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, 2004
Item 1. Reports to Stockholders.
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
February 21, 2005
To Our Shareholders:
We are pleased to submit to you our report for the quarter and year ended
December 31, 2004. The net asset value at that date was $45.47. In addition, a
distribution of $4.68 per share, including a regular quarterly distribution of
$0.43 per share, a short-term capital gains distribution of $0.53 per share, and
a long-term capital gains distribution of $3.72 were declared for shareholders
of record on December 22, 2004 and were paid on December 23, 2004.(a)
INVESTMENT REVIEW
For the quarter, the Cohen & Steers Institutional Realty Shares had a total
return, based on income and change in net asset value, of 17.8%. This compares
to the NAREIT Equity REIT Index's(b) total return of 15.2%. For the year, the
fund's total return was 38.8%, compared to NAREIT's 31.6%.
One year ago, in our year-end letter to shareholders, we shared our belief
that REITs would experience 'a continuation of strong performance' as a result
of strong expected economic fundamentals. We predicted that GDP would increase
by at least 4% in 2004, creating 1.5 to 2.0 million jobs and leading to
improving real estate fundamentals and accelerating cash flow growth rates for
REITs. We are pleased to report that all of these predictions have been
realized. In our view, the fund was well positioned to benefit from these
factors. As a result, we experienced one of our best years ever in terms of both
absolute and relative performance, outperforming the fund's benchmark by a
substantial margin.
The major theme within the portfolio all year, and in our view the primary
driver of REIT stock price appreciation, was the resurgence in growth, both cash
flow growth and dividend growth. This has been the guiding force in our stock
selection, where we added value in essentially all the property types in our
investment universe. Contrary to many pundits who suggested that the directional
change in interest rates would dominate REIT stock price performance, we
continued to believe that changing interest rates have an indeterminate effect
on REIT prices over the longer term (i.e. the correlation between the two is
low). In our view, performance this year amply demonstrated that real estate
fundamentals are what matter the most. REIT cash flow growth rates had been
decelerating since the last peak in REIT stock prices in early 1998. REIT
earnings growth finally bottomed in the first quarter of 2004, after falling for
six years, and then re-accelerated briskly in the second and third quarters,
sparking a substantial REIT rally.
- -------------------
(a) Please note that distributions paid by the fund to shareholders are subject
to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders after the close of each fiscal
year.
(b) The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly traded REITs that invest predominantly in the equity
ownership of real estate. The index is designed to reflect the performance
of all publicly traded equity REITs as a whole.
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1
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Additionally, we believe that investors of all types -- individual and
institutional, in the United States and abroad -- continued to gravitate toward
REITs in recognition of their historical investment characteristics, including a
secure and growing dividend stream, diversification away from the broader stock
and bond markets, and competitive total returns. In addition, as more and more
investors came to appreciate the investment characteristics of real estate, REIT
merger and acquisition activity heated up. The prices paid for real estate
companies over the course of 2004 continued to validate the higher asset values
associated with high quality U.S. commercial real estate assets.
Within the REIT sector, regional mall companies continued to lead the REIT
industry in performance. Benefiting from strong sales growth, rapid
consolidation of ownership (resulting in greater leverage with retailers),
strong demand for space by retailers, and a relatively fixed supply of franchise
assets, regional malls returned 45.0%. Our stock selection and overweight in
this sector was the greatest single contributor to the fund's performance. Mills
Corporation was our best performing mall investment, having generated a 52.4%
total return. Shopping centers benefited from some of the same trends in
retailing and returned 36.3%.
The apartment and industrial sectors, both cyclical in nature, benefited
from a strong economy and generated 34.7% and 34.1% total returns respectively.
Our stock selection in the apartment sector and our decision to move from an
underweight to an overweight earlier in the year were, in combination, the
second greatest contributor to our performance this year. AvalonBay Communities,
for example, was the best performing stock in our portfolio, generating a 65.0%
total return. Manufactured housing was the worst performing sector, returning
only 6.4% as lower apartment rents and affordable for-sale housing continued to
disadvantage this low-priced housing alternative.
Office companies also trailed the index on average by a wide margin,
returning 23.3% as a group. Office fundamentals, however, varied widely across
the United States. Several office companies in tightening markets generated
total returns in excess of 30%, while many in markets with a more substantial
vacancy overhang were virtually flat. By owning more of the former and less of
the latter, we were able to add substantial value in this sector as well. Our
average office position generated a total return of 31.5%. SL Green Realty was
our best performing office stock with a 53.5% total return. Conversely, the two
worst performing stocks in our portfolio were office stocks: Brandywine Realty
Trust, 6.1%; and Equity Office Properties, 9.1%. The largest single detractor
from our performance, albeit small, was the cash position in the fund, which
returned 1.3%.
Finally, a review of 2004 would be incomplete without considering an
important milestone in the REIT sector. In late 2001, the broader stock market
implicitly recognized the successful evolution of the U.S. REIT structure when
REITs were included in the S&P 500 Index. In 2004, the rest of the world came to
the same realization. The U.S. REIT had officially gone global. A growing
handful of the most successful U.S. real estate companies began to successfully
export their planning, construction, leasing, re-development and capital
allocation skills to Europe and Asia. Their participation globally is no longer
anecdotal. Their successes have been undeniable and notable for their investment
discipline, product innovation and execution skills. This global expansion has
significantly boosted the growth potential of these companies in our view.
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2
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Foreigners, who, with a few notable exceptions have traditionally invested
in U.S. real estate through direct ownership, are now investing in U.S. REITs in
a significant way. Liquidity, income potential and access to local management
talent top the list of reasons given for foreign investment in REITs.
Many foreign countries are paying the greatest possible compliment to the
U.S. REIT structure by attempting to emulate its success in their own country.
