<Page>
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: 811-9631
Cohen & Steers Institutional 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, 2002
Item 1. Reports to Stockholders.
The registrant's annual report to shareholders, for the
period ended December 31, 2002, is hereby included.
Item 9. Controls and Procedures.
(b) There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
<Page>
Item 10. Exhibits.
(b) (1) Certification, dated as of February 26, 2003, of Robert H. Steers,
principal executive officer of the registrant.
(b) (2) Certification, dated as of February 26, 2003, of Martin Cohen, principal
financial officer of the registrant.
(b) (3) Certification, dated as of February 26, 2003, of Robert H. Steers, chief
executive officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) (4) Certification, dated as of February 26, 2003, of Martin Cohen, chief
financial officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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 INSTITUTIONAL REALTY SHARES, INC.
By: /s/ Robert H. Steers, Chairman
Date: February 26, 2003
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, Chairman, Secretary and principal executive officer
Date: February 26, 2003
By: /s/ Martin Cohen, President, Treasurer and principal financial officer
Date: February 26, 2003
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
February 7, 2003
To Our Shareholders:
We are pleased to submit to you our report for the quarter and year ended
December 31, 2002. The net asset value at that date was $29.41. In addition, a
distribution of $1.27 per share (including a regular quarterly distribution of
$0.43 per share plus a short-term capital gain distribution of $0.63 per share
and a long-term capital gain distribution of $0.21 per share) was declared for
shareholders of record on December 26, 2002 and was paid on December 27, 2002.
INVESTMENT REVIEW
For the quarter, Cohen & Steers Institutional Realty Shares had a total
return, based on income and change in net asset value, of - 0.2%. This compares
to the NAREIT Equity REIT Index's(a) total return of 0.4%. For the year ended
December 31, 2002, the fund's total return was 3.1%, compared to NAREIT's 3.8%.
For the third year in a row, REITs produced positive absolute returns in a
financial market environment that most equity investors found both challenging
and discouraging. Stock market losses over the past three years reached historic
proportions as expectations for stronger economic growth and, more importantly,
corporate profit growth dimmed continuously throughout the year.
The best performing REIT sectors were those that experienced the highest
earnings growth. Reflecting the strength of the consumer economy, regional mall
REITs had a total return of 24.6%, shopping centers were up 17.8%, and the
relatively healthy industrial sector rose 17.4%. The worst performers were the
office and apartment sectors, which returned - 6.3% and - 6.2% respectively.
For the second year in a row small capitalization REITs outdistanced larger
companies by roughly 9% to 2%, a phenomenon that in our opinion was more the
result of declining interest rates than superior fundamentals.
Despite our overweight in the office sector, our stock selection helped us
to add value in that sector overall. We fully expect that our office position
will be very rewarding in the coming year. In addition, our overweight and stock
selection in the regional mall and industrial sectors also helped our
performance during the year, while our underweight in the shopping center sector
detracted from it.
While REIT share prices escaped the throes of the bear market for the year
as a whole, their fundamentals did not. By year end, prices started catching up
with earnings prospects. In the first half of the year, REITs had a
- -------------------
(a) 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.
1
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
13.5% total return. By midyear, however, fears of a return to recession, a
decline in earnings expectations, and the growing threats of war shook even REIT
investors' confidence. Toward year end, these fears became justified as vacancy
rates began to rise at a significant rate. Deterioration was experienced in all
sectors with the exception of retail. Consequently, REIT prices retreated,
declining by 13.4% in the four months from July through October. The delay of a
real estate and earnings recovery until as late as 2004 dictated this correction
in prices. Throughout the second half of the year, earnings estimates for almost
all REITs decayed to the point where a modest decline in REIT industry earnings
is expected for 2003.
For the first time in 10 years, expectations of a decline in earnings also
precipitated fears of weakening dividend safety. In fact, two multifamily REITs
reduced their dividends in the fourth quarter. It is expected by many that
several more such cuts, particularly in the apartment sector, are in the offing
this year. Again, the speed with which fundamentals deteriorated for some of
these companies was alarming. At year end 2001, REIT free cash flows covered
dividends by a ratio of 1.5, whereas by year end 2002 this ratio declined to
1.3. We believe it is unlikely to go much lower. As a result, any notion of
widespread dividend cuts is totally unwarranted in our view. Despite this
cyclical downturn, REIT dividends appear to remain well covered, and we believe
that our portfolio companies are extremely well capitalized, well managed and
well positioned for a cyclical recovery.
