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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
October 25, 2004
To Our Shareholders:
We are pleased to submit to you our report for the quarter and nine months
ended September 30, 2004. The net asset value at that date was $19.93. During
the quarter, three $0.115 per share monthly dividends were declared and paid. In
addition, three monthly dividends of $0.115 per share were declared and will be
paid on October 29, 2004, November 30, 2004, and December 31, 2004.
INVESTMENT REVIEW
For the quarter, Cohen & Steers Quality Income Realty Fund had a total
return, based on income and change in net asset value, of 9.9%. Based on the
market price of the fund's shares, which ended the quarter at $17.86, the fund's
total return was 9.0% (The fund's common stock is traded on the New York Stock
Exchange, and its share price can differ from its net asset value). This
compares to the NAREIT Equity REIT Index and Morgan Stanley REIT Preferred
Index's total return of 8.2% and 5.7%, respectively. For the nine months ended
September 30, 2004, the fund's total return was 14.6% (6.0% based on the market
share price), compared to NAREIT Equity REIT Index and Morgan Stanley REIT
Preferred Index returns of 14.2% and 4.4%. The fund's asset mix at the end of
the quarter was 80% REIT common stocks and 20% preferred and other fixed income
investments.
In the third quarter of 2004, REITs enjoyed a strong rebound from the second
quarter correction. In fact, the NAREIT Equity REIT Index went on to surpass its
late March highs on the basis of investor views about a number of factors, such
as the strength of continuing economic growth, improving real estate
fundamentals and rising real estate asset values. In April and early May, REIT
prices fell 18% as many investors believed that REITs were overvalued and that
interest rates were the most important determinant of REIT stock prices. A
rising interest rate environment, as conventional wisdom surmised, must be
negative for REITs.
Since mid-May, however, REITs have returned 24%. The reasons, we believe,
are clear. There is a real economic recovery underway in the United States, as
well as a recovery in real estate fundamentals. We view this recovery as
broad-based, with solid GDP growth and material job growth. Yet it has taken
many by surprise, particularly those who thought that a stronger economy, as
evidenced by the March payroll report, and accompanying higher interest rates
would be negative for REITs. This recovery has resulted in higher occupancy
levels for most property types, higher-than-expected reported earnings for
REITs, higher earnings expectations in the future, and higher real estate asset
values.
Consistent with our investment thesis, the more cyclical property
types -- office, industrial, apartment, hotel and self-storage -- demonstrated
some of the largest improvements in fundamentals. For example, office REIT
occupancy levels were flat in the first quarter but then improved by 0.5% in the
second quarter. Apartment revenues were flat in the first quarter and up 0.3% in
the second quarter. Industrial occupancies swung from a
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
decline of 0.4% in the first quarter to an increase of 0.7% in the second
quarter. Mixed office/industrial REITs' occupancies declined 0.1% in the first
quarter and increased 1.1% in the second quarter.
Commensurate with the fundamental climate, REITs experienced earnings growth
in the first quarter that was essentially flat, and essentially in-line with
consensus expectations. In the second quarter, however, REIT earnings growth not
only accelerated, but pulled meaningfully away from subdued expectations.
Whereas the consensus expectation for the second quarter called for 1.6%
earnings growth across the REIT sector, actual reported earnings instead
increased by 3.8%. The more economically sensitive property types experienced
the greatest acceleration in earnings growth and many swung from a
year-over-year decline to a year-over-year increase in earnings for the first
time in many quarters. Reported cash flow growth per share in the first and
second quarter, as segregated by property type were as follows:
2004 REIT CASH FLOW GROWTH
PROPERTY TYPE 1ST QUARTER 2ND QUARTER DIFFERENCE
------------- ----------- ----------- ----------
Self Storage.......................... -9.1% 7.2% 16.3%
Industrial............................ -5.0 7.8 12.8
Office................................ -8.7 0.2 8.9
Office/Industrial..................... -7.4 0.8 8.2
Diversified........................... 0.0 4.0 4.0
Shopping Center....................... 9.6 13.2 3.6
Apartment............................. -4.7 -2.7 2.0
Health Care........................... 3.3 2.2 -1.1
Regional Mall......................... 11.6 8.7 -2.9
Manufactured Home..................... -13.0 -16.7 -3.7
Net Lease............................. 10.8 -6.1 -16.9
All REITs............................. 0.0% 3.8% 3.8%
Source: Citigroup. The data presented are for the REIT industry as a whole and
is not indicative of the past or future performance of the fund.