Following the adoption of the REIT structure by France and others, Germany, the
U.K., Italy and Spain are notable examples of the many governments that have a
U.S.-style REIT structure on their legislative agendas. We believe there may be
significant IPO and securitization activity in these and other countries as
property investors avail themselves of the benefits of the public REIT format.
Over time we anticipate that an increasing amount of the world's income
producing property will find its way into REIT-like vehicles, providing
investors with truly global real estate investment opportunities.
INVESTMENT OUTLOOK
Our superior investment results in 2004 began with getting the big picture
right. Starting with the right macroeconomic assumptions was instrumental in
anticipating how the REIT sector would behave and we believe this will be
equally important in 2005. Quite simply, we anticipate that economic
fundamentals in 2005 will be substantially similar to 2004 and in a few ways
even better. We believe that GDP growth will be in the 3.5% range this year with
job growth of about 2 million. In our view, barring any large, exogenous
economic shocks, this will result in continuing improvement in the unemployment
rate and real wage gains. In short, we believe the economic recovery should
become self-sustaining and somewhat steadier.
This should provide a continued positive backdrop for real estate
fundamentals, characterized by higher occupancies, rents and cash flows for most
property types and in most regions of the country. As a result, our estimates
indicate that REIT cash flows and dividends will continue their re-acceleration
through 2005 and 2006.
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
CASH FLOW, DIVIDENDS AND TOTAL RETURNS IN THE MODERN REIT ERA
[BAR CHART]
Cash Flow/Share Dividend/Share
--------------- --------------
1993 .............. $1.00 $0.86
1994 .............. $1.16 $0.91
1995 .............. $1.28 $0.97
1996 .............. $1.41 $1.02
1997 .............. $1.59 $1.10
1998 .............. $1.86 $1.18
1999 .............. $2.05 $1.27
2000 .............. $2.24 $1.36
2001 .............. $2.33 $1.41
2002 .............. $2.36 $1.44
2003 .............. $2.39 $1.51
2004E ............. $2.46 $1.57
2005E ............. $2.68 $1.66
2006E ............. $2.94 $1.76
8.6% Annual 5.7% Annual
Cash Flow Dividend
Growth Rate Growth Rate
<Table>
Cash Flow Growth 15.5% 10.8% 10.4% 12.4% 16.8% 10.4% 9.3% 3.8% 1.7% 1.3% 2.6% 9.2% 9.5%
Dividend Growth 6.0% 6.8% 4.9% 7.4% 8.0% 7.7% 6.8% 3.8% 1.9% 5.2% 3.6% 6.0% 6.2%
Payout Ratio 86% 78% 76% 72% 69% 63% 62% 61% 60% 61% 63% 64% 62% 60%
NAREIT Returns 19.7% 3.2% 15.3% 35.3% 20.3% -17.5% -4.6% 26.4% 13.9% 3.8% 37.1% 31.6% -- --
</Table>
Source: NAREIT; Cohen & Steers estimates for 2004, 2005 and 2006.
Although past performance is no guarantee of future results, history has
shown that accelerating cash flow and dividend growth rates, which we anticipate
for at least the next two years, can have a salutary effect on stock prices. For
REITs as with other stocks, it has generally been when growth rates peaked and
began declining that stock prices also peaked and began declining. Not
coincidentally, when REIT cash flow growth rates last peaked in early 1998, the
REIT index peaked as well, and total returns turned negative. By 1998, real
estate in the United States had been in recovery for several years and growth
rates had been accelerating. But with rents having escalated dramatically in
1996 and 1997, an explosion of new construction in 1998 began to attenuate the
dramatic market rental rate increases that commercial landlords had been
experiencing. In short, real estate had fully recovered and even though demand
from the economy was chugging along nicely, supply had risen up to meet that
demand, causing earnings growth rates to peak.
Accordingly, if the current real estate cycle continues to improve and
economic growth remains steady in the 2.5% to 4% range, we believe that real
estate stocks can continue to perform well, until such time as market rents rise
to the level where developers are induced to build new buildings and rental
increases are stifled by new competitive product. We believe that this
eventuality is still a couple of years away. Rents, though rising in most
markets, are generally nowhere near levels that would justify new construction
and will not be for some time in our view. In most instances, we believe it will
be several years before new construction makes sense, given that the price of
building a building has also escalated dramatically in accordance with the price
of steel, concrete, lumber and labor.
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4
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
In summary, we anticipate that a steadily growing economy will support
demand for real estate and muted new construction will constrain the supply of
real estate in many markets. With respect to REITs we believe that cash flow
growth will accelerate along with dividend growth. We further believe that
correctly anticipating these changing growth rates will be the key to REIT stock
price performance again in 2005. Valuations, though above historical averages,
are partially reflecting some of these positives in our view. However,
valuations are also not at levels that indicate to us a peak in stock prices. As
a result, we believe REITs may deliver attractive total returns in 2005,
although investors are cautioned not to assume that returns will continue at the
pace of the last two years.
Sincerely,
<Table>
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JAMES S. CORL
JAMES S. CORL
Portfolio Manager
</Table>
VISIT COHEN & STEERS ONLINE AT COHENANDSTEERS.COM
For more information about any of our funds, visit
cohenandsteers.com, where you'll find daily net asset
values, fund fact sheets and portfolio highlights. You can
also access newsletters, education tools and market updates
covering the REIT, utility and preferred securities sectors.
In addition, our Web site contains comprehensive information
about our firm, including our most recent press releases,
profiles of our senior investment professionals, and an
overview of our investment approach.
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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.
In 2004, the fund's total return was 38.78%, compared to 31.58% for the
NAREIT Equity REIT Index and 10.88% for the S&P 500. We experienced one of our
best years ever in terms of both absolute and relative performance,
outperforming the fund's benchmark by a substantial margin. The major theme
within the portfolio all year, and in our view the primary driver of REIT stock
price appreciation, was the resurgence in growth, both cash flow growth and
dividend growth. This has been the guiding force in our stock selection, where
we added value in essentially all the property types in our investment universe.
