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 a non-diversified, open-end management investment company. The Fund's investment objective is total return.
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 period. Actual results could differ from those estimates.
Portfolio Valuation:
Investments in securities that are listed on the New York Stock Exchange are valued, except as indicated below, at the last sale price reflected at the close of the New York Stock Exchange on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and ask prices on such day or, if no ask 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 are valued in a similar manner. Securities traded on more than one securities exchange are valued at the last sale price reflected at the close of the exchange representing the principal market for such securities on the business day as of which such value is being determined. If after the close of a foreign market, but prior to the close of business on the day the securities are being valued, market conditions change significantly, certain foreign securities may be fair valued pursuant to procedures established by the Board of Directors.
Readily marketable securities traded in the over-the-counter market, including listed securities whose primary market is believed by Cohen & Steers Capital Management, Inc. (the manager) to be over-the-counter, are valued at the last sale price on the valuation date as reported by sources deemed appropriate by the Board of Directors 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 ask prices on such day or, if no ask price is available, at the bid price.
Short-term debt securities with a maturity date of 60 days or less are valued at amortized cost, which approximates value. Investments in open-end mutual funds are valued at their closing net asset value.
The policies and procedures approved by the Fund's Board of Directors delegate authority to make fair value determinations to the manager, subject to the oversight of the Board of Directors. The manager has established a valuation committee (Valuation Committee) to administer, implement and oversee the fair valuation process according to the policies and procedures approved annually by the Board of Directors. Among other things, these procedures allow the Fund to utilize independent pricing
services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
Securities for which market prices are unavailable will be valued at fair value, as determined in good faith by the Valuation Committee, pursuant to procedures approved by the Fund's Board of Directors. Circumstances in which market prices may be unavailable include, but are not limited to, when trading in a security is suspended, the exchange on which the security is traded is subject to an unscheduled close or disruption or material events occur after the close of the exchange on which the security is principally traded. In these circumstances, the Fund determines fair value in a manner that fairly reflects the market value of the security on the valuation date based on consideration of any information or factors it deems appropriate. These may include, but are not limited to, recent transactions in comparable securities, information relating to the specific security and developments in the markets.
The Fund's use of fair value pricing may cause the net asset value of Fund shares to differ from the net asset value that would be calculated using market quotations. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security.
Fair value is defined as the price that the Fund would expect to receive upon the sale of an investment or expect to pay to transfer a liability in an orderly transaction with an independent buyer in the principal market or, in the absence of a principal market, the most advantageous market for the investment or liability. The hierarchy of inputs that are used in determining the fair value of the Fund's investments is summarized below.
• Level 1quoted prices in active markets for identical investments
• Level 2other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.)
• Level 3significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfer at the end of the period in which the underlying event causing the movement occurred. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. There were no transfers between Level 1 and Level 2 securities during the year ended December 31, 2012.
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
The following is a summary of the inputs used as of December 31, 2012 in valuing the Fund's investments carried at value:
|
|
Total
|
|
Quoted Prices
In Active
Markets for
Identical
Investments
(Level 1)
|
|
Other
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Common Stock
FinancialBanks
|
|
$
|
5,930,503
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,930,503
|
a
|
|
Common StockOther
Industries
|
|
|
2,266,054,527
|
|
|
|
2,266,054,527
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
|
43,600,000
|
|
|
|
|
|
|
|
43,600,000
|
|
|
|
|
|
|
Total Investments
b
|
|
$
|
2,315,585,030
|
|
|
$
|
2,266,054,527
|
|
|
$
|
43,600,000
|
|
|
$
|
5,930,503
|
|
|
a
Fair valued, pursuant to the Fund's fair value procedures utilizing significant unobservable inputs and assumptions.
b
Portfolio holdings are disclosed individually on the Schedule of Investments.