In other developments in 2002, net inflows into REIT mutual funds, at $3.4
billion, plus another $2.3 billion in closed-end REIT funds, were the highest
since 1998 and were consistent throughout the year. This was in contrast to the
persistent flow out of other equity mutual funds. However, despite favorable
investor sentiment REITs raised very little equity capital. There was only one
sizable initial public offering of note, made by Heritage Property Investment
Trust, and $5.8 billion was raised in all other REIT common stock offerings.
Even though interest rates reached and remained at generational lows, REITs in
aggregate did not borrow more in 2002 than in 2001. We believe this lack of
appetite for capital is the result of a shortage of compelling investment
opportunities coupled with a strong investment and capital markets discipline.
Property prices generally rose throughout the year, the result of the strength
of demand for realty investments by those who remained unfazed by moderating
rental income growth. This permitted REITs to transact a record volume of
property sales.
Reflecting the troubles on Wall Street, REIT research teams began to shrink
in both size and the number of companies covered. We expect this trend to
continue, and perhaps even accelerate this year. The separation of investment
banking revenues from analyst compensation, which up to now have been strongly
linked with respect to REITs, is taking its toll on sell-side company coverage.
A reduction in the amount of available research has the potential to produce
more inefficiencies in share prices over time and could actually be a positive
development for firms such as Cohen & Steers that have leading research efforts.
The average REIT dividend yield of 7.05% at year end was approximately the
same as the prior year, as was the average P/E multiple, and for that matter the
absolute price level. The valuation measures that did change during the year
were the P/E spread between REITs and stocks, which narrowed, and the premium of
the yield of
2
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
REITs over the 10-year Treasury, which widened to a record level. While the year
was a roller coaster of price movements, emotions and expectations, little
appears to have changed from start to finish.
INVESTMENT OUTLOOK
As has been our outlook for the past year, we believe that economic growth
will continue at a moderate pace over the coming quarters and well into 2004.
With unprecedented fiscal and monetary stimulus already in the system, recently
introduced additional stimulus, a weakening dollar and the upcoming presidential
election in 2004, this case has only grown stronger. Perhaps the largest
uncertainties that remain ahead are the war on terror (which will likely last
for a long time) and the potential war in Iraq (which, if it happens, could be
fairly short). Our sense is that these concerns are already discounted in REIT
share prices and perhaps the overall stock market as well. Nonetheless, they
will likely increase the popularity of a more conservative, income-oriented
approach to investing that emphasizes absolute returns -- an approach that we
believe will favor REITs.
Currently, we face two misperceptions in our industry. The first is that
REIT share prices are disconnected from real estate and REIT fundamentals. On
the contrary, the previously noted REIT market decline in the second half of
last year probably adequately discounted currently weak fundamentals. We believe
that REIT share prices remain connected with net asset values, which have been
buoyed by the robust private market. Looking forward, the key to investment
success in 2003 will be to accurately project the outlook for profit growth in
2004. Because real estate is an asset class that has considerable visibility,
any profit recovery will be evident well in advance. In our opinion, the key
factors are economic and job growth, and how they translate into improving
health for real estate markets. Just as there was a collapse in demand for space
in the past two years, we expect to see an improvement in demand as the economic
recovery continues to unfold. Because the supply of new space has been
relatively low for many property types, our expectation is that as the year
progresses we will see sequential improvement in occupancy rates, rental rates
and profits for just about every sector of the REIT industry. If the economy
responds as strongly as we expect, real estate fundamentals in some sectors may
potentially recover as fast as they deteriorated last year.
The second misperception is that if stocks do well in 2003, REITs will not.
History simply does not corroborate this assertion and the diversification
benefits of REITs are extant irrespective of the stock market cycle. Whereas
many analysts have tried to predict REIT performance relative to the stock
market, we believe that this is simply not an appropriate comparison. In
addition, the stock market debacle of the past three years has disillusioned
many investors and encouraged greater investment in more predictable asset
classes, such as real estate. The continued demand for property investments has
stabilized private market values, and there are a growing number of
institutional and individual investors seeking to increase their exposure to the
real estate asset class. The proven success of the REIT format has attracted
much of this capital to the public market. Early estimates indicate that in 2002
REITs garnered over 20% of institutional investor real estate commitments, more
than double that in 2001. Real estate values should hold up as long as the
economy grows, interest rates do not
3
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
soar, and the demand for property investment remains strong -- all of which we
expect to happen. Finally, with interest rates and total return expectations
generally very low, achieving one's investment objective primarily through
income may well attract even more investors to REITs.