Our stock selection and overweight in the mall sector was the greatest single
contributor to the fund's performance. Our stock selection in the apartment
sector and our decision to move from an underweight to an overweight earlier in
the year were, in combination, the second greatest contributor to our
performance this year. We were able to add substantial value in the office
sector as well. The largest single detractor from our performance, albeit small,
was the cash position in the fund.
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6
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
PERFORMANCE REVIEW -- (CONTINUED)
Average Annual Total Returns
For Periods Ended Dec. 31, 2004
-------------------------------------------
1 Year Since Inception (2/14/00)(b)
------ ---------------------------
Fund ...................... 38.78% 22.72%
NAREIT Equity(a) .......... 31.58% 22.64%
S&P 500(a) ................ 10.88% -1.26%
[PERFORMANCE GRAPH]
Growth of a $3,000,000 Investment
Since Inception
Cohen & Steers
Institutional NAREIT Equity
Realty Shares REIT Index(a) S&P 500(a)
--------------------- ---------------- ----------
2/14/00(b) $3,000,000 $3,000,000 $3,000,000
3/31/00 $3,113,100 $3,082,500 $3,239,400
6/30/00 $3,365,260 $3,407,090 $3,153,560
9/30/00 $3,731,740 $3,667,730 $3,122,970
12/31/00 $3,889,220 $3,804,170 $2,878,750
3/31/01 $3,784,210 $3,819,000 $2,537,330
6/30/01 $4,164,140 $4,239,480 $2,685,760
9/30/01 $3,986,330 $4,128,400 $2,291,500
12/31/01 $4,123,060 $4,333,930 $2,536,460
3/31/02 $4,468,170 $4,691,480 $2,543,560
6/30/02 $4,675,040 $4,926,600 $2,202,720
9/30/02 $4,258,960 $4,480,740 $1,822,090
12/31/02 $4,249,590 $4,499,110 $1,975,690
3/31/03 $4,268,290 $4,529,710 $1,913,460
6/30/03 $4,843,660 $5,123,550 $2,208,320
9/30/03 $5,329,960 $5,611,310 $2,266,840
12/31/03 $5,865,620 $6,170,200 $2,542,940
3/31/04 $6,567,740 $6,911,860 $2,585,920
6/30/04 $6,295,830 $6,510,280 $2,630,400
9/30/04 $6,910,310 $7,046,080 $2,581,150
12/31/04 $8,140,322 $8,119,193 $2,819,453
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN WILL VARY AND THE PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE AND SHARES, IF REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE DATA QUOTED. MONTH-END PERFORMANCE INFORMATION CAN BE
OBTAINED BY VISITING OUR WEB SITE AT COHENANDSTEERS.COM. THE PERFORMANCE TABLE
AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS ON THE REDEMPTION OF FUND SHARES.
(a) The comparative indexes are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the fund's performance. The fund's
performance assumes the reinvestment of all dividends and distributions. The
NAREIT Equity REIT Index is an unmanaged, market capitalization-weighted
index of all publicly traded REITs that invest predominantly in the equity
ownership of real estate. The index is designed to reflect the performance
of all publicly traded REITs as a whole. The S&P 500 Index is an unmanaged
index of common stocks that is frequently used as a general measure of stock
market performance. For more information, including charges and expenses,
please read the prospectus carefully before you invest.
(b) Commencement of operations.
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7
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
EXPENSE EXAMPLE
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs; and (2) ongoing costs, including management fees and other fund expenses.
This example is intended to help you understand your ongoing costs (in dollars)
of investing in the fund and to compare these costs with the ongoing costs of
investing in other mutual funds
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period (July 1, 2004 through December 31,
2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading entitled 'Expenses Paid During Period' to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing cost of
investing in the fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, or exchange fees.
Therefore, the second line of the table is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
JUNE 30, 2004 DECEMBER 31, 2004 ENDED 12/31/04(a)
------------- ----------------- ---------------
Actual.............................. $1,000.00 $1,293.00 $4.32
Hypothetical (5% return before
expenses)......................... $1,000.00 $1,021.32 $3.82
</Table>
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(a) Expenses are equal to the fund's annualized expense ratio (net of expense
reduction), multiplied by the average account value over the period,
multiplied by the number of days in the most recent six month period, then
divided by 366.
