<PAGE>
COHEN & STEERS
INSTITUTIONAL REALTY SHARES
757 THIRD AVENUE COHEN & STEERS
NEW YORK, NY 10017 --------------
INSTITUTIONAL REALTY SHARES
QUARTERLY REPORT
MARCH 31, 2000
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
April 17, 2000
To Our Shareholders:
We are pleased to submit to you our first report from the Fund's inception
on February 14, 2000 through March 31, 2000. The net asset value on that date
was $25.74. In addition, a quarterly dividend of $0.20 was declared for
shareholders on record on March 22, 2000 and paid on March 23, 2000.
INVESTMENT REVIEW
For the period February 14, 2000 through March 31, 2000, the Fund had a
total return, based on income and change in net asset value, of 3.8%. This
compares favorably to the NAREIT Equity REIT Index* total return of 2.8% for the
same period.
Despite the near-chaotic behavior in nearly every corner of the financial
markets so far this year, REITs remained steady and produced positive, albeit
modest, returns which were competitive with the overall stock market. The Hotel
and Regional Mall sectors, among the most depressed during 1999, rebounded to be
among the best performers during the quarter as their fundamentals proved to be
much better than expected. The Office sector also performed well as strong
employment growth coupled with a restrained supply picture has continued to
favor office building owners. Meanwhile, the Health Care sector once again
produced negative returns as many of the beleaguered operators of these
facilities continue to undergo financial restructuring.
In our opinion, investment performance so far in 2000 appears to represent
an important shift in investor sentiment and an improved supply/demand picture
for REIT shares. In addition to the competitive returns in the latest quarter,
and perhaps more importantly, REITs have produced positive 12-month returns for
the first time since mid-1998. As shown in the chart it appears that on a
cyclical basis, the REIT bear market may be coming to an end.
NAREIT EQUITY REIT INDEX 12 MONTH TOTAL RETURNS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
QUARTER ENDED
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1Q92 1Q93 1Q94 1Q95 1Q96
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.3 13.3 16.3 14.6 38.5 31 34.1 19.7 1.7 6.6 -4.5 3.2 -0.4 3.6 10.7 15.3 18.1 16.5 18.5 35.3
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
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1Q97 1Q98 1Q99 1Q00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33.2 33.8 40.5 20.3 18.9 8 -13.5 -17.5 -21.1 -9 -6.5 -4.6 2.6
</TABLE>
Source: NAREIT
Perhaps predictably, a number of influential Wall Street strategists have
begun to recommend that their clients reduce their overall equity exposure and
add REITs in their place. REITs are apparently again being viewed as both a safe
haven for capital as well as a good source of current income. In a world where
growth has been of foremost significance and current income has simply been
unimportant to most investors, persistent efforts by the Federal Reserve to slow
the economy by raising interest rates may have finally convinced market
participants that the Fed will eventually prevail. Such a slowdown would
probably favor income-oriented securities and, as a result, the U.S. Treasury
market has staged a strong rally. This rally, no doubt, has been enhanced by the
Treasury's program of repurchasing securities with funds generated by the budget
surplus. Considering that interest rates are low while the economy is still
showing strong growth, one can only imagine how low interest rates may
ultimately fall to once the economy shows
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
some signs of weakness. With equity REITs in general currently yielding well
over 8%, and with these dividends having exhibited impressive growth over the
past several years, REIT investment characteristics are becoming more highly
valued.
On the supply side, it is also symptomatic of a bottoming of REIT share
prices that capital raising has virtually ground to a halt. As shown in the
table, REITs raised only $646 million in equity (more than half of which was
preferred stock) in the first quarter, a 60% decline from a year ago, and a
93% decline from two years ago. Debt capital raised declined by a lesser,
but still significant amount. Further, total equity issuance by REITs during
the 12-month period ended March 31, at $5.8 billion, was the lowest 12-month
total since the second quarter of 1993.
<TABLE>
<CAPTION>
Capital Raised by REITs ($millions)
<S> <C> <C> <C>
First Quarter of: Debt Equity Total
1998 $5,427 $9,009 $14,436
1999 4,047 1,600 5,647
2000 1,938 646 2,584
</TABLE>
Source: NAREIT
In addition to the lack of demand for new capital, outflows from real estate
mutual funds slowed to a trickle, and the supply of existing REIT shares
continued to shrink as many companies have persistently repurchased stock in the
open market. By quarter's end, 59 REITs had authorized buybacks totaling nearly
$6 billion. As a consequence of all the above, the REIT industry appears to us
to be at or close to a bottom.