The persistent strength of real estate prices has left REITs with very
limited new investment opportunities in many sectors. One result is that we have
seen a return to substantial share buybacks by many REITs. In addition, if REIT
share prices languish, we would fully expect that REITs themselves would be
targets of opportunistic investors. Indeed, toward the close of last year, Simon
Property Group, the nation's largest owner of shopping centers, launched a
hostile acquisition campaign for Taubman Centers. While the outcome of this
contest is still undecided, it is representative of the discounts from asset
value at which many public companies today are selling. We believe that for the
companies with the best quality properties, anything more than a modest discount
from NAV will invite corporate action to close that gap, thereby mitigating a
great deal of downside risk.
With respect to property weights, we expect to be right in maintaining a
strong emphasis in the office sector and that this will contribute materially to
our performance in 2003. The major office owners today are among the most
undervalued in our universe, with excellent balance sheets that afford them
significant financial flexibility. They are selling at the greatest discounts
from net asset value, even greater discounts from replacement cost, and have
high dividend yields that are adequately covered by cash flows. We have
continued to reduce our weight in the health care sector due to its high
sensitivity to interest rates and low correlation to the economy. We are
maintaining an underweight in the apartment sector because of the persistence of
new construction despite continually declining demand. Our expectations for a
stronger economy warrant a significant representation in both the regional mall
and industrial sectors.
If there are any lingering doubts about REIT investment characteristics,
REITs' performance in 2002 should have laid them to rest. While some investors
may be tempted to become 'market timers' in response to the high volatility and
poor returns from stocks over the past several years, we believe that they would
be much better served by practicing portfolio diversification. The ability of
REITs to produce attractive absolute returns, with the majority of returns
coming from income, has earned them a prominent role in many investors'
portfolios.
THE TAXATION OF DIVIDENDS
The centerpiece of the Bush administration's recently announced economic
stimulus plan is to eliminate the double taxation of corporate dividends by
making them tax-free at the shareholder level. It is a proposal that, depending
on how it is adopted, could have wide ranging implications for the financial
markets and corporate dividend policies. Although details have not yet been
formulated, it is generally believed that REIT dividends would not be eligible
for this tax-exempt status because REITs do not pay taxes. It is also generally
believed that if REIT dividends remain subject to taxation, REITs would be
somewhat less tax-advantaged than they have been historically with respect to
some parts of the investor universe.
4
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Without knowing the final details (such as whether there will be any
limitations on this exclusion), which indeed we may not know until a bill is
signed into law, it is very difficult to draw any firm conclusions. However,
there are a few points worth making. First, this provision would not remove any
of the intrinsic advantages that REITs currently enjoy -- it essentially leaves
them unchanged. Second is that the majority of shareholders at large, including
REIT shareholders, are already tax-exempt. For pension funds, endowments and
retirement accounts, as examples, the high dividends of REITs will remain at
least as attractive, if not more so, no matter what the tax status is for other
securities. And third, we believe the major determinant of all security prices,
including those of REITs, will be fundamentals. Thus, whatever the outcome of
this tax bill, real estate fundamentals will remain our primary focus.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
-------------------------------------------------------------
Cohen & Steers is online at COHENANDSTEERS.COM
We have enhanced both the look and features of our Web site
to give you more information about our company, our funds
and the REIT market in general.
ONLINE ACCESS is available for shareholders of Cohen &
Steers funds whose accounts are held directly with Boston
Financial Data Services, the fund's transfer agent. After
registering, you will be able to manage your entire account
online including purchasing or redeeming shares, updating
account information, and checking your portfolio holdings.
Check out our interactive Asset Allocation Tool, which
allows you to hypothetically add REITs to any portfolio to
see how they impact expected total returns and risk. Or try
the Fund Performance Calculator and see how our funds have
performed versus the S&P 500 index or Nasdaq composite. As
always, you can also get daily net asset values, fund fact
sheets, portfolio highlights, recent news articles and our
overall insights on the REIT market.
So visit us today at COHENANDSTEERS.COM
-------------------------------------------------------------
5
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
PERFORMANCE REVIEW
The investment objective of Cohen & Steers Institutional 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 manager 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.