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8
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
DECEMBER 31, 2004
TOP TEN HOLDINGS
(UNAUDITED)
<Table>
<Caption>
MARKET % OF
VALUE NET ASSETS
SECURITY ----------- ----------
1. Boston Properties....................................... $70,684,310 7.03%
2. ProLogis................................................ 62,065,892 6.17
3. Vornado Realty Trust.................................... 57,356,342 5.70
4. Simon Property Group.................................... 55,978,352 5.56
5. AvalonBay Communities................................... 54,306,360 5.40
6. Host Marriott Corp. .................................... 37,928,520 3.77
7. Mills Corp. ............................................ 37,012,680 3.68
8. Equity Residential...................................... 36,194,472 3.60
9. Archstone-Smith Trust................................... 29,713,140 2.95
10. Brookfield Properties Corp. ............................ 27,683,480 2.75
</Table>
SECTOR BREAKDOWN (UNAUDITED)
(Based on Net Assets)
[PIE CHART]
<Table>
Office/Industrial 34.84%
Shopping Center 22.67%
Residential 21.59%
Hotel 7.96%
Diversified 5,70%
Self Storage 4.81%
Health Care 1.58%
Cash & Other Assets
in Excess of Liabilities 0.85%
</Table>
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9
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- --------------
EQUITIES 99.15%(a)
DIVERSIFIED 5.70%
Vornado Realty Trust............................ 753,400 $ 57,356,342
--------------
HEALTH CARE 1.58%
Ventas.......................................... 579,600 15,886,836
--------------
HOTEL 7.96%
Hilton Hotels Corp.............................. 682,000 15,508,680
Host Marriott Corp.............................. 2,192,400 37,928,520
Starwood Hotels & Resorts Worldwide............. 455,700 26,612,880
--------------
80,050,080
--------------
INDUSTRIAL 10.24%
AMB Property Corp............................... 508,400 20,534,276
Catellus Development Corp....................... 666,074 20,381,864
ProLogis........................................ 1,432,400 62,065,892
--------------
102,982,032
--------------
OFFICE 23.42%
Arden Realty.................................... 312,300 11,779,956
BioMed Realty Trust............................. 152,500 3,387,025
Boston Properties............................... 1,093,000 70,684,310
Brandywine Realty Trust......................... 191,100 5,616,429
Brookfield Properties Corp...................... 740,200 27,683,480
CarrAmerica Realty Corp......................... 398,500 13,150,500
Equity Office Properties Trust.................. 348,600 10,151,232
Highwoods Properties............................ 217,400 6,021,980
Kilroy Realty Corp.............................. 263,900 11,281,725
Mack-Cali Realty Corp........................... 263,300 12,119,699
Maguire Properties.............................. 424,400 11,654,024
Prentiss Properties Trust....................... 245,900 9,393,380
Reckson Associates Realty Corp. ................ 502,400 16,483,744
SL Green Realty Corp............................ 432,900 26,212,095
--------------
235,619,579
--------------
</Table>
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(a) Percentages indicated are based on the net assets of the fund.
See accompanying notes to financial statements.
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10
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- --------------
OFFICE/INDUSTRIAL 1.18%
Liberty Property Trust.......................... 276,100 $ 11,927,520
--------------
RESIDENTIAL 21.59%
APARTMENT 19.68%
Apartment Investment & Management Co............ 195,600 7,538,424
Archstone-Smith Trust........................... 775,800 29,713,140
AvalonBay Communities........................... 721,200 54,306,360
BRE Properties.................................. 572,400 23,073,444
Equity Residential.............................. 1,000,400 36,194,472
Essex Property Trust............................ 182,600 15,301,880
GMH Communities Trust........................... 185,000 2,608,500
Post Properties................................. 455,800 15,907,420
Summit Properties............................... 409,600 13,336,576
--------------
197,980,216
--------------
MANUFACTURED HOME 1.91%
Affordable Residential Communities.............. 270,300 3,878,805
Sun Communities................................. 382,500 15,395,625
--------------
19,274,430
--------------
TOTAL RESIDENTIAL............................... 217,254,646
--------------
SELF STORAGE 4.81%
Public Storage.................................. 446,000 24,864,500
Shurgard Storage Centers........................ 534,200 23,510,142
--------------
48,374,642
--------------
SHOPPING CENTER 22.67%
COMMUNITY CENTER 4.40%
Developers Diversified Realty Corp.............. 306,100 13,581,657
Federal Realty Investment Trust................. 293,100 15,138,615
Pan Pacific Retail Properties................... 148,400 9,304,680
Regency Centers Corp............................ 112,700 6,243,580
--------------
44,268,532
--------------
</Table>
See accompanying notes to financial statements.
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11
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 2004
<Table>
<Caption>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- --------------
REGIONAL MALL 18.27%
CBL & Associates Properties..................... 220,600 $ 16,842,810
General Growth Properties....................... 755,700 27,326,112
Macerich Co..................................... 423,500 26,595,800
Mills Corp...................................... 580,500 37,012,680
Simon Property Group............................ 865,600 55,978,352
Taubman Centers................................. 672,300 20,135,385
--------------
183,891,139
--------------
TOTAL SHOPPING CENTER........................... 228,159,671
--------------
TOTAL EQUITIES (Identified cost --
$562,481,846)........................... 997,611,348
--------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER 0.46%
State Street Corp., 1.70%, due 01/03/2005
(Identified cost -- $4,675,558)................. $ 4,676,000 4,675,558
----------- --------------
TOTAL INVESTMENTS (Identified cost --
$567,157,404)................................. 99.61% 1,002,286,906
OTHER ASSETS IN EXCESS OF LIABILITIES........... 0.39% 3,870,441
------ --------------
NET ASSETS (Equivalent to $45.47 per share based
on 22,126,488 shares of capital stock
outstanding).................................. 100.00% $1,006,157,347
------ --------------
------ --------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $567,157,404) (Note 1)....................... $1,002,286,906
Dividends receivable.................................... 5,544,554
Receivable for fund shares sold......................... 1,223,134
Receivable for investment securities sold............... 16,547
--------------
Total Assets....................................... 1,009,071,141
--------------
LIABILITIES:
Payable for fund shares redeemed........................ 2,261,942
Payable to manager...................................... 635,852
Payable to custodian.................................... 16,000
--------------
Total Liabilities.................................. 2,913,794
--------------
NET ASSETS applicable to 22,126,488 shares of $0.001 par
value common stock outstanding (Note 5)................... $1,006,157,347
--------------
--------------
NET ASSET VALUE PER SHARE:
($1,006,157,347[div]22,126,488 shares outstanding)...... $ 45.47
--------------
--------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 5)......................... $ 573,748,654
Accumulated net realized loss on investments............ (2,720,809)
Net unrealized appreciation on investments.............. 435,129,502
--------------
$1,006,157,347
--------------
--------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
Investment Income (Note 1):
Dividend income (net of $74,246 of foreign withholding
tax)................................................. $ 27,629,198
Interest income......................................... 127,222
