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, 2003
Item 1. Reports to Stockholders.
The registrant's annual report to shareholders, for the period ended December
31, 2003, is hereby included.
Item 2. Code of Ethics.
On February 5, 2004, the registrant adopted a code of ethics that applies to the
registrant's principal executive and principal financial officers. A copy of the
code of ethics is attached as Exhibit 10(a)(1).
Item 3. Audit Committee Financial Expert.
The registrant's audit committee has determined that it does not have an audit
committee financial expert serving on its audit committee. Although no single
audit committee member possesses the attributes necessary for qualification as
an audit committee financial expert, several members have significant experience
in the management of their personal assets and the assets of the businesses with
which they are or have been associated. All members of the audit committee are
also financially literate and have the necessary education and experience to
be effective members of the audit committee. In addition, the registrant's
nominating committee intends to recommend the appointment and election of an
additional director who will qualify as an audit committee financial expert
and the registrant's board will consider this nomination at a future meeting,
with such appointment to take effect upon satisfying the requirements of
section 16 of the 1940 Act.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate audit fees billed by the registrant's principal
accountant to the registrant were $34,000 for the fiscal year ended December 31,
2002 and $40,000 for the fiscal year ended December 31, 2003.
(b) Audit-Related Fees. The aggregate audit-related fees billed by the
registrant's principal accountant to the registrant were $4,000 for the fiscal
year ended December 31, 2002 and $3,000 for the fiscal year ended December 31,
2003. These fees were billed in connection with agreed upon procedures performed
by the registrant's principal accountant relating to after-tax return
calculations.
(c) Tax Fees. The aggregate tax fees billed by the registrant's principal
accountant to the registrant were $7,900 for the fiscal year ended December 31,
2002 and $9,300 for the fiscal year ended December 31, 2003. These fees were
billed in connection with the preparation of tax returns, calculation and
designation of dividends and other miscellaneous tax services.
(d) All Other Fees. There were no other fees billed by the registrant's
principal accountant to the registrant for the fiscal years ended December 31,
2002 and December 31, 2003.
For the fiscal year ended December 31, 2002, the aggregate fees billed by the
registrant's principal accountant to the registrant's investment adviser for
services provided by the principal accountant were $46,000. These fees were
billed in connection with internal control reviews and
AIMR performance reviews and were not required to be approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X since this portion of the
Rule was not effective until 2003.
For the fiscal year ended December 31, 2003, the aggregate fees billed by the
registrant's principal accountant to the registrant's investment adviser for
services provided by the principal accountant and approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X were $49,500. These fees were billed
in connection with internal control reviews and AIMR performance reviews.
(e)(1) Before the registrant's principal accountant is engaged to render audit
or non-audit services to the registrant and non-audit services to the
registrant's investment adviser and its affiliates, each engagement is approved
by the registrant's audit committee.
(e)(2) None.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's principal accountant
for services rendered to the registrant and the registrant's investment adviser
and its affiliates were $57,900 for the fiscal year ended December 31, 2002 and
$61,800 for the fiscal year ended December 31, 2003.
(h) This item was not applicable for the fiscal year ended December 31, 2003
since no such non-pre-approved services were rendered. For the fiscal year ended
December 31, 2002, the registrant's audit committee did consider whether the
provision of non-audit services that were rendered to the registrant's
investment adviser and its affiliates was compatible with maintaining the
principal accountant's independence. These non-audit services were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X
since this portion of the Rule was not effective until 2003.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. 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 registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) (1) Code of Ethics for Principal Executive and Principal Financial Officers
(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 INSTITUTIONAL REALTY SHARES, INC.
By: /s/ Robert H. Steers
----------------------------------
Name: Robert H. Steers
Title: Chairman
Date: February 27, 2004
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 Title: President, Treasurer and
and principal executive principal financial officer
officer
Date: February 27, 2004
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
February 17, 2004
To Our Shareholders:
We are pleased to submit to you our report for the quarter and year ended
December 31, 2003. The net asset value at that date was $37.34. In addition, a
distribution of $0.65 per share (including a regular quarterly distribution of
$0.43 per share plus a special distribution of $0.22 per share) and a capital
gains distribution of $1.01 were declared for shareholders of record on
December 22, 2003 and were paid on December 23, 2003.
2003 REVIEW
For the quarter, the Cohen & Steers Institutional Realty Shares had a total
return, based on income and change in net asset value, of 10.1%. This compares
to the NAREIT Equity REIT Index's(a) total return of 10.0%. For the year, the
fund's total return total return was 38.0%, compared to NAREIT's 37.1%.