The improvement in fundamentals confounded those who believed that earnings
growth would remain stagnant and that REITs were fully valued. Again, this
acceleration in reported earnings growth was particularly unexpected for some of
the more cyclical property types. Consensus expectations for apartments were for
a further deterioration in the second quarter of -6%. Instead the earnings
decline shrunk to -2.7%. The consensus expected the industrial REITs to
persist in negative territory with a -1% earnings estimate for the second
quarter. Instead, earnings increased 0.8%.
Perhaps as important, this jolt in fundamentals has now forced many Wall
Street analysts to revise their earnings expectations upward for the REIT sector
in future periods. (Our proprietary estimates for REIT earnings
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
growth have been consistent for some time: approximately 4% in 2004 and 10% in
2005, contingent on continued strength in the U.S. economy.) Just since the end
of June, consensus REIT earnings growth expectations for 2005 have increased 2.9
percentage points, from 6.4% to 9.3%. And again, the more cyclical the sector,
the further behind the curve the analysts have been in their estimates for 2005.
For example, expectations for hotel earnings have increased by 7.8 percentage
points, office earnings by 5 percentage points, and mall earnings by 3.3
percentage points since June.
We believe that the broad-based improvement in real estate fundamentals is
also having a significant impact on the value of real estate assets,
contributing to higher REIT stock prices. Evidence of higher occupancies and
higher rents for most property types has, in our view, led many REIT investors,
analysts and managements to reflect significantly higher estimates of net asset
value (NAV) for REIT stocks. In addition to improving property level income, we
believe higher replacement costs are also pushing up NAVs. As property markets
tighten (especially in densely populated urban areas) and commodity costs rise,
the cost of the inputs to a real estate asset -- land, steel, concrete, wood,
and labor, among others -- are all rising. As a result of all these factors, it
has been our contention for some time that Wall Street NAVs for REIT stocks were
too low, making the stocks themselves look expensive on a historical basis. In
late September, Merrill Lynch's research team raised their NAV estimates for the
entire REIT sector by approximately 9%, corroborating our view that the stocks
are not overvalued relative to asset value.
The fund's best performing investments during the quarter were in the
shopping center and regional mall sectors, which produced total returns of 13.1%
and 12.5% respectively, while the worst performing sector for the fund was the
manufactured housing sector, which had a -10.3% total return. Shopping center
companies Cedar Shopping Centers and Kramont Realty Trust were the fund's best
performing holdings, contributing total returns of 23.6% and 18.3% respectively.
Laggards during the quarter included Affordable Residential Communities, with a
total return of -10.3% and Maguire Properties that had a total return of -0.2%.
INVESTMENT OUTLOOK
For now, it seems that the consensus view of future REIT earnings growth is
finally catching up with our own. Further, Wall Street estimates are generally
not yet available for 2006, although we believe 2006 may be an even better year
for REIT earnings growth than 2005, as higher occupancies and rents begin to
work their way through REITs' income statements.
One implication of the REIT market having now more or less correctly
anticipated the improving fundamental picture is that the period of multiple
expansion for REITs is likely drawing to a close. This implies to us that
returns going forward are likely to be more in accordance with historical norms.