The fund dramatically outperformed the S&P 500 Index in 2002, but was
slightly behind the NAREIT Equity REIT Index. While the U.S. economy struggled
to recover, REITs outperformed the broader equity markets due to their favorable
relative earnings growth, attractive relative valuations and, notably, their
high relative dividend yields. Our overweight and stock selection in the
regional mall and industrial sectors helped our performance during the year, as
did our underweight in the apartment sector. The regional mall sector benefited
from strong earnings growth, which was driven by the strength in consumer
spending and the demand for space by retailers, as well as a high level of
acquisition activity. Apartments suffered from a persistent level of new
construction, while at the same time demand was curtailed by job losses and
single-family homebuying. Detracting from the portfolio's performance was the
underweight in the shopping center sector and an overweight in the office
sector. While the office sector was affected by the economic slowdown and the
contraction in employment and corporate space needs, our stock selection helped
us to add value in the office sector overall.
Average Annual Total Returns
For Periods Ended Dec. 31, 2002
------------------------------------
1 Year Since Inception (2/14/00)
------------------------------------
Fund 3.06% 12.87%
NAREIT Equity(a) 3.82% 15.13%
S&P 500(a) -22.12% -13.51%
[GRAPH]
GROWTH OF A $3,000,000 INVESTMENT SINCE INCEPTION
Cohen & Steers
Institutional NAREIT Equity
Date Realty Shares REIT Index(a) S&P 500(a)
- ----------------------------------------------------------
2/14/00(b) 3000000 3000000 3000000
3/31/00 3113100 3082500 3239400
6/30/00 3365260 3407090 3153560
9/30/00 3731740 3667730 3122970
12/31/00 3889220 3804170 2878750
3/31/01 3784210 3819000 2537330
6/30/01 4164140 4239480 2685760
9/30/01 3986330 4128400 2291500
12/31/01 4123060 4334000 2536460
3/31/02 4468170 4691550 2543560
6/30/02 4675040 4926600 2202720
9/30/02 4258960 4480740 1822090
12/31/02 4249590 4499110 1975690
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate. When shares are redeemed, they may be worth
more or less than the original cost. The performance information and graph do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
(a) The comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the fund's performance. The fund's
performance assumes the reinvestment of all dividends and distributions. The
NAREIT 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
list of common stocks that is frequently used as a general measure of stock
market performance. For more information, including charges and expenses,
please read the prospectus carefully before you invest.
(b) Commencement of operations.
6
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2002
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- ------------
EQUITIES 98.76%
HEALTH CARE 4.30%
Health Care Property Investors........................ 206,900 $ 7,924,270
Nationwide Health Properties.......................... 426,500 6,367,645
Ventas................................................ 1,061,800 12,157,610
------------
26,449,525
------------
HOTEL 5.66%
FelCor Lodging Trust.................................. 276,800 3,166,592
Host Marriott Corp(a)................................. 1,916,600 16,961,910
Starwood Hotels & Resorts Worldwide................... 620,900 14,740,166
------------
34,868,668
------------
INDUSTRIAL 7.53%
AMB Property Corp..................................... 127,000 3,474,720
Catellus Development Corp(a).......................... 65,000 1,290,250
First Industrial Realty Trust......................... 167,400 4,687,200
ProLogis.............................................. 1,467,500 36,907,625
------------
46,359,795
------------
OFFICE 37.36%
Arden Realty.......................................... 1,091,800 24,183,370
Boston Properties..................................... 1,111,900 40,984,634
Brookfield Properties Corp(b)......................... 1,167,200 23,577,440
CarrAmerica Realty Corp............................... 768,900 19,260,945
Crescent Real Estate Equities Co...................... 1,095,900 18,235,776
Equity Office Properties Trust........................ 1,056,500 26,391,370
Highwoods Properties.................................. 61,200 1,352,520
Mack-Cali Realty Corp................................. 353,900 10,723,170
Prentiss Properties Trust............................. 252,300 7,135,044
SL Green Realty Corp.................................. 611,600 19,326,560
Vornado Realty Trust.................................. 1,044,000 38,836,800
------------
230,007,629
------------
</Table>
- -------------------
(a) Nonincome producing security.
(b) Brookfield Properties Corp. is a Canadian company whose common stock is
listed on the Toronto and New York Stock Exchanges. The Toronto Stock
Exchange is normally deemed the principal exchange for valuation purposes.
However, at December 31, 2002 the fund valued Brookfield Properties using
the closing price on the New York Stock Exchange, pursuant to the directive
of the fund's board of directors.
See accompanying notes to financial statements.