Exceeding even the most optimistic expectations, and frustrating many
skeptics, 2003 was simply the best year for REIT investors in the modern era
(since 1991). This was the year that REITs gained wider acceptance as both an
important asset class and a financial instrument. We have long believed that
REITs' investment characteristics -- namely high current yield, low correlation
to other asset classes and strong total return potential -- were highly
desirable. Over the past year, more and more investors came to recognize the
potential benefits of REITs. Record low returns on fixed-income investments made
REIT current income and dividend growth capabilities all the more attractive. In
our view, their low correlation to other asset classes, particularly following a
major bear market in equities, offered a welcomed respite to investors whose
risk tolerance has been dramatically reduced. The resilience of REIT cash flows
and asset values, despite the sluggish economy and weak real estate markets,
contributed to investors' confidence in their ability to produce healthy growth
once these macro trends began to reverse, as they did in the second half of the
year.
While almost all REITs performed well in 2003, there were some interesting
trends with respect to sector performance. We were surprised to see the health
care sector produce the best returns both in the fourth quarter (17.2%) and full
year (53.6%). Health care fundamentals were better than expected due to a
surprise increase in nursing home reimbursement in 2003, in spite of federal and
local budget deficits. In addition, the continued low interest rate environment
favored this interest-rate-sensitive, defensive sector. More predictably, in the
fourth quarter the hotel sector fared second best (14.2%), followed by regional
malls (12.5%). The full year runner-up to health care was the mall sector,
delivering 52.2%. As was the case in the past several years, underperformers for
both the quarter and full year were apartment and office building owners.
- -------------------
(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.
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
We are pleased that our performance in 2003 exceeded our benchmark.
Contributing to our outperformance were our overweight in the regional mall
sector, our strategic shift from underweight to overweight in the hotel sector,
and our underweight in the apartment sector. Stock selection in general was very
strong during the year, particularly in the office and industrial sectors. Our
underweights in the health care and shopping center sectors detracted from
performance.
We believe that REITs became an important component of many investment
portfolios in 2003. Pension, endowment and charitable funds, along with many
insurance companies found them to be attractive instruments with which to
satisfy liabilities and other obligations. Investors shifting their investment
objectives from pure growth to income and growth, particularly those approaching
retirement age, found REITs to be an appealing alternative. REITs were included
more than ever in portfolios of income-oriented and diversified investment
vehicles and funds, both public and private, leveraged and unleveraged. For many
investors who began to anticipate an increase in inflation and interest rates,
REITs may have become a perceived safe haven from both, as REITs have
historically performed well in high inflation and high interest rate
environments. The consistent strong returns from REITs even attracted the
attention of many die-hard direct real estate investors who had trouble finding
bargains in the private market.
To be sure, there were a fair number of fundamental reasons for REITs to
have done well in 2003. Real estate has undergone a re-pricing over the past
year, appreciating in value despite rising vacancies and softness in rents.
Investors in both the public and private markets seemed to ignore recent market
conditions, and instead valued property based on expected future cash flows.
This strong real estate pricing bolstered REIT asset values. Low interest rates
have clearly added to this pricing situation as it has enabled leveraged buyers
to purchase properties at lower current returns than would be possible, or
prudent, in a higher rate environment. Nonetheless, we are still not convinced
that private real estate buyers in general have fully adapted, as much as REITs
have, to the extraordinary credit market conditions that have prevailed.
Over the past two years low interest rates and ready access to the financial
markets have enabled most REITs to re-price their liabilities by retiring or
refinancing high cost debt, or by adding to their leverage without assuming
meaningfully higher risk. This phenomenon has not necessarily been fully
appreciated by the investment community, in our opinion, but has undoubtedly
enhanced equity values. In addition to stabilizing balance sheets and extending
debt maturities, this has improved both the absolute level and, in our view, the
quality of REIT earnings. As a result, REIT earnings performance overall in 2003
greatly exceeded what one would have expected in light of soft real estate
markets. For example, the weighted average earnings per share of the 110 largest
REITs declined by approximately 2.0%. More surprisingly, the dividends per share
of the same group of companies grew by approximately 3.8%.
As REITs consistently performed well throughout the year (rising in 11 out
of 12 months), investor expectations for improving fundamentals were vindicated
by economic statistics. The 8.2% rise in third quarter GDP was the highest rate
of economic growth in 20 years. Following this showing, the expected 5.0% fourth
quarter growth rate in our view should essentially dispel any lingering doubts
about the durability of the U.S.
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2
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
economic recovery. Moreover, robust profit growth of corporate America validated
the across-the-board rise in stock prices. The bottom line for investors in 2003
is that all major equity market indexes ended the year at annual highs in price,
and REITs ended the year at record high share prices.