Following is a reconciliation of investments for which significant unobservable inputs (Level 3) were used in determining fair value:
|
|
Investments
in Securities
|
|
Balance as of December 31, 2011
|
|
$
|
6,222,831
|
|
|
Change in unrealized depreciation
|
|
|
(292,328
|
)
|
|
Balance as of December 31, 2012
|
|
$
|
5,930,503
|
|
|
The change in unrealized appreciation/(depreciation) attributable to securities owned on December 31, 2012 which were valued using significant unobservable inputs (Level 3) amounted to $(292,328).
The following table summarizes the quantitative inputs and assumptions used for investments categorized in Level 3 of the fair value hierarchy.
|
|
Fair Value
at 12/31/2012
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range
|
|
Common Stock
FinancialBanks
|
|
$
|
5,930,503
|
|
|
Market comparable
companies
|
|
Price/Book Ratio
Liquidity Discount
|
|
|
0.98
10
%
|
x 1.50x
|
|
The significant unobservable inputs utilized in the fair value measurement of the Fund's Level 3 equity investment in Common StockFinancialBanks are the price-to-book ratio and discount for
18
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
lack of liquidity. Significant changes in these inputs may result in a materially higher or lower fair value measurement.
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. Discounts are accreted and premiums are amortized over the life of the respective securities. Dividend income is recorded on the ex-dividend date. Distributions from Real Estate Investment Trusts ("REITs") are recorded as ordinary income, net realized capital gain or return of capital based on information reported by the REITs and management's estimates of such amounts based on historical information. These estimates are adjusted when the actual source of distributions is disclosed by the REITs and actual amounts may differ from the estimated amounts.
Dividends and Distributions to Shareholders:
Dividends from net investment income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from GAAP. Dividends from net investment income, if any, are declared and paid quarterly. Net realized capital gains, unless offset by any available capital loss carryforward, are typically distributed to shareholders at least annually. Dividends and distributions to shareholders are recorded on the ex-dividend date and are automatically reinvested in full and fractional shares of the Fund based on the net asset value per share at the close of business on the payable date unless the shareholder has elected to have them paid in cash. Distributions paid by the Fund are subject to recharacterization for tax purposes. Based upon the results of operations for the year ended December 31, 2012, a portion of the dividends has been reclassified to distributions from net realized capital gains.
Income Taxes:
It is the policy of the Fund to continue 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. Dividend and interest income from holdings in non-U.S. securities is recorded net of non-U.S. taxes paid. Management has analyzed the Fund's tax positions taken on federal income tax returns as well as its tax positions in non-U.S. jurisdictions in which it trades for all open tax years and has concluded that as of December 31, 2012, no additional provisions for income tax are required in the Fund's financial statements. The Fund's tax positions for the tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service, state departments of revenue and by foreign tax authorities.
Note 2. Investment Management Fees and Other Transactions with Affiliates
Management Fees:
The manager serves as the Fund's investment manager pursuant to an investment management agreement (the investment management agreement). Under the terms of the investment management agreement, the manager provides the Fund with day-to-day investment decisions and generally manages the Fund's investments in accordance with the stated policies of the Fund, subject to the supervision of the Board of Directors.
19
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
For the services provided to the Fund, the manager receives a fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of the Fund.
The manager is also responsible, under the investment management agreement, for the performance of certain administrative functions for the Fund. Additionally, the manager pays certain expenses of the Fund, including administration and custody fees, transfer agent fees, professional fees, and reports to shareholders.
The manager has contractually agreed to waive its fee and/or reimburse the Fund so that the Fund's total annual operating expenses (excluding brokerage fees and commissions, taxes and, upon approval of the Board of Directors, extraordinary expenses) do not exceed 0.75% of the average daily net assets. This commitment will remain in place for the life of the Fund. For the year ended December 31, 2012, fees waived and/or expenses reimbursed totaled $355,442.
Directors' and Officers' Fees:
Certain directors and officers of the Fund are also directors, officers, and/or employees of the manager. The Fund does not pay compensation to directors and officers affiliated with the manager.
Note 3. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, for the year ended December 31, 2012, totaled $2,139,110,613 and $1,805,073,504, respectively.