7
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2002
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- ------------
OFFICE/INDUSTRIAL 6.00%
Kilroy Realty Corp.................................... 479,500 $ 11,052,475
Liberty Property Trust................................ 301,000 9,613,940
Reckson Associates Realty Corp........................ 772,100 16,252,705
------------
36,919,120
------------
RESIDENTIAL 14.34%
APARTMENT 13.34%
Apartment Investment & Management Co. -- Class A...... 166,200 6,229,176
Archstone-Smith Trust................................. 1,038,100 24,436,874
AvalonBay Communities................................. 618,400 24,204,176
BRE Properties........................................ 207,700 6,480,240
Equity Residential.................................... 430,100 10,571,858
Essex Property Trust.................................. 125,600 6,386,760
Post Properties....................................... 151,200 3,613,680
Summit Properties..................................... 13,600 242,080
------------
82,164,844
------------
MANUFACTURED HOME 1.00%
Sun Communities....................................... 168,200 6,151,074
------------
TOTAL RESIDENTIAL..................................... 88,315,918
------------
SELF STORAGE 1.72%
Public Storage........................................ 328,400 10,610,604
------------
SHOPPING CENTER 21.85%
COMMUNITY CENTER 1.98%
Developers Diversified Realty Corp.................... 261,800 5,756,982
Federal Realty Investment Trust....................... 183,800 5,168,456
Pan Pacific Retail Properties......................... 34,900 1,274,897
------------
12,200,335
------------
</Table>
See accompanying notes to financial statements.
8
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2002
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- ------------
REGIONAL MALL 19.87%
CBL & Associates Properties........................... 377,000 $ 15,098,850
General Growth Properties............................. 332,800 17,305,600
Macerich Co........................................... 275,400 8,468,550
Mills Corp............................................ 406,700 11,932,578
Rouse Co.............................................. 930,300 29,490,510
Simon Property Group.................................. 984,900 33,555,543
Taubman Centers....................................... 400,400 6,498,492
------------
122,350,123
------------
TOTAL SHOPPING CENTER................................. 134,550,458
------------
TOTAL EQUITIES (Identified cost --$546,238,897)... 608,081,717
------------
<Caption>
PRINCIPAL
AMOUNT
---------
COMMERCIAL PAPER 0.87%
United Bank of Switzerland Financial, 1.13%, due
01/02/2003 (Identified cost -- $5,325,833).......... $5,326,000 5,325,833
------------
TOTAL INVESTMENTS (Identified cost -- $551,564,730) ... 99.63% 613,407,550
OTHER ASSETS IN EXCESS OF LIABILITIES .................. 0.37% 2,281,986
------- ------------
NET ASSETS (Equivalent to $29.41 per share based on 20,934,931
shares of capital stock outstanding) ............... 100.00% $615,689,536
------- ------------
------- ------------
</Table>
See accompanying notes to financial statements.
9
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $551,564,730) (Note 1)....................... $613,407,550
Cash.................................................... 372
Dividends receivable.................................... 4,850,071
Receivable for investment securities sold............... 4,842,582
Receivable for fund shares sold......................... 639,067
------------
Total Assets....................................... 623,739,642
------------
LIABILITIES:
Payable for investment securities purchased............. 7,449,376
Payable to manager...................................... 393,528
Payable for fund shares redeemed........................ 207,202
------------
Total Liabilities.................................. 8,050,106
------------
NET ASSETS applicable to 20,934,931 shares of $0.001 par
value common stock outstanding (Note 5)................... $615,689,536
------------
------------
NET ASSET VALUE PER SHARE:
($615,689,536[div]20,934,931 shares outstanding)........ $ 29.41
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 5)......................... $547,228,103
Accumulated net realized gain on investments............ 6,618,613
Net unrealized appreciation on investments.............. 61,842,820
------------
$615,689,536
------------
------------
</Table>
See accompanying notes to financial statements.
10
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
Investment Income (Note 1):
Dividend income (net of $62,547 of foreign withholding
tax)................................................. $ 39,009,018
Interest income......................................... 254,938
------------
Total Income....................................... 39,263,956
------------
Expenses:
Management fees (Note 2)................................ 4,659,006
Directors' fees and expenses (Note 2)................... 39,730
Line of credit fees and expenses (Note 6)............... 34,695
Registration and filing fees............................ 11,248
------------
Total Expenses..................................... 4,744,679
------------
Reduction of Expenses (Note 2).......................... (85,673)
------------
Net Expenses....................................... 4,659,006
------------
Net Investment Income....................................... 34,604,950
------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain on investments........................ 18,049,002
Net change in unrealized appreciation on investments.... (33,866,530)
------------
Net realized and unrealized gain/(loss) on
investments..................................... (15,817,528)
------------
Net Increase in Net Assets Resulting from Operations........ $ 18,787,422
------------
------------
</Table>
See accompanying notes to financial statements.