For example, with REITs yielding 5.1% at quarter-end, and growth anticipated to
be approximately 10% in 2005, the potential total return for REITs would be in
line with historical norms over the next 12 months if earnings multiples remain
unchanged. In short, we believe the REIT bull market is maturing. It is
reasonable to expect that returns going forward are going to be lower than they
have been over the last 18 months.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
This being said, REITs are generally not at peak valuation levels, in our
view. On average, our estimates indicate that REITs are trading at about a 6%
premium to NAV. This is above the historical average of 2%, but certainly far
from the 25% premiums generally associated with past valuation peaks. This NAV
premium, if sustained, may actually contribute to REIT earnings growth near term
as companies seeking to issue stock will generally have the ability to do so at
a premium to NAV and acquire or develop new assets at par. This can in turn
contribute meaningfully to earnings accretion, as General Growth has amply
demonstrated. For this reason, we believe that equity issuance by REITs will
increase from recent levels as the more forward-looking companies look to
capitalize -- literally -- on improving fundamentals by acquiring more assets
today in a bid to boost earnings in the future. The types of companies we remain
invested in are those that we view as offering the greatest potential for rising
income and that we believe will benefit most from economic strength. As a
result, we believe that our REIT investments, driven both by improving property
fundamentals within their existing real estate portfolios and by expanding
external acquisition and development opportunities, still offer the potential to
generate attractive total returns for shareholders.
Sincerely,
Martin Cohen Robert H. Steers
MARTIN COHEN ROBERT H. STEERS
President Chairman
Joseph M. Harvey
JOSEPH M. HARVEY
Portfolio Manager
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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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
OUR LEVERAGE STRATEGY
(UNAUDITED)
While we do not attempt to predict what future interest
rates will be, it has been our philosophy to utilize
interest rate swap transactions to seek to reduce the
interest rate risk inherent in our utilization of leverage.
Our leverage strategy involves issuing auction market
preferred shares (AMPS) to raise additional capital for the
fund, with an objective of increasing the net income
available for shareholders. As of September 30, 2004, AMPS
represented 31% of the fund's managed net assets.
Considering that AMPS have variable dividend rates, we seek
to lock in the rate on a majority of this additional capital
through interest rate swap agreements (where we effectively
convert our variable rate obligation to a fixed rate
obligation for the term of the swap agreements).
Specifically, we have fixed the rate on 70% of our
borrowings at an average interest rate of 4.9%, for an
average remaining period of 2.7 years (when we first entered
into the swaps, the average term was 5 years). By locking in
a large portion of our leveraging costs, we have endeavored
to adequately protect the dividend-paying ability of the
fund, which is one of the reasons the fund has been able to
increase its monthly dividend on several occasions. The use
of leverage increases the volatility of the fund's net asset
value in both up and down markets. However, we believe that
locking in a portion of the fund's leveraging costs for the
term of the swap agreements partially protects the fund from
any impact that an increase in short-term interest rates may
have as a result of the use of leverage.
LEVERAGE FACTS(a)
Leverage (as % of managed net assets)............... 31%
% Fixed Rate........................................ 70%
% Variable Rate..................................... 30%
Average Rate on Swaps............................... 4.9%
Average Term on Swaps............................... 2.7 years
Current Rate on AMPS................................ 1.9%
-------------------
(a) Data as of September 30, 2004. Information subject to change.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD(a)
--------- -------------- ------------
EQUITIES 144.25%(b)
COMMON STOCK 114.91%
DIVERSIFIED 13.61%
Capital Trust -- Class A.............. 66,100 $ 1,923,510 6.19%
Colonial Properties Trust............. 582,300 23,420,106 6.66
Crescent Real Estate Equities Co...... 1,396,200 21,976,188 9.53
iStar Financial....................... 400,500 16,512,615 6.77
Vornado Realty Trust.................. 663,443 41,584,607 4.53
--------------
105,417,026
--------------
HEALTH CARE 17.85%
Health Care Property Investors........ 1,190,400 30,950,400 6.42
Health Care REIT...................... 969,625 34,130,800 6.82
LTC Properties........................ 131,200 2,347,168 6.71
Nationwide Health Properties.......... 1,205,300 25,009,975 7.13
Ventas................................ 1,766,500 45,787,680 5.02
--------------
138,226,023
--------------
HOTEL 2.46%
Hospitality Properties Trust.......... 389,200 16,537,108 6.78
Strategic Hotel Capital............... 183,400 2,479,568 6.51
--------------
19,016,676
--------------
INDUSTRIAL 2.93%
First Industrial Realty Trust......... 614,500 22,675,050 7.43
--------------
MORTGAGE 2.69%
Newcastle Investment Corp............. 678,528 20,830,810 7.82
--------------
-------------------
(a) Dividend yield is computed by dividing the security's current annual
dividend rate by the last sale price on the principal exchange or market, on
which such security trades.
