL APPRECIATION
COHEN & STEERS COHEN & STEERS
UTILITY FUND REALTY FOCUS FUND
DESIGNED FOR INVESTORS SEEKING MAXIMUM DESIGNED FOR INVESTORS SEEKING MAXIMUM
TOTAL RETURN THROUGH BOTH CURRENT INCOME CAPITAL APPRECIATION, INVESTING IN A
AND CAPITAL APPRECIATION, INVESTING LIMITED NUMBER OF REITS AND OTHER REAL
PRIMARILY IN UTILITIES ESTATE COMPANIES
A, B, C AND I SHARES AVAILABLE CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX A, B, C AND I SHARES AVAILABLE
SYMBOLS: CSFAX, CSFBX, CSFCX, CSSPX
</Table>
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-7348, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE
FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION ABOUT THE FUND. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING.
- --------------------------------------------------------------------------------
27
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS REALTY SHARES, INC.
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISOR
Director and chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and president (212) 832-3232
Bonnie Cohen FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
George Grossman Boston, MA 02110
Director
TRANSFER AGENT
Richard E. Kroon Boston Financial Data Services, Inc.
Director 66 Brooks Drive
Braintree, MA 02184
Richard J. Norman (800) 437-9912
Director
LEGAL COUNSEL
Frank K. Ross Simpson Thacher & Bartlett LLP
Director 425 Lexington Avenue
New York, NY 10017
Willard H. Smith Jr.
Director DISTRIBUTOR
Cohen & Steers Securities, LLC
C. Edward Ward, Jr. 757 Third Avenue
Director New York, NY 10017
James S. Corl Nasdaq Symbol: CSRSX
Vice president Web site: cohenandsteers.com
Adam Derechin Net asset value (NAV) can be found in
Vice president and assistant treasurer the daily mutual fund listings in the
financial section of most major
Joseph M. Harvey newspapers under Cohen & Steers.
Vice president This report is authorized for delivery
only to shareholders of Cohen & Steers
Lawrence B. Stoller Realty Shares, Inc. unless accompanied
Assistant secretary or preceded by the delivery of a
currently effective prospectus setting
forth details of the fund. Past
performance is of course no guarantee
of future results and your investment
may be worth more or less at the time
you sell.
- --------------------------------------------------------------------------------
28
COHEN & STEERS
REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
REALTY SHARES FUND
---------------
ANNUAL REPORT
DECEMBER 31, 2004
Item 2. Code of Ethics.
The registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made by calling 800-330-7348 or writing to the
Secretary of the registrant, 757 Third Avenue, New York, NY 10017.
Item 3. Audit Committee Financial Expert.
The registrant's Board has determined that Frank K. Ross, a member of the
registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
------- -------
Audit Fees $46,500 $46,000
Audit-Related Fees 3,000 3,000
Tax Fees 12,600 10,800
All Other Fees -- --
Audit-related fees were billed in connection with agreed upon procedures
performed by the registrant's principal accountant relating to after-tax return
calculations. Tax fees were billed in connection with the preparation of tax
returns, calculation and designation of dividends and other miscellaneous tax
services.
Aggregate fees billed by the registrant's principal accountant for the last two
fiscal years for non-audit services provided to the registrant's investment
adviser (not including a sub-adviser whose role is primarily portfolio
management and is subcontracted or overseen by another investment adviser) and
any entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registered investment
company, where the engagement relates directly to the operations and financial
reporting of the registrant, were as follows:
2004 2003
----- -----
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees $62,500 $49,500
These other fees were billed in connection with internal control reviews and
AIMR performance reviews.
(e)(1) The Audit Committee is required to pre-approve audit and non-audit
services performed for the registrant by the principal accountant. The Audit
Committee also is required to pre-approve non-audit services performed by the
registrant's principal accountant for the registrant's investment adviser and
any sub-adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser)
and any entity controlling, controlled by or under common control with the
registrant's investment adviser that provides ongoing services to the
registrant, if the engagement for services relates directly to the operations
and financial reporting of the registrant.
The audit committee may delegate pre-approval authority to one or more of its
members who are independent members of the board of directors of the registrant.
The member or members to whom such authority is delegated shall report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee may not delegate its responsibility to pre-approve services to
be performed by the registrant's principal accountant for the investment
adviser.
(e) (2) No services included in (b) - (d) above were approved by the Audit
Committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal years ended December 31, 2004 and December 31, 2003, the
aggregate fees billed by the registrant's principal accountant for non-audit
services rendered to the registrant and for non-audit services rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under
common control with the registrant's investment adviser that provides ongoing
services to the registrant were $83,600 and $63,300, respectively.
(h) The registrant's audit committee considered whether the provision of
non-audit services that were rendered to the registrant's investment adviser
(not including any sub-adviser whose role is primarily portfolio management and
is subcontracted with or overseen by another investment adviser) and any
entity controlling, controlled by or under common control with the registrant's
investment adviser that provides ongoing services to the registrant that were
not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X
was compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the registrant
in this Form N-CSR was recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and procedures as
of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a) (2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of chief executive officer and chief financial officer as
required by Rule 30a- 2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS REALTY SHARES, INC.
By: /s/ Robert H. Steers
-------------------------------
Name: Robert H. Steers
Title: Chairman
Date: March 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert H. Steers By: /s/ Martin Cohen
------------------------------- ---------------------------
Name: Robert H. Steers Name: Martin Cohen
Title: Chairman, Secretary and Title: President, Treasurer
and principal executive and principal financial
officer officer
Date: March 8, 2005