11
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Change in Net Assets:
From Operations:
Net investment income.................. $ 34,604,950 $ 33,548,064
Net realized gain on investments....... 18,049,002 513,347
Net change in unrealized appreciation
on investments...................... (33,866,530) (233,877)
------------ ------------
Net increase in net assets
resulting from operations....... 18,787,422 33,827,534
------------ ------------
Dividends and Distributions to Shareholders
from (Notes 1 and 4):
Net investment income.................. (25,266,834) (25,828,510)
Net realized gain on investments....... (25,054,439) (5,052,479)
Tax return of capital.................. (723,810) (2,148,953)
------------ ------------
Total dividends and distributions
to shareholders................. (51,045,083) (33,029,942)
------------ ------------
Capital Stock Transactions (Note 5):
Increase/(decrease) in net assets from
fund share transactions............. 53,725,596 (22,166,149)
------------ ------------
Total increase/(decrease) in net
assets.......................... 21,467,935 (21,368,557)
Net Assets:
Beginning of year...................... 594,221,601 615,590,158
------------ ------------
End of year............................ $615,689,536 $594,221,601
------------ ------------
------------ ------------
</Table>
See accompanying notes to financial statements.
12
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE PERIOD
DECEMBER 31, FEBRUARY 14, 2000A
------------------- THROUGH
PER SHARE OPERATING PERFORMANCE: 2002 2001 DECEMBER 31, 2000
- -------------------------------- -------- -------- -------------------
Net asset value, beginning of period..................... $30.97 $30.89 $25.00
------ ------ ------
Income from investment operations:
Net investment income................................ 1.75 1.73 1.41
Net realized and unrealized gain/(loss) on
investments........................................ (0.75) 0.05 5.87
------ ------ ------
Total from investment operations................. 1.00 1.78 7.28
------ ------ ------
Less dividends and distributions to shareholders from:
Net investment income................................ (1.29) (1.33) (1.21)
Net realized gain on investments..................... (1.23) (0.26) (0.12)
Tax return of capital................................ (0.04) (0.11) (0.06)
------ ------ ------
Total dividends and distributions to
shareholders................................... (2.56) (1.70) (1.39)
------ ------ ------
Net increase/(decrease) in net asset value....... (1.56) 0.08 5.89
------ ------ ------
Net asset value, end of period........................... $29.41 $30.97 $30.89
------ ------ ------
------ ------ ------
Total investment return.................................. 3.06% 6.02% 29.64%(b)
------ ------ ------
------ ------ ------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (in millions).................. $615.7 $594.2 $615.6
------ ------ ------
------ ------ ------
Ratio of expenses to average daily net assets (before
expense reduction)..................................... 0.76% 0.77% 0.79%(c)
------ ------ ------
------ ------ ------
Ratio of expenses to average daily net assets (net of
expense reduction)..................................... 0.75% 0.75% 0.75%(c)
------ ------ ------
------ ------ ------
Ratio of net investment income to average daily net
assets
(before expense reduction)............................. 5.56% 5.52% 5.97%(c)
------ ------ ------
------ ------ ------
Ratio of net investment income to average daily net
assets
(net of expense reduction)............................. 5.57% 5.55% 6.01%(c)
------ ------ ------
------ ------ ------
Portfolio turnover rate.................................. 37.88% 40.71% 20.16%(b)
------ ------ ------
------ ------ ------
</Table>
- -------------------
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
See accompanying notes to financial statements.
13
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Institutional Realty Shares, Inc. (the fund) was incorporated
under the laws of the State of Maryland on October 13, 1999 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. The preparation of the financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Portfolio Valuation: 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.
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 mean of the
current bid and asked prices as reported by Nasdaq, the National Quotation
Bureau, or such other comparable sources as the board of directors deems
appropriate to reflect their fair market value. Where securities are traded on
more than one exchange and also over-the-counter, the securities will generally
be valued using the quotations the board of directors believes reflect most
closely the value of such securities.
Unrealized gains and losses on securities which 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.
14
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. 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
generally accepted accounting principles.
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 MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Management Fees: Pursuant to a management agreement (the
management agreement), Cohen & Steers Capital Management, Inc. (the manager)
serves as the fund's investment manager. Under the terms of the management
agreement, the manager provides the fund with a continuous investment program,
makes the day-to-day investment decisions, executes the purchase and sale orders
for the portfolio transactions of the fund 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. The manager also is responsible,
under the management agreement, for the performance of certain administration
services for the fund. For the services provided to the fund, the manager
receives a monthly fee in an amount equal to 1/12th of 0.75% of the average
daily net assets of the fund. For the year ended December 31, 2002, the fund
incurred $4,659,006 in management fees.