(b) Percentages indicated are based on the net assets of the fund.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
OFFICE 32.31%
Arden Realty.......................... 826,800 $ 26,937,144 6.20%
BioMed Realty Trust................... 59,000 1,037,810 6.14
Brandywine Realty Trust............... 1,140,900 32,492,832 6.18
CarrAmerica Realty Corp............... 1,010,600 33,046,620 6.12
Equity Office Properties Trust........ 1,314,400 35,817,400 7.34
Highwoods Properties.................. 415,300 10,220,533 6.91
HRPT Properties Trust................. 635,400 6,983,046 7.64
Kilroy Realty Corp.................... 142,600 5,423,078 5.21
Mack-Cali Realty Corp................. 1,073,800 47,569,340 5.69
Maguire Properties.................... 604,800 14,702,688 6.58
Prentiss Properties Trust............. 1,000,200 36,007,200 6.22
--------------
250,237,691
--------------
OFFICE/INDUSTRIAL 8.43%
Liberty Property Trust................ 1,065,200 42,437,568 6.12
Reckson Associates Realty Corp........ 794,100 22,830,375 5.91
--------------
65,267,943
--------------
RESIDENTIAL 14.54%
APARTMENT 14.12%
AMLI Residential Properties Trust..... 77,000 2,352,350 6.28
Archstone-Smith Trust................. 754,100 23,859,724 5.44
AvalonBay Communities................. 307,200 18,499,584 4.65
Camden Property Trust................. 366,600 16,936,920 5.50
Gables Residential Trust.............. 586,900 20,042,635 7.06
Home Properties....................... 361,600 14,304,896 6.27
Mid-America Apartment Communities..... 309,400 12,051,130 6.01
Town & Country Trust.................. 50,000 1,272,500 6.76
--------------
109,319,739
--------------
MANUFACTURED HOME 0.42%
Affordable Residential Communities.... 225,200 3,287,920 8.56
--------------
TOTAL RESIDENTIAL..................... 112,607,659
--------------
SELF STORAGE 0.44%
Sovran Self Storage................... 87,300 3,420,414 6.18
--------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
SHOPPING CENTER 19.34%
COMMUNITY CENTER 6.95%
Cedar Shopping Centers................ 200,000 $ 2,790,000 6.45%
Heritage Property Investment Trust.... 449,100 13,100,247 7.20
Kramont Realty Trust.................. 1,293,300 24,055,380 6.99
New Plan Excel Realty Trust........... 222,700 5,567,500 6.60
Urstadt Biddle Properties -- Class A.. 544,000 8,290,560 5.64
--------------
53,803,687
--------------
REGIONAL MALL 12.39%
Glimcher Realty Trust................. 605,200 14,706,360 7.90
Macerich Co........................... 807,857 43,050,700 4.58
Mills Corp............................ 737,400 38,248,938 4.59
--------------
96,005,998
--------------
TOTAL SHOPPING CENTER................. 149,809,685
--------------
SPECIALTY 0.31%
American Campus Communities........... 130,800 2,427,648 7.27
--------------
TOTAL COMMON STOCK
(Identified
cost -- $658,098,726).......... 889,936,625
--------------
PREFERRED STOCK 29.34%
DIVERSIFIED 5.79%
Colonial Properties Trust, 8.125%,
Series D........................... 64,900 1,714,009 7.69
Crescent Real Estate Equities Co.,
6.75%, Series A (Convertible)(a)... 1,826,000 38,729,460 7.97
iStar Financial, 7.80%, Series F...... 94,600 2,385,812 7.73
iStar Financial, 7.65%, Series G...... 80,000 2,000,000 7.64
--------------
44,829,281
--------------
HEALTH CARE 0.14%
Omega Healthcare Investors, 8.375%,
Series D........................... 40,000 1,042,000 8.02
--------------
-------------------
(a) 410,000 shares segregated as collateral for the interest rate swap
transactions.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
HOTEL 6.25%
FelCor Lodging Trust, 9.00%,
Series B........................... 652,500 $ 16,704,000 8.79%
Host Marriott Corp., 10.00%,