------------
Total Income....................................... 27,756,420
------------
Expenses:
Management fees (Note 2)................................ 6,956,275
Directors' fees and expenses (Note 2)................... 46,375
Line of credit fees and expenses (Note 6)............... 41,933
Registration and filing fees............................ 41,823
------------
Total Expenses..................................... 7,086,406
Reduction of Expenses (Note 2).......................... (130,131)
------------
Net Expenses....................................... 6,956,275
------------
Net Investment Income....................................... 20,800,145
------------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments........................ 100,076,386
Net change in unrealized appreciation on investments.... 181,771,459
------------
Net realized and unrealized gain on investments.... 281,847,845
------------
Net Increase in Net Assets Resulting from Operations........ $302,647,990
------------
------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- ------------------
Change in Net Assets:
From Operations:
Net investment income.................. $ 20,800,145 $ 23,743,503
Net realized gain on investments....... 100,076,386 35,036,056
Net change in unrealized appreciation
on investments...................... 181,771,459 182,973,999
-------------- ------------
Net increase in net assets
resulting from operations....... 302,647,990 241,753,558
-------------- ------------
Dividends and Distributions to Shareholders
from (Notes 1 and 4):
Net investment income.................. (20,800,145) (23,743,503)
Net realized gain on investments....... (100,623,685) (35,286,955)
Tax return of capital.................. (3,695,091) (7,175,248)
-------------- ------------
Total dividends and distributions
to shareholders................. (125,118,921) (66,205,706)
-------------- ------------
Capital Stock Transactions (Note 5):
Increase/Decrease in net assets from
fund share transactions............. (60,023,362) 97,414,252
-------------- ------------
Total increase in net assets...... 117,505,707 272,962,104
Net Assets:
Beginning of year...................... 888,651,640 615,689,536
-------------- ------------
End of year............................ $1,006,157,347 $888,651,640
-------------- ------------
-------------- ------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
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: 2004 2003 2002 2001 DECEMBER 31, 2000
- -------------------------------- ----------- ----------- ----------- ----------- ------------------
Net asset value, beginning of
period............................... $ 37.34 $29.41 $30.97 $30.89 $25.00
-------- ------ ------ ------ ------
Income from investment operations:
Net investment income.............. 0.99 1.10 1.28 1.35 1.20
Net realized and unrealized
gain/(loss) on investments....... 13.11 9.78 (0.28) 0.43 6.08
-------- ------ ------ ------ ------
Total income from investment
operations................... 14.10 10.88 1.00 1.78 7.28
-------- ------ ------ ------ ------
Less dividends and distributions to
shareholders from:
Net investment income.............. (0.99) (1.10) (1.29) (1.33) (1.21)
Net realized gain on investments... (4.80) (1.53) (1.23) (0.26) (0.12)
Tax return of capital.............. (0.18) (0.32) (0.04) (0.11) (0.06)
-------- ------ ------ ------ ------
Total dividends and
distributions to
shareholders................. (5.97) (2.95) (2.56) (1.70) (1.39)
-------- ------ ------ ------ ------
Net increase/(decrease) in net
asset value.................. 8.13 7.93 (1.56) 0.08 5.89
-------- ------ ------ ------ ------
Net asset value, end of period........ $ 45.47 $37.34 $29.41 $30.97 $30.89
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------------
Total investment return............... 38.78% 38.04% 3.06% 6.02% 29.64%(b)
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------------
<Caption>
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period (in millions). $1,006.2 $888.7 $615.7 $594.2 $615.6
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
Ratio of expenses to average daily net
assets
(before expense reduction)............ 0.76% 0.77% 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% 0.75% 0.75%(c)
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
Ratio of net investment income to
average daily net assets (before
expense reduction).................... 2.23% 3.24% 4.06% 4.30% 5.09%(c)
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
Ratio of net investment income to
average daily net assets (net of
expense reduction).................... 2.24% 3.26% 4.07% 4.33% 5.13%(c)
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
Portfolio turnover rate................ 29.27% 35.45% 37.88% 40.71% 20.16%(b)
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
</Table>
- -------------------
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
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 (GAAP). The preparation of the financial statements in
accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting year. Actual results could differ from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day or, if no asked price is available, at the bid price.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. (Nasdaq) national
market system are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by Cohen & Steers
Capital Management, Inc. to be over-the-counter, but excluding securities
admitted to trading on the Nasdaq national list, are valued at the official
closing prices as reported by Nasdaq, the National Quotation Bureau, or such
other comparable sources as the board of directors deems appropriate to reflect
their fair market value. If there has been no sale on such day, the securities
are valued at the mean of the closing bid and asked prices for the day or, if no
asked price is available, at the bid price. Where securities are traded on more
than one exchange and also over-the-counter, the securities will generally be
valued using the quotations the board of directors believes 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.
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Any securities for which market quotations are not readily available shall
be valued in accordance with the procedures approved by the board of directors.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. The fund
records distributions received in excess of income from underlying investments
as a reduction of cost of investments and/or realized gain. Such amounts are
based on estimates if actual amounts are not available and actual amounts of
income, realized gain and return of capital may differ from the estimated
amounts. The fund adjusts the estimated amounts of the components of
distributions (and consequently its net investment income) as an increase to
unrealized appreciation/(depreciation) and realized gain/(loss) on investments
as necessary once the issuers provide information about the actual composition
of the distributions.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. Distributions to shareholders are
recorded on the ex-dividend date. Dividends will automatically be reinvested in
full and fractional shares of the fund based on the net asset value per share at
the close of business on the ex-dividend date unless the shareholder has elected
to have them paid in cash.
A portion of the fund's dividend may consist of amounts in excess of net
investment income derived from nontaxable components of the dividends from the
fund's portfolio investments. Net realized capital gains, unless offset by any
available capital loss carryforward, are distributed to shareholders annually.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from GAAP.
Federal Income Taxes: It is the policy of the fund to qualify as a regulated
investment company, if such qualification is in the best interest of the
shareholders, by complying with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders. Accordingly, no
provision for federal income or excise tax is necessary.