The manager has contractually agreed to reimburse the fund so that its total
annual operating expenses do not exceed 0.75% of average daily net assets. This
commitment will remain in place for the life of the fund. For the year ended
December 31, 2002, the manager paid $85,673 in expenses on behalf of the fund.
Directors' Fees: Certain directors and officers of the fund are also
directors, officers, and/or employees of the manager. None of the directors and
officers so affiliated received compensation from the fund for their services as
15
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
directors and officers of the fund. For the year ended December 31, 2002, the
manager paid $39,730 for directors' fees and related expenses on behalf of the
fund.
Other: At December 31, 2002, there was one institutional investor owning 31%
of the funds' outstanding shares. Investment activities of this shareholder
could have a material impact on the fund.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
year ended December 31, 2002 totaled $267,529,816 and $230,249,178,
respectively.
NOTE 4. INCOME TAXES
The fund had a return of capital of $723,810 ($0.04 per share) for the year
ended December 31, 2002, 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 reclassified 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,
-------------------------
2002 2001
---- ----
Ordinary income.......................... $30,465,990 $30,373,924
Long-term capital gains.................. 19,855,283 507,065
Tax return of capital.................... 723,810 2,148,953
----------- -----------
Total dividends and distributions to
shareholders...................... $51,045,083 $33,029,942
----------- -----------
----------- -----------
</Table>
At December 31, 2002, the cost of investments and net unrealized
appreciation/(depreciation), for federal income tax purposes were as follows:
<Table>
Aggregate cost.................................... $544,946,117
------------
Gross unrealized appreciation..................... $ 83,461,251
Gross unrealized depreciation..................... $(14,999,818)
------------
Net unrealized appreciation....................... $ 68,461,433
------------
------------
</Table>
Net investment income and net realized gains differ for financial statement
and tax purposes primarily due to return of capital, capital gain distributions
and wash sales received by the fund on portfolio securities. To the extent such
differences are permanent in nature, such amounts are reclassified within the
capital accounts. During
16
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the year ended December 31, 2002, the fund decreased undistributed net
investment income by $9,338,116 and increased accumulated net realized gain on
investments sold by $9,338,116.
NOTE 5. CAPITAL STOCK
The fund is authorized to issue 100 million shares of capital stock at a par
value of $0.001 per share. The board of directors of the fund is authorized to
reclassify and issue any unissued shares of the fund without shareholder
approval. Transactions in fund shares were as follows:
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold.................................. 3,023,741 $ 95,555,000 1,592,254 $ 49,179,783
Sold in-kind(a)....................... 227,463 6,569,140 106,218 3,287,445
Issued as reinvestment of dividends... 1,186,301 36,094,714 604,679 18,265,997
Redeemed.............................. (2,686,932) (84,493,258) (3,045,298) (92,899,374)
---------- ------------ ---------- ------------
Net increase/(decrease)............... 1,750,573 $ 53,725,596 (742,147) $(22,166,149)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</Table>
NOTE 6. BORROWINGS
The fund, in conjunction with Cohen & Steers Realty Shares, Inc., Cohen &
Steers Special Equity Fund, Inc., and Cohen & Steers Equity Income Fund, Inc.
has entered into a $200,000,000 credit agreement (the credit agreement) with
Fleet National Bank, as administrative agent, State Street Bank and Trust
Company, as operations agent, and the lenders identified in the credit
agreement.
During the year ended December 31, 2002, the fund did not have any loans
outstanding. For the year ended December 31, 2002, the manager paid commitment
fees and other expenses associated with the line of credit of $34,695 on behalf
of the fund.
- ---------
(a) Certain fund shareholders who met the minimum investment requirements of
the fund were permitted to redeem shares of the Cohen & Steers Realty
Shares, Inc. in-kind and make subsequent in-kind purchases in the fund.