INVESTMENT OUTLOOK
We believe that the key to REIT performance in 2004 will be the course of
the U.S. economy. Not interest rates. Not Wall Street estimates of NAVs. Not
valuations based on last year's earnings. A strong economy is essential to
supporting real estate fundamentals. And strong fundamentals are essential to
supporting REIT earnings growth and share prices. We remain optimistic about the
course of the economy. In light of the return of business and consumer
confidence, soaring profitability, ongoing fiscal stimulus and
still-accommodative monetary policy, we believe the economy will remain strong.
Our expectation is that in 2004 GDP will increase by at least 4%.
We also believe that for the first time since the economic recovery began,
the U.S. will experience strong job growth. We expect that 1.5 to 2.0 million
jobs will be created this year. To the extent that this occurs, several dynamics
of the real estate markets are likely to change significantly, primarily in the
office and apartment sectors. Growth in service jobs will directly benefit
owners of office buildings, particularly in larger cities such as New York,
Boston, and Washington. We have concentrated our holdings in companies that have
a strong presence in these cities. We are already seeing vacancy rates in these
cities begin to decline, coincident with companies now shifting from layoffs to
new hiring, such as those in the financial service industry. Because a
relatively high percentage of new jobholders tend to rent apartments, the strong
job growth we expect should benefit owners of multi-family properties.
Consequently we have increased our apartment weight and concentrated our
holdings in the companies that have a strong presence in the northeast and
western states where there is a higher tendency to rent apartments due to high
population density and high home prices. We believe the hotel industry should
benefit from increased business travel and increased tourism due to the weak
dollar.
One sector that we expect to experience little change in 2004 is regional
malls. With ongoing economic growth, we expect consumers to continue their
spending patterns. As a result, the already-low level of retail bankruptcies and
mall vacancy rates should translate into higher profits for mall owners. We
expect that, for the third year in a row, mall companies will enjoy the highest
earnings growth rates in the real estate industry and this should continue to
support strong stock price performance. Further, with payout ratios among the
lowest in the REIT industry, we expect dividend growth to also remain well above
average. In 2003, the average mall REIT enjoyed earnings growth of 9.2% per
share and raised its dividend by 11.2%. We expect a similar pattern to develop
this year.
Notwithstanding our broad industry views, we believe that stock selection
will be much more important than sector weights in 2004. The general level of
REIT share prices has been adjusted upward and the strong economy should drive
fundamentals for every property sector. What may differentiate performance will
be individual company strategies, property acquisitions or the ability to
capitalize on new opportunities. In 2003, companies that
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3
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
executed on such strategic initiatives enjoyed strong share price performance
irrespective of the property sector or geographic region in which they operated.
Following the extraordinary returns that REITs delivered in 2003, it is
natural to ask whether they can continue to perform well this year. As shown in
the table below, the years following those in which REITs have turned in their
best total returns have historically shown a continuation of strong performance.
Thus, one should not assume that one year of very strong performance is
necessarily followed by a subpar year.
NAREIT EQUITY REIT RETURNS FOLLOWING BEST PERFORMING YEARS
<Table>
<Caption>
TOTAL RETURN IN THE FOLLOWING:
TOTAL ----------------------------------
YEAR RETURN 3 MOS. 6 MOS. 9 MOS. 12 MOS.
- ---- ------ ------ ------ ------ -------
1976 47.6% 7.6% 14.0% 15.0% 22.4%
1979 35.9% -4.4% 7.1% 17.0% 24.4%
1983 30.6% 4.4% 3.8% 13.8% 20.9%
1991 35.7% 0.7% 3.3% 10.4% 14.6%
1996 35.3% 0.7% 5.7% 18.2% 20.3%
2000 26.4% 0.4% 11.4% 8.5% 13.9%
2003 37.1% -- -- -- --
</Table>
Past performance is no guarantee of future results. Returns are historical,
include changes in share price and reflect reinvestment of all distributions.
This information is presented for illustrative purposes only and does not
represent the past performance of the fund. Investors cannot invest in this
unmanaged index.
Whereas REIT share prices are much higher than they were one year ago, we
believe the health of the industry and the outlook for profit growth are
stronger as well. In our experience, bear markets rarely, if ever, commence at
this stage of economic and real estate cycles. In fact, the strengthening real
estate markets are attracting an increasing amount of investment capital -- it
is our understanding that a record amount of capital has been allocated to
direct property ownership. We expect this to help to maintain strong pricing in
most real estate markets. In our opinion, the rise in REIT prices has not
changed the investment characteristics that investors are increasingly seeking.