INVESTMENT OUTLOOK
For most of the past two years REITs were unable to raise capital because it
was either not available, or too highly priced. Today, however, it is our
perception that the psychology of REIT management has begun to change. Resigned
to the reality that the capital markets may not always be open to them, and
because there are not a great deal of new investment opportunities, more and
more companies are adopting self-financing business plans. This entails constant
reevaluation of properties held in the portfolio and aggressively selling or
repositioning those that do not meet their investment criteria. Proceeds from
these sales are commonly used to fund higher return opportunities, repay debt or
repurchase stock. Many other companies are finding privately financed joint
ventures to be a preferable way to take advantage of opportunities. In short,
many companies are learning to live well without constantly tapping the capital
markets.
To the extent that this thinking prevails, the supply side of the REIT share
equation will continue to improve. The commonly held belief that at the first
uptick in prices, REITs will flood the market with new stock issuance, has often
helped to abort any meaningful recovery in their prices. A wide adoption of this
new business model would be a clear departure from recent thinking. There are
two other factors worthy of mention. First, the shares of nearly all REITs began
the year at such unprecedented low valuations that even a strong price rally
would still leave them undervalued. Second, because many companies have just
recently implemented extensive repurchase programs of their own stock, it would
be illogical for them to quickly reissue that equity unless they were confronted
with some extraordinary investment opportunities. In these cases, however, it
would be highly likely that any top tier company would be able to access capital
privately in both a more efficient and low cost manner.
Meanwhile, without the benefit of a great deal of new investments and little
or no additional capital, the REIT industry has continued to enjoy healthy
growth in earnings. Funds from operations (FFO) per share grew at an average
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
of 10% in 1999 and are widely expected to grow by a further 9% in 2000. This
growth potential is not confined to any single property type or geographic
region -- it is an industry-wide phenomenon that is the result of the strong
economy and discipline with respect to new construction. We do, however,
expect the Office, Industrial and Apartment sectors to enjoy the highest growth
rates and have accordingly maintained a strong weighting in these property
types. We are particularly optimistic about owners of office buildings in major
cities due to the demand for space fueled by employment growth, the impediments
to new construction and the long lead times required to bring on new supply. We
are somewhat concerned about the retail environment and have consequently
maintained an under-weighted position in the sector. Following the strongest
sales growth in a decade, the prospect of slower economic growth and the
continued pressure of the Internet on both retail sales and margins, we expect
investor psychology to be less positive on this sector than on many others.
Two trends that we expect to continue are the emergence of more technology
initiatives by property owners, and a clarification of plans by many REITs to
establish taxable subsidiaries that will be allowed to operate beginning in
2001. Property owners are increasingly able to deliver goods and services to
tenants and, in addition, manage their properties more efficiently due to
advances in technology and the Internet. These initiatives enable the property
owners to potentially increase revenue and reduce costs. For example, it appears
that some REITs are targeting taxable subsidiaries as a means of either 1)
providing services to tenants, 2) holding properties on a shorter-term basis
than what is allowed in the REIT itself, or 3) purchasing properties that are
expected to produce a high return but may be outside of the mainstream of the
company's existing portfolio. Importantly, these initiatives are not only
potentially additive to earnings but are also enabling many companies to employ
'new economy' strategies using their 'old economy' asset bases.
It is always difficult to reconcile the efficiency of the financial market
with the emotional extremes to which it tends to move. Just as many have
questioned the high valuations afforded technology stocks, we have questioned
the low valuations of realty stocks in light of their strong fundamentals. We
believe that recent market activity is bringing valuations of both groups more
in line with true underlying fundamentals. If these trends continue, it is our
hope that the Fund will be able to deliver rewarding returns on both an absolute
and relative basis.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
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Cohen & Steers is now online at WWW.COHENANDSTEERS.COM. Visit our website
for daily NAVs, portfolio information, performance information, recent news
articles, literature and insights on the REIT market.
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* The NAREIT Equity REIT Index is an unmanaged, market capitalization weighted
index of all publicly-traded REITs that invest predominately in the equity
ownership of real estate. The index is designed to reflect the performance of
all publicly-traded REITs as a whole.