17
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cohen & Steers Institutional 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 Institutional Realty
Shares, Inc. (the 'Fund') at December 31, 2002, 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 the two years then
ended and for the period February 14, 2000 (commencement of operations) to
December 31, 2000, 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 auditing standards
generally accepted in the United States of America, which 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, 2002 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 7, 2003
18
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
INFORMATION ABOUT FUND DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
OVERSEEN
WITHIN THE
POSITION(S) HELD TERM OF LENGTH OF PRINCIPAL OCCUPATION(S) FUND
NAME, ADDRESS AND AGE WITH FUND OFFICE TIME SERVED DURING PAST FIVE YEARS COMPLEX
--------------------- --------- ------ ----------- ---------------------- -------
Robert H. Steers ...... Director, chairman Until next Since Chairman of Cohen & 8
757 Third Avenue and secretary election of inception Steers Capital
New York, New York directors Management, Inc., the
Age: 49 fund's investment
manager.
Martin Cohen .......... Director, Until next Since President of Cohen & 8
757 Third Avenue president and election of inception Steers Capital
New York, New York treasurer directors Management, Inc., the
Age: 54 fund's investment
manager.
Gregory C. Clark ...... Director Until next Since Private Investor. Prior 8
99 Jane Street election of inception thereto, President of
New York, New York directors Wellspring Management
Age: 55 Group (investment
advisory firm).
Bonnie Cohen .......... Director Until next 2001 to Consultant. Prior 8
1824 Phelps Place, N.W. election of present thereto, Undersecretary
Washington, D.C. directors of State, United States
Age: 60 Department of State.
George Grossman ....... Director Until next Since Attorney-at-law. 8
17 Elm Place election of inception
Rye, New York directors
Age: 49
Richard J. Norman ..... Director Until next 2001 to Private Investor. Prior 8
7520 Hackamore Drive election of present thereto, Investment
Potomac, Maryland directors Representative of
Age: 59 Morgan Stanley Dean
Witter.
Willard H. Smith, Director Until next 1996 to Director. Board member 8
Jr. ................... election of present of Essex Property
7231 Encelia Drive directors Trust, Inc., Highwoods
La Jolla, California Properties, Inc.
Age: 66 and Realty Income
Corporation. Managing
director at Merrill
Lynch & Co., Equity
Capital Markets
Division from 1983 to
1995.
</Table>
19
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
<Table>
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
EQUITY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH DIVIDEND IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
YIELD AND CAPITAL APPRECIATION, INVESTING RETURN THROUGH BOTH CURRENT INCOME AND
PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY IN
REITS
A, B, C AND I SHARES AVAILABLE SYMBOL: CSRSX
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX
FOR CAPITAL APPRECIATION: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
SPECIAL EQUITY FUND INSTITUTIONAL REALTY SHARES
IDEAL FOR INVESTORS SEEKING MAXIMUM CAPITAL IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
APPRECIATION, INVESTING IN A LIMITED NUMBER RETURN THROUGH BOTH CURRENT INCOME AND
OF REITS AND OTHER REAL ESTATE COMPANIES CAPITAL APPRECIATION, INVESTING PRIMARILY IN
CONCENTRATED, HIGHLY FOCUSED PORTFOLIO REITS
SYMBOL: CSSPX OFFERS LOW TOTAL EXPENSE RATIO
HIGHER MINIMUM PURCHASE REQUIRED
SYMBOL: CSRIX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND,
OR TO OBTAIN A PROSPECTUS, PLEASE CONTACT US AT:
1-800-330-REIT, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT EACH FUND, INCLUDING ALL CHARGES AND EXPENSES,
AND SHOULD BE READ CAREFULLY BEFORE YOU INVEST.
</Table>
20
<Page>
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
<Table>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT MANAGER
Director and chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and president (212) 832-3232
Gregory C. Clark FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
Bonnie Cohen Boston, MA 02110Boston, MA 02110
Director
TRANSFER AGENT
George Grossman Boston Financial Data Services, Inc.
Director Two Heritage Drive
North Quincy, MA 02171
Richard J. Norman (800) 437-9912
Director
LEGAL COUNSEL
Willard H. Smith Jr. Simpson Thacher & Bartlett
Director 425 Lexington Avenue
New York, NY 10017
Adam Derechin
Vice president and assistant treasurer DISTRIBUTOR
Cohen & Steers Securities, LLC
Lawrence B. Stoller 757 Third Avenue
Assistant secretary New York, NY 10017
Nasdaq Symbol: CSRIX
Web site: 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
Institutional 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>
21
COHEN & STEERS
INSTITUTIONAL REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
- ---------------------------
INSTITUTIONAL REALTY SHARES
- -----------------------------
ANNUAL REPORT
DECEMBER 31, 2002
STATEMENT OF DIFFERENCES
------------------------
The division sign shall be expressed as................................ [div]
The section symbol shall be expressed as................................'SS'