Further, based on the prices of most other asset classes, we are not
convinced that REITs are any less attractively valued than any others. Consider
that owners of nearly everything from stocks to commodities, foreign currencies
and gold all had a spectacular year in 2003. In addition, with the current
yields on money market and fixed income instruments at modern-day lows, it is
hard to imagine anything but a very low return outcome for their holders. Many
observers have suggested that a rise in interest rates could attract more money
into bonds and possibly out of REITs. We disagree. If interest rates rise,
investors will begin losing money in bonds and may seek to reduce their exposure
to the bond market. This could increase the attractiveness REITs, which offer
the potential for income as well as protection from inflation.
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4
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
It remains our belief that while REITs are no longer as undervalued as they
were over the past several years, the conditions to sustain continued strength
and growth in this asset class are firmly in place. While we can rationally
expect there to be share price corrections along the way -- as there always
are -- we believe that REITs can still deliver solid, long-term returns to
investors. In light of these strong fundamentals, combined with the valuation of
REITs in comparison to many other asset classes, we believe that REITs will
continue to appeal to investors seeking the potential for portfolio
diversification, a high level of current income and attractive total returns.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JAMES S. CORL
JAMES S. CORL
Portfolio Manager
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
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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.
In 2003, the fund's total return was 38.04%, compared to 37.13% for the
NAREIT Equity REIT Index and 28.70% for the S&P 500. During the year, REITs
gained wider acceptance as both an important asset class and a financial
instrument as their low correlation to other asset classes offered a welcomed
respite to investors whose risk tolerance has been dramatically reduced. In
addition, investor expectations for improving fundamentals were vindicated by
economic statistics. Contributing to our outperformance of the fund's benchmark
were our overweight in the regional mall sector, our strategic shift from
underweight to overweight in the hotel sector, and our underweight in the
apartment sector. The regional mall sector ended with the year with a 52.2%
return, making it the second-best performing property sector in 2003. The hotel
sector experienced a turnaround during the year as business travel began to
improve. The apartment sector remained weak due to competition from single-
family home buying. Stock selection in general was very strong during the year,
particularly in the office and industrial sectors. Our underweights in the
health care and shopping center sectors detracted from performance.
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6
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
PERFORMANCE REVIEW -- (CONTINUED)
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED DEC. 31, 2003
----------------------------------
1 YEAR SINCE INCEPTION (2/14/00)
------ -------------------------
Fund 38.04% 18.88%
NAREIT Equity(a) 37.13% 20.45%
S&P 500(a) 28.70% -4.17%
</Table>
[PERFORMANCE GRAPH]
<Table>
<Caption>
NAREIT
COHEN & STEERS EQUITY REIT
DATE INSTITUTIONAL REALTY SHARES INDEX(a) S&P 500(a)
---- --------------------------- ----------- ----------
02/14/00(b) $3,000,000 $3,000,000 $3,000,000
03/31/00 $3,113,100 $3,082,500 $3,239,400
06/30/00 $3,365,261 $3,407,087 $3,153,556
09/30/00 $3,731,738 $3,667,729 $3,122,966
12/31/00 $3,889,217 $3,804,169 $2,878,750
03/31/01 $3,784,209 $3,819,005 $2,537,331
06/30/01 $4,164,143 $4,239,478 $2,685,765
09/30/01 $3,986,334 $4,128,403 $2,291,495
12/31/01 $4,123,065 $4,333,998 $2,536,456
03/31/02 $4,468,166 $4,691,553 $2,543,558
06/30/02 $4,675,042 $4,926,599 $2,202,721
09/30/02 $4,258,963 $4,480,742 $1,822,091
12/31/02 $4,249,594 $4,499,113 $1,975,693
03/31/03 $4,268,292 $4,529,707 $1,913,459
06/30/03 $4,843,658 $5,123,552 $2,208,323
09/30/03 $5,329,961 $5,611,314 $2,266,843
12/31/03 $5,865,622 $6,170,201 $2,542,945
</Table>
The performance data quoted represents past performance. Past performance is no
guarantee of future results. The rate of 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.