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------------
<S> <C> <C>
EQUITIES 96.24%
APARTMENT/RESIDENTIAL 18.37%
Apartment Investment & Management
Co. -- Class A..................... 571,600 $ 21,827,975
AvalonBay Communities................. 568,800 20,832,300
Charles E. Smith Residential Realty... 141,100 5,097,238
Equity Residential Properties Trust... 258,300 10,380,431
Essex Property Trust.................. 167,600 6,033,600
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64,171,544
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HEALTH CARE 7.40%
Health Care Property Investors........ 393,800 10,017,287
*Manor Care........................... 426,500 5,757,750
Nationwide Health Properties.......... 622,800 6,500,475
*Ventas............................... 1,077,100 3,567,894
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25,843,406
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HOTEL 8.30%
Host Marriott Corp.................... 606,400 5,381,800
MeriStar Hospitality Corp............. 204,300 3,562,481
Starwood Hotels & Resorts Worldwide... 764,800 20,076,000
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29,020,281
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INDUSTRIAL 5.64%
AMB Property Corp..................... 402,300 8,649,450
First Industrial Realty Trust......... 36,800 1,002,800
ProLogis Trust........................ 521,700 10,042,725
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19,694,975
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OFFICE 31.79%
Arden Realty Group.................... 645,000 13,464,375
Boston Properties..................... 118,600 3,772,963
**Brookfield Properties Corp.......... 441,600 5,094,917
Cousins Properties.................... 80,100 2,948,681
Crescent Real Estate Equities Co...... 225,800 3,951,500
Equity Office Properties Trust Co..... 692,100 17,389,012
Highwoods Properties.................. 277,300 5,892,625
Mack-Cali Realty Corp................. 651,800 16,620,900
SL Green Realty Corp.................. 322,800 7,666,500
Vornado Realty Trust.................. 1,022,600 34,257,100
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111,058,573
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</TABLE>
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- --------------
<S> <C> <C>
OFFICE/INDUSTRIAL 12.64%
Prime Group Realty Trust.............. 317,600 $ 4,545,650
PS Business Parks..................... 229,300 4,671,987
Reckson Associates Realty Corp........ 763,600 14,317,500
Spieker Properties.................... 463,300 20,616,850
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44,151,987
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SELF STORAGE 0.36%
Public Storage........................ 59,500 1,249,500
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SERVICES & TECHNOLOGY 4.29%
*CAIS Internet........................ 107,300 2,595,319
*Crescent Operating................... 50,500 145,188
*FrontLine Capital Group.............. 278,600 12,258,400
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14,998,907
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SHOPPING CENTER 7.45%
COMMUNITY CENTER 2.03%
Kimco Realty Corp..................... 189,300 7,098,750
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REGIONAL MALL 5.42%
General Growth Properties............. 232,700 7,082,806
Macerich Co........................... 293,500 6,053,438
Rouse Co.............................. 79,800 1,685,775
Simon Property Group.................. 171,500 4,116,000
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18,938,019
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TOTAL SHOPPING CENTER................. 26,036,769
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TOTAL EQUITIES (Identified
cost -- $324,723,571).......... 336,225,942
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</TABLE>
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER 6.08 %
Haliburton Co., 6.15%, due 4/3/00 (Identified
cost -- $21,259,733)........................ $21,267,000 $ 21,259,733
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TOTAL INVESTMENTS (Identified
cost -- $345,983,304)................. 102.32 % 357,485,675
LIABILITIES IN EXCESS OF OTHER ASSETS... (2.32)% (8,114,988)
-------- --------------
NET ASSETS (Equivalent to $25.74 per
share based on 13,571,877 shares of
capital stock outstanding)............ 100.00 % $ 349,370,687
-------- --------------
-------- --------------
</TABLE>
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* Non-income producing security.
** Brookfield Properties Corp. is a Canadian company listed on the Toronto and
New York Stock Exchanges. The Toronto Stock Exchange is deemed the principal
exchange for valuation purposes. The market value of the Fund's position in
Canadian dollars on March 31, 2000 was $7,396,800 based on an exchange rate
of 1 Canadian dollar to 0.689 U.S. dollars.
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6
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS'D'
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
--------------------------- ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 2/14/00.............. $ 100,000 $25.00
Net investment income................. $ 2,197,014 $ 0.17
Net realized and unrealized gain on
investments........................ 12,264,386 0.77
Distributions from net investment
income............................. (2,632,687) (0.20)
------
Capital stock transactions:
Sold............................. 339,379,355
Distributions reinvested......... 1,833,885
Redeemed......................... (3,771,266)
------------
Net increase in net asset value........... 349,270,687 0.74
------------ ------
End of period: 3/31/00.................... $349,370,687 $25.74
------------ ------
------------ ------
</TABLE>
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'D' Financial information included in this report has been taken from the
records of the Fund without examination by independent accountants.
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7
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COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management,
Martin Cohen Inc.
Director and President 757 Third Avenue
Gregory C. Clark New York, NY 10017
Director (212) 832-3232
George Grossman FUND SUB-ADMINISTRATOR AND TRANSFER
Director AGENT
Jeffrey H. Lynford Chase Global Funds Services Co.
Director 73 Tremont Street
Willard H. Smith, Jr. Boston, MA 02108
Director (800) 437-9912
Elizabeth O. Reagan CUSTODIAN
Vice President The Chase Manhattan Bank
Adam Derechin One Chase Manhattan Plaza
Vice President and Assistant Treasurer New York, NY 10081
Lawrence B. Stoller LEGAL COUNSEL
Assistant Secretary Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
DISTRIBUTOR
Cohen & Steers Securities, Inc.
757 Third Avenue
New York, NY 10017
NASDAQ Symbol: CSRIX
Website: www.cohenandsteers.com
Net asset value (NAV) can be found in
the daily mutual fund listings in the
financial section of most major
newspapers under Cohen & Steers.
This report is authorized for delivery
only to shareholders of Cohen & Steers
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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8
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as.....................................'D'