NOTE 2. INVESTMENT 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. 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,
2004, the fund incurred $6,956,275 in management fees.
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 2004, 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, 2004, the manager paid $130,131 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, 2004, the
manager paid $46,375 for directors' fees and related expenses on behalf of the
fund.
Other: At December 31, 2004, there was one institutional investor owning 19%
of the fund's outstanding shares. Investment activities of this shareholder
could have a significant impact on the fund.
During the period, the fund may have purchased securities in which an
affiliate of the investment manager served as placement agent for the issuer.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
year ended December 31, 2004 totaled $267,864,885 and $413,294,795,
respectively.
NOTE 4. INCOME TAXES
The fund had return of capital of $3,695,091 for the year ended December 31,
2004 which has been deducted from paid-in capital. Short-term capital gains are
reflected in the financial statements as realized gains on investments but are
typically treated as ordinary income for tax purposes.
The dividends and distributions to shareholders are characterized for tax
purposes as follows:
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2004 2003
------------ -----------
Ordinary income................................. $ 36,364,361 $32,766,657
Long-term capital gains......................... 85,059,469 26,263,801
Tax return of capital........................... 3,695,091 7,175,248
------------ -----------
Total dividends and distributions to
shareholders............................. $125,118,921 $66,205,706
------------ -----------
------------ -----------
</Table>
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2004 the cost of investments and net unrealized
appreciation/(depreciation), for federal income tax purposes were as follows:
<Table>
Aggregate cost.................................... $569,878,213
------------
------------
Gross unrealized appreciation..................... $432,938,760
Gross unrealized depreciation..................... (530,067)
------------
Net unrealized appreciation....................... $432,408,693
------------
------------
</Table>
Differences between book and tax basis unrealized appreciation are primarily
due to wash sales on portfolio securities.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily due to wash sales on portfolio securities. To the
extent such differences are permanent in nature, such amounts are reclassified
within the capital accounts. For the year ended December 31, 2004, the Fund did
not have any undistributed ordinary income or capital gains.
NOTE 5. CAPITAL STOCK
The fund is authorized to issue 100 million shares of capital stock at a par
value of $0.001 per share. At December 31, 2004 Cohen & Steers Capital
Management, Inc. owned approximately 6,000 shares. 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 FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
Sold........................ 3,096,244 $ 123,927,900 5,805,880 $ 193,319,371
Sold in-kind(a)............. 323,300 12,498,761 -- --
Issued as reinvestment of 2,351,148
dividends................. 103,840,926 1,258,323 44,503,491
Redeemed.................... (7,443,543) (300,290,949) (4,199,795) (140,408,610)
---------- ------------- ---------- -------------
Net increase/(decrease)..... (1,672,851) $ (60,023,362) 2,864,408 $ 97,414,252
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</Table>
NOTE 6. BORROWINGS
The fund, in conjunction with Cohen & Steers Institutional Realty Shares,
Inc., Cohen & Steers Realty Focus Fund, Inc., Cohen & Steers Realty Income Fund,
Inc., and Cohen & Steers Utility Fund, Inc. is a party to a $150,000,000
syndicated credit agreement (the credit agreement) with State Street Bank and
Trust Company, as administrative agent and operations agent, and the lenders
identified in the credit agreement.
During the year ended December 31, 2004, the fund did not utilize the line
of credit. For the year ended December 31, 2004, the manager paid commitment
fees and other expenses associated with the line of credit of $41,933 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.
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as 'financial statements') are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 21, 2005
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
TAX INFORMATION -- 2004 (UNAUDITED)
Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the
fund designates qualified dividend income of $1,161,441. Additionally, the fund
designates long term capital gains distributions of $82,867,034 at the 15% rate
and $2,192,436 at the 25% rate or the maximum allowable.
Shareholders are advised to consult with their own tax advisors as to the
Federal, State and local tax status of the income received.
OTHER INFORMATION
A description of the policies and procedures that the fund uses to determine
how to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com, or (iii) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. In addition, the fund's proxy voting record for the
most recent 12-month period ended June 30 is available (i) without charge upon
request, by calling 1-800-330-7348 or (ii) on the SEC's Web site at
http://www.sec.gov.
The fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available (i) without charge, upon request by calling
1-800-330-7348, or (ii) on the SEC's website at http://www.sec.gov. In addition,
the Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Please note that the distributions paid by the fund to shareholders are
subject to recharacterization for tax purposes. The final tax treatment of these
distributions is reported to shareholders on their 1099-DIV forms, which are
mailed to shareholders after the close of each fiscal year. The fund may pay
distributions in excess of the fund's net investment company taxable income and
this excess would be a tax-free return of capital distributed from the fund's
assets. To the extent this occurs, the fund's shareholders of record would be
notified of the approximate amount of capital returned to shareholders for each
such distribution. Distributions of capital decrease the fund's total assets
and, therefore, could have the effect of increasing the fund's expense ratio. In
addition, in order to make these distributions, the fund may have to sell
portfolio securities at a less than opportune time.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
MANAGEMENT OF THE FUND
The business and affairs of the fund are managed under the direction of the
board of directors. The board of directors approves all significant agreements
between the fund and persons or companies furnishing services to it, including
the Fund's agreements with its advisor, administrator, custodian and transfer
agent. The management of the fund's day-to-day operations is delegated to its
officers, the advisor and the fund's administrator, subject always to the
investment objective and policies of the fund and to the general supervision of
the board of directors.
The directors and officers of the fund and their principal occupations
during the past five years are set forth below. The statement of additional
information (SAI) includes additional information about fund directors and is
available, without charge, upon request by calling 1-800-330-7348.