(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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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- ------------
EQUITIES 98.70%(a)
DIVERSIFIED 6.74%
Crescent Real Estate Equities Co. .................... 415,700 $ 7,120,941
Vornado Realty Trust.................................. 963,800 52,768,050
------------
59,888,991
------------
HEALTH CARE 1.61%
Ventas................................................ 651,600 14,335,200
------------
HOTEL 8.68%
Hilton Hotels Corp. .................................. 757,200 12,970,836
Host Marriott Corp.(b)................................ 2,672,800 32,928,896
Starwood Hotels & Resorts Worldwide................... 867,200 31,193,184
------------
77,092,916
------------
INDUSTRIAL 9.63%
AMB Property Corp. ................................... 360,400 11,849,952
Catellus Development Corp. ........................... 1,246,574 30,067,365
ProLogis.............................................. 1,361,800 43,700,162
------------
85,617,479
------------
OFFICE 21.75%
Arden Realty.......................................... 603,800 18,319,292
Boston Properties..................................... 1,222,100 58,892,999
Brookfield Properties Corp............................ 959,800 27,546,260
CarrAmerica Realty Corp............................... 470,700 14,017,446
Equity Office Properties Trust........................ 964,300 27,627,195
Mack-Cali Realty Corp................................. 274,500 11,424,690
Maguire Properties.................................... 448,400 10,896,120
Prentiss Properties Trust............................. 308,300 10,170,817
SL Green Realty Corp.................................. 350,500 14,388,025
------------
193,282,844
------------
</Table>
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(a) Percentages indicated are based on the net assets of the fund.
(b) Nonincome producing security.
See accompanying notes to financial statements.
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8
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2003
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- ------------
OFFICE/INDUSTRIAL 4.85%
Kilroy Realty Corp. .................................. 556,400 $ 18,222,100
Liberty Property Trust................................ 173,200 6,737,480
Reckson Associates Realty Corp. ...................... 745,600 18,118,080
------------
43,077,660
------------
RESIDENTIAL 19.51%
APARTMENT 17.87%
Apartment Investment & Management Co. ................ 240,100 8,283,450
Archstone-Smith Trust................................. 1,154,800 32,311,304
AvalonBay Communities................................. 861,500 41,179,700
BRE Properties........................................ 372,800 12,451,520
Equity Residential.................................... 539,200 15,911,792
Essex Property Trust.................................. 265,700 17,063,254
Post Properties....................................... 594,100 16,587,272
Summit Properties..................................... 559,500 13,439,190
United Dominion Realty Trust.......................... 81,000 1,555,200
------------
158,782,682
------------
MANUFACTURED HOME 1.64%
Sun Communities....................................... 376,400 14,566,680
------------
TOTAL RESIDENTIAL..................................... 173,349,362
------------
SELF STORAGE 2.03%
Public Storage........................................ 364,200 15,802,638
Shurgard Storage Centers.............................. 59,500 2,240,175
------------
18,042,813
------------
SHOPPING CENTER 23.90%
COMMUNITY CENTER 5.10%
Developers Diversified Realty Corp. .................. 376,100 12,625,677
Federal Realty Investment Trust....................... 569,200 21,851,588
Pan Pacific Retail Properties......................... 134,900 6,427,985
Regency Centers Corp.................................. 110,700 4,411,395
------------
45,316,645
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2003
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- ------------
REGIONAL MALL 18.80%
CBL & Associates Properties........................... 233,900 $ 13,215,350
General Growth Properties............................. 669,900 18,589,725
Macerich Co. ......................................... 483,900 21,533,550
Mills Corp. .......................................... 531,600 23,390,400
Rouse Co. ............................................ 765,900 35,997,300
Simon Property Group.................................. 807,600 37,424,184
Taubman Centers....................................... 820,600 16,904,360
------------
167,054,869
------------
TOTAL SHOPPING CENTER................................. 212,371,514
------------
TOTAL EQUITIES (Identified cost --$623,700,736)... 877,058,779
------------
<Caption>
PRINCIPAL
AMOUNT
---------
COMMERCIAL PAPER 0.70%
UBS Financial, 0.75%, due 01/02/2004
(Identified cost -- $6,266,869)..................... $6,267,000 6,266,869
------------
TOTAL INVESTMENTS (Identified cost -- $629,967,605) ... 99.40% 883,325,648
OTHER ASSETS IN EXCESS OF LIABILITIES ................. 0.60% 5,325,992
------ ------------
NET ASSETS (Equivalent to $37.34 per share based on
23,799,339 shares of capital stock outstanding) ..... 100.00% $888,651,640
------ ------------
------ ------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $629,967,605) (Note 1)....................... $883,325,648
Cash.................................................... 829
Dividends receivable.................................... 5,841,676
Receivable for fund shares sold......................... 345,729
------------
Total Assets....................................... 889,513,882
------------
LIABILITIES:
Payable to manager...................................... 560,962
Payable for fund shares redeemed........................ 301,280
------------
Total Liabilities.................................. 862,242
------------
NET ASSETS applicable to 23,799,339 shares of $0.001 par