Series B........................... 14,100 368,292 9.57
Host Marriott Corp., 10.00%,
Series C........................... 30,700 826,444 9.29
Host Marriott Corp., 8.875%,
Series E........................... 10,000 275,600 8.06
Innkeepers USA Trust, 8.00%,
Series C........................... 92,000 2,327,600 7.91
LaSalle Hotel Properties, 10.25%,
Series A........................... 1,000,000 27,900,000 9.18
--------------
48,401,936
--------------
MORTGAGE 0.19%
Newcastle Investment Corp., 9.75%,
Series B........................... 56,000 1,505,840 9.07
--------------
OFFICE 2.54%
HRPT Properties Trust, 8.75%,
Series B........................... 120,000 3,272,400 8.03
Highwoods Properties, 8.625%,
Series A........................... 13,195 13,764,034 8.27
Maguire Properties, 7.625%,
Series A........................... 106,600 2,654,340 7.67
--------------
19,690,774
--------------
OFFICE/INDUSTRIAL 0.05%
PS Business Parks, 8.75%, Series F.... 4,100 109,265 8.22
ProLogis, 8.54%, Series C............. 4,000 228,625 7.47
--------------
337,890
--------------
RESIDENTIAL -- APARTMENT 4.45%
Apartment Investment & Management Co.,
8.75%, Series D.................... 5,530 139,743 8.67
Apartment Investment & Management Co.,
10.10%, Series R................... 950,000 25,336,500 9.37
Home Properties, 9.00%, Series F...... 196,000 5,448,800 8.09
Mid-America Apartment Communities,
8.30%, Series H.................... 138,100 3,558,837 8.07
--------------
34,483,880
--------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
SHOPPING CENTER 9.93%
COMMUNITY CENTER 4.90%
Developers Diversified Realty Corp.,
8.60%, Series F.................... 1,039,400 $ 27,855,920 8.02%
Federal Realty Investment Trust,
8.50%, Series B.................... 276,300 7,476,678 7.84
Urstadt Biddle Properties, 8.50%,
Series C........................... 24,000 2,622,000 7.78
--------------
37,954,598
--------------
FREE STANDING 0.09%
Commercial Net Lease Realty, 9.00%,
Series A........................... 25,000 681,250 8.26
--------------
OUTLET CENTER 0.11%
Chelsea Property Group, 8.375%,
Series A........................... 14,000 843,500 6.95
--------------
REGIONAL MALL 4.83%
CBL & Associates Properties, 8.75%,
Series B........................... 430,000 23,112,500 8.15
Glimcher Realty Trust, 8.75%,
Series F........................... 40,000 1,059,600 8.27
Glimcher Realty Trust, 8.125%,
Series G........................... 40,000 1,018,000 7.98
Mills Corp., 9.00%, Series B.......... 55,300 1,503,054 8.28
Mills Corp., 9.00%, Series C.......... 159,600 4,389,000 8.18
Mills Corp., 8.75%, Series E.......... 84,000 2,268,000 8.11
Simon Property Group, 8.75%,
Series F........................... 30,000 809,700 8.11
Taubman Centers, 8.30%, Series A...... 127,600 3,281,872 8.09
--------------
37,441,726
--------------
TOTAL SHOPPING CENTER................. 76,921,074
--------------
TOTAL PREFERRED STOCK (Identified
cost -- $208,568,719).......... 227,212,675
--------------
TOTAL EQUITIES (Identified
cost -- $866,667,445).......... 1,117,149,300
--------------
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10
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
---------- --------------
COMMERCIAL PAPER 0.36%
State Street Corp., 1.40%, due 10/01/04
(Identified cost -- $2,803,000)................ $2,803,000 $ 2,803,000
--------------
TOTAL INVESTMENTS (Identified
cost -- $869,470,445)......................... 144.61% 1,119,952,300(a)
LIABILITIES IN EXCESS OF OTHER ASSETS........... (0.71)% (5,505,760)
LIQUIDATION VALUE OF TAXABLE AUCTION MARKET
PREFERRED SHARES: SERIES T, SERIES W,
SERIES TH, AND SERIES F (Equivalent to $25,000
per share based on 2,800 shares outstanding
for Series T, Series W, Series TH and