<Table>
<Caption>
NUMBER OF
FUNDS WITHIN
FUND
COMPLEX
PRINCIPAL OCCUPATION(S) OVERSEEN BY
DURING PAST 5 YEARS DIRECTOR LENGTH
POSITION(S) HELD TERM OF (INCLUDING OTHER (INCLUDING THE OF TIME
NAME, ADDRESS AND AGE(a) WITH FUND OFFICE DIRECTORSHIPS HELD) FUND) SERVED
- ------------------------ --------- ------ ------------------- ----- ------
Interested Directors(b)
Robert H. Steers ..... Director, chairman Until next Co-chairman and co-chief 14 Since
Age: 51 of the board, election of executive officer of the inception
and secretary directors advisor since 2003 and prior
to that, chairman of the
advisor. President of Cohen &
Steers Securities, LLC, the
fund's distributor.
Martin Cohen ......... Director, Until next Co-chairman and co-chief 14 Since
Age: 55 president and election of executive officer of the inception
treasurer directors advisor since 2003 and prior
to that, president of the
advisor. Vice president of
Cohen & Steers Securities,
LLC, the fund's distributor.
Disinterested Directors
Bonnie Cohen(c) ...... Director Until next Consultant. Prior thereto, 14 2001 to
Age: 61 election of Undersecretary of State, present
directors United States Department of
State. Director of Wellsford
Real Properties, Inc.
George Grossman ...... Director Until next Attorney-at-law. 14 Since
Age: 50 election of inception
directors
(table continued on next page)
</Table>
- -------------------
(a) The address of each director is 757 Third Avenue, New York, NY 10017.
(b) 'Interested person,' as defined in the 1940 Act, of the fund because of
affiliation with Cohen & Steers Capital Management, Inc., the fund's
advisor.
(c) Martin Cohen and Bonnie Cohen are unrelated.
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
<Table>
<Caption>
(table continued from previous page)
NUMBER OF
FUNDS WITHIN
FUND
COMPLEX
PRINCIPAL OCCUPATION(S) OVERSEEN BY
DURING PAST 5 YEARS DIRECTOR LENGTH
POSITION(S) HELD TERM OF (INCLUDING OTHER (INCLUDING THE OF TIME
NAME, ADDRESS AND AGE(a) WITH FUND OFFICE DIRECTORSHIPS HELD) FUND) SERVED
- ------------------------ --------- ------ ------------------- ----- ------
Richard E. Kroon...... Director Until next Board member of Finlay Enterprises, Inc. 14 2004 to
Age: 62 election of (operator of department store fine present
directors jewelry leased departments), and several
private companies; member of Investment
Subcommittee, Monmouth University;
retired Chairman and Managing Partner of
Sprout Group venture capital funds, then
an affiliate of Donaldson, Lufkin and
Jenrette Securities Corporation; and
former chairman of the National Venture
Capital Association.
Richard J. Norman .... Director Until next Private investor. President of the Board 14 2001 to
Age: 61 election of of Directors of Maryland Public present
directors Television and board member of The
Salvation Army. Prior thereto,
investment representative of Morgan
Stanley Dean Witter.
Frank K. Ross ........ Director Until next Board member of NCRIC Group, Inc. 14 2004 to
Age: 61 election of (insurance) and Pepco Holdings, Inc. present
directors (electric utility). Formerly,
Midatlantic Area Managing Partner for
Audit and Risk Advisory Services at KPMG
LLP and Managing partner of its
Washington, DC office.
Willard H. Smith, Jr. . Director Until next Board member of Essex Property Trust, 14 Since
Age: 68 election of Inc., Highwoods Properties, Inc., Realty inception
directors Income Corporation and Crest Net Lease,
Inc. Managing director at Merrill Lynch
& Co., Equity Capital Markets Division
from 1983 to 1995.
C. Edward Ward, Jr. . Director Until next Member of the board of trustees of 14 2004 to
Age: 58 election of Manhattan College, Riverdale, New York. present
directors Formerly head of closed-end fund
listings for the New York Stock
Exchange.
</Table>
- -------------------
(a) The address of each director is 757 Third Avenue, New York, NY 10017.
- --------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
The officers of the fund (other than Messrs. Cohen and Steers, whose
biographies are provided above), their addresses, their ages, and their
principal occupations for at least the past five years are set forth below.
<Table>
<Caption>
POSITION(S) HELD
NAME, ADDRESS AND AGE(a) WITH FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
------------------------ --------- ----------------------------------------
Joseph M. Harvey ........ Vice president President of the advisor since 2003 and prior to
Age: 40 that, senior vice president and director of
investment research of the advisor.
Adam M. Derechin ....... Vice president and Chief operating officer of the advisor since 2003
Age: 40 assistant and prior to that, senior vice president of the
treasurer advisor.
James S. Corl ........... Vice president Executive vice president and chief investment
Age: 38 officer for real estate securities investments of
the advisor since 2004, and prior to that, senior
vice president of the advisor.
Lawrence B. Stoller ..... Assistant secretary Executive vice president and general counsel of
Age: 41 the advisor, since 2004; Chief legal officer of
Cohen & Steers Securities, LLC. Prior to that,
senior vice president and general counsel of the
advisor, associate general counsel, Neuberger
Berman Management, Inc. (money manager); and
assistant general counsel, The Dreyfus
Corporation (money manager).
John E. McLean .......... Chief compliance Vice president and associate general counsel of
Age: 34 officer Cohen & Steers Capital Management since September
2003. Prior to that, vice president, Law &
Regulation, J. & W. Seligman & Co. Incorporated
(money manager); and associate, Battle Fowler LLP
(law firm).