value common stock outstanding (Note 5)................... $888,651,640
------------
------------
NET ASSET VALUE PER SHARE:
($888,651,640[div]23,799,339 shares outstanding)........ $ 37.34
------------
------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 5)......................... $637,467,107
Accumulated net realized loss on investments............ (2,173,510)
Net unrealized appreciation on investments.............. 253,358,043
------------
$888,651,640
------------
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
Investment Income (Note 1):
Dividend income (net of $83,243 of foreign withholding
tax)................................................. $ 29,068,104
Interest income......................................... 131,541
------------
Total Income....................................... 29,199,645
------------
Expenses:
Management fees (Note 2)................................ 5,456,142
Directors' fees and expenses (Note 2)................... 38,725
Line of credit fees and expenses (Note 6)............... 65,718
Registration and filing fees............................ 58,148
------------
Total Expenses..................................... 5,618,733
------------
Reduction of Expenses (Note 2).......................... (162,591)
------------
Net Expenses....................................... 5,456,142
------------
Net Investment Income....................................... 23,743,503
------------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments........................ 35,036,056
Net change in unrealized appreciation on investments.... 182,973,999
------------
Net realized and unrealized gain on investments.... 218,010,055
------------
Net Increase in Net Assets Resulting from Operations........ $241,753,558
------------
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002(a)
----------------- --------------------
Change in Net Assets:
From Operations:
Net investment income................. $ 23,743,503 $ 25,266,835
Net realized gain on investments...... 35,036,056 23,240,231
Net change in unrealized appreciation/
(depreciation) on investments...... 182,973,999 (29,719,644)
------------ ------------
Net increase in net assets
resulting from operations...... 241,753,558 18,787,422
------------ ------------
Dividends and Distributions to Shareholders
from (Notes 1 and 4):
Net investment income................. (23,743,503) (25,266,834)
Net realized gain on investments...... (35,286,955) (25,054,439)
Tax return of capital................. (7,175,248) (723,810)
------------ ------------
Total dividends and distributions
to shareholders................ (66,205,706) (51,045,083)
------------ ------------
Capital Stock Transactions (Note 5):
Increase in net assets from fund share
transactions....................... 97,414,252 53,725,596
------------ ------------
Total increase in net assets..... 272,962,104 21,467,935
Net Assets:
Beginning of year..................... 615,689,536 594,221,601
------------ ------------
End of year........................... $888,651,640 $615,689,536
------------ ------------
------------ ------------
</Table>
- -------------------
(a) See Note 1.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
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 PERIOD
FOR THE YEAR ENDED DECEMBER 31, FEBRUARY 14, 2000(a)
--------------------------------- THROUGH
PER SHARE OPERATING PERFORMANCE: 2003 2002(b) 2001(b) DECEMBER 31, 2000(b)
- -------------------------------- --------- --------- --------- --------------------
Net asset value, beginning of period........... $29.41 $30.97 $30.89 $25.00
------ ------ ------ ------
Income from investment operations:
Net investment income...................... 1.10 1.28 1.35 1.20
Net realized and unrealized gain/(loss) on
investments.............................. 9.78 (0.28) 0.43 6.08
------ ------ ------ ------
Total income from investment
operations........................... 10.88 1.00 1.78 7.28
------ ------ ------ ------
Less dividends and distributions to
shareholders from:
Net investment income...................... (1.10) (1.29) (1.33) (1.21)
Net realized gain on investments........... (1.53) (1.23) (0.26) (0.12)
Tax return of capital...................... (0.32) (0.04) (0.11) (0.06)
------ ------ ------ ------
Total dividends and distributions to
shareholders......................... (2.95) (2.56) (1.70) (1.39)
------ ------ ------ ------
Net increase/(decrease) in net asset
value................................ 7.93 (1.56) 0.08 5.89
------ ------ ------ ------
Net asset value, end of period................. $37.34 $29.41 $30.97 $30.89
------ ------ ------ ------
------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------
Total investment return........................ 38.04% 3.06% 6.02% 29.64%c
------ ------ ------ ------
------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------
<Caption>
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (in millions)........ $888.7 $615.7 $594.2 $615.6
------ ------ ------ ------
------ ------ ------ ------
Ratio of expenses to average daily net assets
(before expense reduction)................... 0.77% 0.76% 0.77% 0.79%(d)
------ ------ ------ ------
------ ------ ------ ------
Ratio of expenses to average daily net assets
(net of expense reduction)................... 0.75% 0.75% 0.75% 0.75%(d)
------ ------ ------ ------
------ ------ ------ ------
Ratio of net investment income to average daily
net assets (before expense reduction)........ 3.24% 4.06% 4.30% 5.09%(d)
------ ------ ------ ------
------ ------ ------ ------
Ratio of net investment income to average daily
net assets (net of expense reduction)........ 3.26% 4.07% 4.33% 5.13%(d)
------ ------ ------ ------
------ ------ ------ ------
Portfolio turnover rate........................ 35.45% 37.88% 40.71% 20.16%(c)
------ ------ ------ ------
------ ------ ------ ------
</Table>
- -------------------
(a) Commencement of operations.