Series F)..................................... (36.15)% (280,000,000)
LIQUIDATION VALUE OF AUCTION MARKET PREFERRED
SHARES: SERIES M28 (Equivalent to $25,000 per
share based on 2,400 shares outstanding)...... (7.75)% (60,000,000)
NET ASSETS APPLICABLE TO COMMON SHARES ------ --------------
(Equivalent to $19.93 per share based on
38,856,074 shares of capital stock
outstanding).................................. 100.00% $ 774,446,540
------ --------------
------ --------------
-------------------
(a) At September 30, 2004, net unrealized appreciation was $250,481,855 based on
cost for federal income tax purposes of $869,470,445. This consisted of
aggregate gross unrealized appreciation on investments of $252,228,742 and
aggregate gross unrealized depreciation on investments of $1,746,887.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 2004 (UNAUDITED)
NOTE 1. INVESTMENTS IN INTEREST RATE SWAPS
The fund has entered into interest rate swap transactions with Merrill Lynch
Derivative Products, UBS AG, Banc of America Securities, and Royal Bank of
Canada. Under the agreements, the fund receives a floating rate of interest and
pays a respective fixed rate of interest on the nominal values of the swaps. The
fund has segregated 410,000 shares of Crescent Real Estate Equities Co., 6.75%,
Series A as collateral for the interest rate swap transactions. Details of the
interest rate swap transactions as of September 30, 2004 are as follows:
UNREALIZED
NOTIONAL FIXED FLOATING RATE(a) APPRECIATION/
COUNTERPARTY AMOUNT RATE (RESET MONTHLY) TERMINATION DATE (DEPRECIATION)
-------------------------------- ------------ ------- ---------------- ---------------- --------------
Banc of America Securities...... 14,000,000 3.2125% 1.6700% October 2, 2008 $ 126,952
Merrill Lynch Derivative
Products...................... 46,000,000 4.5600% 1.6963% April 5, 2005 (638,319)
Merrill Lynch Derivative
Products...................... 46,000,000 5.2100% 1.6963% April 5, 2007 (2,457,928)
Merrill Lynch Derivative
Products...................... 46,000,000 5.5800% 1.6963% April 5, 2009 (3,823,767)
Royal Bank of Canada............ 14,000,000 3.6800% 1.8275% October 22, 2008 (108,525)
UBS AG.......................... 24,000,000 4.4500% 1.7600% April 15, 2005 (319,267)
UBS AG.......................... 24,000,000 5.1200% 1.7600% April 15, 2007 (1,225,241)
UBS AG.......................... 24,000,000 5.4950% 1.7600% April 15, 2009 (1,904,033)
------------
$(10,350,128)
------------
------------
-------------------
(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
at September 30, 2004.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
FINANCIAL HIGHLIGHTS(a)
SEPTEMBER 30, 2004 (UNAUDITED)
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
--------------------------- ---------------
NET ASSET VALUE:
Beginning of period: 12/31/03.............. $716,083,687 $18.43
Net investment income.................. $ 33,409,395 $ 0.86
Net realized and unrealized gain on
investments and interest rate swap
transactions........................ 67,987,165 1.75
Distributions from net investment income
to:
Common shareholders.................... (39,633,196) (1.02)
Preferred shareholders................. (3,522,420) (0.09)
------
Increase in net assets from preferred
share offering cost adjustment...... 121,909
------------
Net increase in net asset value............ 58,362,853 1.50
------------ ------
End of period: 9/30/2004................... $774,446,540 $19.93
------------ ------
------------ ------
-------------------
(a) Financial information included in this report has been taken from the
records of the fund without examination by independent accountants.