</Table>
- -------------------
(a) The address of each officer is 757 Third Avenue, New York, NY 10017
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25
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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
REALTY INCOME FUND REALTY SHARES
DESIGNED FOR INVESTORS SEEKING A HIGH DESIGNED FOR INVESTORS SEEKING MAXIMUM
DIVIDEND YIELD AND CAPITAL APPRECIATION, TOTAL RETURN THROUGH BOTH CURRENT INCOME
INVESTING PRIMARILY IN REITS AND CAPITAL APPRECIATION, INVESTING
A, B, C AND I SHARES AVAILABLE PRIMARILY IN REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX SYMBOL: CSRSX
ALSO AVAILABLE: COHEN & STEERS
INSTITUTIONAL REALTY SHARES (CSRIX)
REQUIRES A HIGHER MINIMUM PURCHASE, BUT
OFFERS A LOWER TOTAL EXPENSE RATIO
FOR TOTAL RETURN: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
UTILITY FUND REALTY FOCUS FUND
DESIGNED FOR INVESTORS SEEKING MAXIMUM DESIGNED FOR INVESTORS SEEKING MAXIMUM
TOTAL RETURN THROUGH BOTH CURRENT INCOME CAPITAL APPRECIATION, INVESTING IN A
AND CAPITAL APPRECIATION, INVESTING LIMITED NUMBER OF REITS AND OTHER REAL
PRIMARILY IN UTILITIES ESTATE COMPANIES
A, B, C AND I SHARES AVAILABLE CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX A, B, C AND I SHARES AVAILABLE
SYMBOLS: CSFAX, CSFBX, CSFCX, CSSPX
</Table>
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-7348, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE
FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION ABOUT THE FUND.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
26
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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
Bonnie Cohen FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
George Grossman Boston, MA 02110
Director
TRANSFER AGENT
Richard E. Kroon Boston Financial Data Services, Inc.
Director 66 Brooks Drive
Braintree, MA 02184
Richard J. Norman (800) 437-9912
Director
LEGAL COUNSEL
Frank K. Ross Simpson Thacher & Bartlett LLP
Director 425 Lexington Avenue
New York, NY 10017
Willard H. Smith Jr.
Director DISTRIBUTOR
Cohen & Steers Securities, LLC
C. Edward Ward, Jr. 757 Third Avenue
Director New York, NY 10017
James S. Corl Nasdaq Symbol: CSRIX
Vice president
Web site: cohenandsteers.com
Adam Derechin
Vice president and assistant treasurer Net asset value (NAV) can be found in
the daily mutual fund listings in the
Joseph M. Harvey financial section of most major
Vice president newspapers under Cohen & Steers.
Lawrence B. Stoller This report is authorized for delivery
Assistant secretary 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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27
COHEN & STEERS COHEN & STEERS
INSTITUTIONAL REALTY SHARES INSTITUTIONAL REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017 -------------
ANNUAL REPORT
DECEMBER 31, 2004
Item 2. Code of Ethics.
The registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made by calling 800-330-7348 or writing to the
Secretary of the registrant, 757 Third Avenue, New York, NY 10017.
Item 3. Audit Committee Financial Expert.
The registrant's Board has determined that Frank K. Ross, a member of the
registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
---- ----
Audit Fees $42,500 $40,000
Audit-Related Fees 3,000 3,000
Tax Fees 12,600 9,300
All Other Fees -- --
Audit-related fees were billed in connection with agreed upon procedures
performed by the registrant's principal accountant relating to after-tax return
calculations. Tax fees were billed in connection with the preparation of tax
returns, calculation and designation of dividends and other miscellaneous tax
services.
Aggregate fees billed by the registrant's principal accountant for the last two
fiscal years for non-audit services provided to the registrant's investment
adviser (not including a sub-adviser whose role is primarily portfolio
management and is subcontracted or overseen by another investment adviser) and
any entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registered investment
company, where the engagement relates directly to the operations and financial
reporting of the registrant, were as follows:
2004 2003
---- ----
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees $62,500 $49,500
These other fees were billed in connection with internal control reviews and
AIMR performance reviews.
(e)(1) The Audit Committee is required to pre-approve audit and non-audit
services performed for the registrant by the principal accountant. The Audit
Committee also is required to pre-approve non-audit services performed by the
registrant's principal accountant for the registrant's investment adviser and
any sub-adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser)
and any entity controlling, controlled by or under common control with the
registrant's investment adviser that provides ongoing services to the
registrant, if the engagement for services relates directly to the operations
and financial reporting of the registrant.
The audit committee may delegate pre-approval authority to one or more of its
members who are independent members of the board of directors of the registrant.
The member or members to whom such authority is delegated shall report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee may not delegate its responsibility to pre-approve services to
be performed by the registrant's principal accountant for the investment
adviser.
(e)(2) No services included in (b) - (d) above were approved by the Audit
Committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the fiscal years ended December 31, 2004 and December 31, 2003, the
aggregate fees billed by the registrant's principal accountant for non-audit
services rendered to the registrant and for non-audit services rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the registrant's investment adviser that provides ongoing services
to the registrant were $83,600 and $61,800, respectively.
(h) The registrant's audit committee considered whether the provision of
non-audit services that were rendered to the registrant's investment adviser
(not including any sub-adviser whose role is primarily portfolio management
and is subcontracted with or overseen by another investment adviser) and any
entity controlling, controlled by or under common control with the registrant's
investment adviser that provides ongoing services to the registrant that were
not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X
was compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the registrant
in this Form N-CSR was recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and procedures as
of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of chief executive officer and chief financial officer as
required by Rule 30a- 2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
By: /s/ Robert H. Steers
--------------------------------
Name: Robert H. Steers
Title: Chairman
Date: March 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert H. Steers By: /s/ Martin Cohen
-------------------------------- --------------------------------
Name: Robert H. Steers Name: Martin Cohen
Title: Chairman, Secretary and Title: President, Treasurer
and principal and principal
executive officer financial officer
Date: March 8, 2005
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as.............................. 'SS'
The division sign shall be expressed as............................... [div]