(b) See Note 1.
(c) Not annualized.
(d) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
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 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. 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 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.
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
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 necessary once the
issuers provide information about the actual composition of the distributions.
Revision of Financial Information: Due to the nature of commercial real
estate and the REIT structure, which generally is not subject to corporate tax,
REIT dividends can be characterized as a combination of net income, capital
gains (from asset dispositions) and return of capital (which generally relates
to property depreciation). To date, it has been the fund's policy to distribute
to its shareholders all dividends received, regardless of dividend
characterization, from the securities it holds in the year that such dividends
were received. The fund has reclassified a portion of its net investment income
as an increase to net realized gain on investments and as an increase to
unrealized appreciation/(depreciation) on investments for the current year and
for prior periods. These reclassifications are being done to recognize the
return of capital and realized gains that have been reported by the securities
held in the portfolio of investments. These changes for the year ended
December 31, 2002 are reflected in the Statement of Changes in Net Assets as
follows:
<Table>
<Caption>
PREVIOUSLY AS
REPORTED REVISED
-------- -------
Net investment income................................... $ 34,604,950 $ 25,266,835
Net realized gain on investments........................ 18,049,002 23,240,231
Net change in unrealized appreciation/(depreciation) on
investments........................................... (33,866,530) (29,719,644)
------------ ------------
Net increase in net assets resulting from
operations....................................... $ 18,787,422 $ 18,787,422
------------ ------------
------------ ------------
</Table>
On the Financial Highlights, the net investment income per share figures
have been reduced and the net realized gain/(loss) on investments per share have
been correspondingly increased. In addition, the ratios of net investment income
have been reduced. These reclassifications do not change the actual dividends
that were received by the fund, nor do they alter any taxpayer records, as such
adjustments have historically been captured in the fund's tax reporting to its
shareholders.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The reclassifications for the Financial Highlights are as follows:
<Table>
<Caption>
DECREASE IN RATIOS
OF NET INVESTMENT
INCREASE IN NET INCOME TO AVERAGE
REALIZED AND DAILY NET ASSETS
UNREALIZED (BEFORE EXPENSE
DECREASE IN NET GAIN/(LOSS) ON REDUCTION AND NET
PERIOD ENDED INVESTMENT INCOME INVESTMENTS OF EXPENSE
DECEMBER 31, PER SHARE PER SHARE REDUCTION)
- ------------ --------- --------- ----------
2002 $0.47 $0.47 1.50%
2001 $0.38 $0.38 1.22%
2000 $0.21 $0.21 0.88%
</Table>
These reclassifications had no effect on net assets or the net increase in
net assets resulting from operations or cash received from the underlying
investments.
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
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to the supervision of the fund's board of directors. 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, 2003, the fund incurred $5,456,142 in management fees.
The manager also is responsible, under the management agreement, for the
performance of certain administration services for the fund. During the year
ended December 31, 2003, the manager incurred expenses in connection with such
administration services pursuant to this commitment. These expenses include
administration and custody fees, transfer agent fees, professional fees, and
reports to shareholders.
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, 2003, the manager paid $162,591 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
directors and officers of the fund. For the year ended December 31, 2003, the
manager paid $38,725 for directors' fees and related expenses on behalf of the
fund.
Other: At December 31, 2003, there was one institutional investor owning 27%
of the fund's outstanding shares. Investment activities of this shareholder
could have a significant 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, 2003 totaled $317,797,635 and $252,376,604,
respectively.
NOTE 4. INCOME TAXES
The fund had a return of capital of $7,175,248 ($0.32 per share) for the
year ended December 31, 2003 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,
-------------------------
2003 2002
---- ----
Ordinary income.......................... $32,766,657 $30,465,990
Long-term capital gains.................. 26,263,801 19,855,283
Tax return of capital.................... 7,175,248 723,810
----------- -----------
Total dividends and distributions to
shareholders...................... $66,205,706 $51,045,083
----------- -----------
----------- -----------
</Table>
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2003, the cost of investments and net unrealized
appreciation/(depreciation), for federal income tax purposes were as follows:
<Table>
Aggregate cost.................................... $632,141,114
------------
------------
Gross unrealized appreciation..................... $251,666,399
Gross unrealized depreciation..................... (481,865)
------------
Net unrealized appreciation....................... $251,184,534
------------
------------
</Table>
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.