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13
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS(a)
(PERIODS ENDED SEPTEMBER 30, 2004) (UNAUDITED)
SINCE INCEPTION
ONE YEAR (8/30/02)
-------- ---------
32.05% 22.91%
The performance data quoted represent past performance. Past performance is no
guarantee of future results. The rate of return will vary and the principal
value of an investment will fluctuate and shares, if sold, may be worth more or
less than their original cost. Current performance may be lower or higher than
the performance data quoted.
REINVESTMENT PLAN
We urge shareholders who want to take advantage of this plan
and whose shares are held in 'street name' to consult your
broker as soon as possible to determine if you must change
registration into your own name to participate.
Notice is hereby given in accordance with Section 23(c) of
the Investment Company Act of 1940 that the fund may
purchase, from time to time, shares of its common stock in
the open market.
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.
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(a) Based on net asset value.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
PRIVACY POLICY
The fund is committed to maintaining the privacy of its
shareholders and to safeguarding their personal information.
The following is provided to help you understand what
personal information the fund collects, how we protect that
information, and why in certain cases we may share this
information with others.
The fund does not receive any personal information relating
to shareholders who purchase shares through an intermediary
that acts as the record owner of the shares. In the case of
shareholders who are record owners of the fund, to conduct
and process your business in an accurate and efficient
manner, we must collect and maintain certain personal
information about you. This is the information we collect on
applications or other forms, and from the transactions you
make with us.
The fund does not disclose any personal information about
its shareholders or former shareholders to anyone, except as
required or permitted by law or as is necessary to service
shareholder accounts. We will share information with
organizations, such as the fund's transfer agent, that
assist the fund in carrying out its daily business
operations. These organizations will use this information
only for purposes of providing the services required or as
otherwise as may be required by law. These organizations are
not permitted to share or use this information for any other
purpose. In addition, the fund restricts access to personal
information about its shareholders to employees of the
adviser who have a legitimate business need for the
information.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
REALTY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
DIVIDEND YIELD AND CAPITAL APPRECIATION, RETURN THROUGH BOTH CURRENT INCOME AND
INVESTING PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY
A, B, C AND I SHARES AVAILABLE 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
IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL IDEAL FOR INVESTORS SEEKING MAXIMUM
RETURN THROUGH BOTH CURRENT INCOME AND CAPITAL APPRECIATION, INVESTING IN A
CAPITAL APPRECIATION, INVESTING PRIMARILY LIMITED NUMBER OF REITS AND OTHER REAL
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
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. A PROSPECTUS CONTAINING THIS AND OTHER
INFORMATION ABOUT THE FUND MAY BE OBTAINED BY FOLLOWING THE INSTRUCTIONS ABOVE.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
COHEN & STEERS SECURITIES, LLC, DISTRIBUTOR
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
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 -- COMMON SHARES
Richard J. Norman Equiserve Trust Company
Director 250 Royall Street
Canton, MA 02021
Frank K. Ross (800) 426-5523
Director
TRANSFER AGENT -- PREFERRED SHARES
Willard H. Smith Jr. The Bank of New York
Director 100 Church Street
New York, NY 10007
Adam Derechin
Vice president and assistant treasurer LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
Joseph M. Harvey 425 Lexington Avenue
Vice president New York, NY 10017
Lawrence B. Stoller New York Stock Exchange Symbol: RQI
Assistant secretary
Web site: cohenandsteers.com
This report is for shareholder
information. This is not a prospectus
intended for use in the purchase or
sale of fund shares. Past performance
is of course no guarantee of future
results and your investment may be
worth more or less at the time you
sell.
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COHEN & STEERS
QUALITY INCOME REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
[COHEN & STEERS QUALITY INCOME REALTY FUND LOGO]
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QUARTERLY REPORT
SEPTEMBER 30, 2004