Note 4. Income Tax Information
The tax character of dividends and distributions paid was as follows:
|
|
For the Year Ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
Ordinary income
|
|
$
|
99,918,209
|
|
|
$
|
18,731,580
|
|
|
Long-term capital gain
|
|
|
86,347,610
|
|
|
|
16,483,490
|
|
|
Total dividends and distributions
|
|
$
|
186,265,819
|
|
|
$
|
35,215,070
|
|
|
As of December 31, 2012, the tax-basis components of accumulated earnings and the federal tax cost were as follows:
Cost for federal income tax purposes
|
|
$
|
1,826,582,714
|
|
|
Gross unrealized appreciation
|
|
$
|
492,763,514
|
|
|
Gross unrealized depreciation
|
|
|
(3,761,198
|
)
|
|
Net unrealized appreciation
|
|
$
|
489,002,316
|
|
|
Undistributed long-term capital gains
|
|
$
|
3,728,240
|
|
|
20
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
As of December 31, 2012, the Fund had temporary book/tax differences primarily attributable to wash sales on portfolio securities and permanent book/tax differences primarily attributable to Fund redemptions used as distributions and prior year REIT distribution adjustments. To reflect reclassifications arising from the permanent differences, paid-in capital was credited $11,719,329, accumulated net realized loss was charged $11,404,216 and accumulated undistributed net investment income was charged $315,113. Net assets were not affected by this reclassification.
Note 5. Capital Stock
The Fund is authorized to issue 100 million shares of capital stock, at a par value of $0.001 per share. The Board of Directors of the Fund may increase or decrease the aggregate number of shares of common stock that the Fund has authority to issue. Transactions in Fund shares were as follows:
|
|
For the
Year Ended
December 31, 2012
|
|
For the
Year Ended
December 31, 2011
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Sold
|
|
|
17,549,401
|
|
|
$
|
753,057,432
|
|
|
|
19,297,320
|
|
|
$
|
756,461,299
|
|
|
Issued as reinvestment
of dividends and
distributions
|
|
|
3,877,541
|
|
|
|
160,942,716
|
|
|
|
733,866
|
|
|
|
27,950,291
|
|
|
Redeemed
|
|
|
(11,522,576
|
)
|
|
|
(496,917,297
|
)
|
|
|
(11,728,067
|
)
|
|
|
(458,236,166
|
)
|
|
Net increase
|
|
|
9,904,366
|
|
|
$
|
417,082,851
|
|
|
|
8,303,119
|
|
|
$
|
326,175,424
|
|
|
Note 6. Borrowings
The Fund, in conjunction with other Cohen & Steers funds, is a party to a $200,000,000 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, which expires January 25, 2013. The Fund pays a commitment fee of 0.10% per annum on its proportionate share of the unused portion of the credit agreement. For the period January 1, 2012 through January 27, 2012, the commitment fee was 0.125% per annum on the Fund's proportionate share of the unused portion of the credit agreement. Effective January 25, 2013, the credit agreement was renewed under similar terms and expires January 24, 2014.
During the year ended December 31, 2012, the Fund did not borrow under the credit agreement.
Note 7. Other
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund's maximum exposure under these arrangements is dependent on claims
21
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS(Continued)
that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.
Note 8. New Accounting Pronouncement
In December 2011, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update No. 2011-11,
"Balance Sheet (Topic 210)Disclosures about Offsetting Assets and Liabilities requirements in U.S. GAAP and IFRSs" ("ASU 2011-11")
. ASU 2011-11 requires additional disclosures on financial instruments and derivative instruments that are either offset in accordance with existing accounting guidance or are subject to an enforceable master netting arrangement or similar agreement. The new requirements do not change the accounting guidance on netting, but rather enhance the disclosures to more clearly show the impact of netting arrangements on a company's financial position.
Management is currently evaluating the impact the adoption of this pronouncement will have on the Fund's financial statements. ASU 2011-11 is effective for fiscal years and interim periods beginning after January 1, 2013.
Note 9. Subsequent Events
Management has evaluated events and transactions occurring after December 31, 2012 through the date that the financial statements were issued, and has determined that no additional disclosure in the financial statements is required.
22
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.