The components of distributable earnings on a tax basis consist of
undistributed ordinary income of $0 and undistributed capital gains of $0.
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, 2003 DECEMBER 31, 2002
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold.................................. 5,805,880 $193,319,371 3,023,741 $ 95,555,000
Sold in-kind(a)....................... -- -- 227,463 6,569,140
Issued as reinvestment of dividends... 1,258,323 44,503,491 1,186,301 36,094,714
Redeemed.............................. (4,199,795) (140,408,610) (2,686,932) (84,493,258)
---------- ------------ ---------- ------------
Net increase/(decrease)............... 2,864,408 $ 97,414,252 1,750,573 $ 53,725,596
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</Table>
- -------------------
(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.
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 2003, the fund did not have any loans
outstanding. For the the year ended December 31, 2003, the manager paid
commitment fees and other expenses associated with the line of credit of $65,718
on behalf of the fund.
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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 three
years in the period 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, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
As explained in Note 1, the Fund has revised amounts previously reported as
net investment income to reflect the reclassification of distributions in excess
of income received from underlying investments. These reclassifications had no
effect on net assets or the net increase in net assets resulting from
operations.
PRICEWATERHOUSECOOPERS
New York, New York
February 17, 2004
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
TAX INFORMATION -- 2003 (UNAUDITED)
During the year ended December 31, 2003 the fund had post May 5th long term
capital gains distributions of $11,226,602 and qualified dividend income
distributions of $7,977,347. Pursuant to the Jobs and Growth Tax Relief
Reconciliation Act of 2003, this dividend is eligible for a maximum allowable
rate of 15% for individuals.
For the year ended December 31, 2003 the fund had long term capital gains
distributions of $26,263,801.
Shareholders are advised to consult with their own tax adivsors as to the
Federal, State and local tax status of the income received.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
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 Co-chairman and 10
757 Third Avenue and secretary Election of inception co-chief executive
New York, New York Directors officer of Cohen &
Age: 50 Steers Capital
Management, Inc., the
fund's investment
manager since 2003.
Prior thereto, chairman
of Cohen & Steers
Capital Management,
Inc.
Martin Cohen .......... Director, Until Next Since Co-chairman and 10
757 Third Avenue president and Election of inception co-chief executive
New York, New York treasurer Directors officer of Cohen &
Age: 55 Steers Capital
Management, Inc., the
fund's investment
manager. Prior thereto,
president of Cohen &
Steers Capital
Management, Inc.
Gregory C. Clark ...... Director Until Next Since Private investor. Prior 10
99 Jane Street Election of inception thereto, President of
New York, New York Directors Wellspring Management
Age: 56 Group (investment
advisory firm).
Bonnie Cohen .......... Director Until Next 2001 to Consultant. Prior 10
1824 Phelps Place, N.W. Election of present thereto, undersecretary
Washington, D.C. Directors of state, United States
Age: 61 Department of State.
George Grossman ....... Director Until Next Since Attorney-at-law. 10
17 Elm Place Election of inception
Rye, New York Directors
Age: 50
Richard J. Norman ..... Director Until Next 2001 to Private investor. Prior 10
7520 Hackamore Drive Election of present thereto, investment
Potomac, Maryland Directors representative of
Age: 60 Morgan Stanley Dean
Witter.
Willard H. Smith, Director Until Next Since Director. Board member 10
Jr. .................. Election of Inception of Essex Property
7231 Encelia Drive Directors Trust, Inc., Highwoods
La Jolla, California Properties, Inc. and
Age: 67 Realty Income
Corporation. Managing
director at Merrill
Lynch & Co., Equity
Capital Markets
Division from 1983 to
1995.
</Table>
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
<Table>
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
REITS
CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
OFFERS LOW TOTAL EXPENSE RATIO
SYMBOL: CSSPX
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
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE
INVESTING. THIS INFORMATION, AS WELL AS OTHER INFORMATION ABOUT THE FUND, IS DESCRIBED IN THE
PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
</Table>
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24
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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 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>
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25
COHEN & STEERS
INSTITUTIONAL REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
INSTITUTIONAL REALTY SHARES
ANNUAL REPORT
DECEMBER 31, 2003
STATEMENT OF DIFFERENCES
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The division sign shall be expressed as................................. [div]
The section symbol shall be expressed as................................ 'SS'