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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
April 27, 2005
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Quality Income
Realty Fund for the quarter ended March 31, 2005. The net asset value at that
date was $20.00 per common share. The fund's common stock is traded on the New
York Stock Exchange and its share price can differ from its net asset value; at
quarter end, the fund's closing share price on the NYSE was $18.45 per share.
The total return, including income, for Cohen & Steers Quality Income Realty
Fund and the comparative benchmarks were:
TOTAL RETURN,
QUARTERLY ENDED
3/31/05
---------------------
MARKET NET ASSET
PRICEa VALUE(a)
-------- ---------
Cohen & Steers Quality Income Realty Fund............ -8.6% -9.2%
NAREIT Equity REIT Index(b).......................... -7.1% -7.1%
Morgan Stanley REIT Preferred Index(c)............... -0.7% -0.7%
The asset mix of the fund at quarter-end consisted of 77.4% REIT common
stocks, 21.8% preferred stocks and other fixed-income investments, and 0.8%
cash. The preferred allocation provides diversification benefits and helps
increase the income potential of the fund.
During the quarter, three monthly dividends of $0.14 per share were paid to
common shareholders. In addition, the fund's board of directors declared three
monthly dividends of $0.14 per share payable in April, May, and June.
INVESTMENT REVIEW
Over the past several quarters we have focused on the rebound in real estate
fundamentals when determining the outlook for real estate stocks. The
performance of real estate stocks during the past two years, in our view,
demonstrates that the market has come to appreciate the budding turnaround in
property occupancies and rents.
-------------------
(a) As a closed-end investment company, the price of the fund's New York Stock
Exchange-traded shares will be set by market forces and at times may deviate
from the net asset value per share of the fund.
(b) The NAREIT Equity REIT Index ('Equity REITs') is an unmanaged
market-capitalization-weighted index of all tax-qualified Equity REITs
listed on the NYSE, AMEX, and the Nasdaq that have 75% or more of their
gross invested book assets invested directly or indirectly in the equity
ownership of real estate.
(c) The Morgan Stanley REIT Preferred Index is an unmanaged index of all
exchange-traded perpetual preferred securities of equity REITs, weighted by
capitalization and considered representative of real estate preferred stock
performance.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
More recently, however, forces outside the real estate industry have begun
to shape the behavior of the REIT and broader markets. Headwinds have started to
blow, perhaps not hard enough to endanger the U.S. economic and real estate
recoveries, but sufficient enough, we believe, to slow their pace and generate
upheaval in some segments of the economy.
The financial press has invoked a laundry list of concerns, including the
trade deficit, the federal budget deficit, the over-consuming and financially
stretched consumer, a housing bubble and fears of higher long-term interest
rates. Our belief is that most of these are not immediately threatening. Our
unease rests largely with rising oil prices and with the Federal Reserve's
persistent monetary tightening. As the Fed reverses the accommodative monetary
stance that returned the economy to a normal growth trajectory, we believe
economic growth should moderate until these interest rate increases work their
way through the system. The flattening yield curve (short-term and long-term
interest rates almost equal) is hinting at this, as it typically does.
REIT share prices have fallen farther than most of the broader equity market
indexes, in an abrupt turnaround from last year. Health care, which had a
-11.2% total return, was the worst performing property sector in the first
quarter -- not surprising given that, unlike most types of real estate, flattish
lease terms tend to make this group more interest rate-sensitive. Industrial and
mixed office/industrial REITs, returning -10.5% and -9.7%, respectively, were
the next worst performing groups. Apparent profit taking in the first quarter
made some of the best performing stocks last year the worst performers. Two mall
companies, Mills Corporation and Macerich Company, and Maguire Properties, an
office REIT, were among the poorest performing stocks in our portfolio,
returning -16.1%, -14.2% and -11.6%, respectively. Stock selection in the
regional mall and office sectors were the largest detractors from our relative
performance.
Self storage was the best performing property type in the quarter with a
0.8% total return. U-Store-It Trust, which returned 1.5%, was one of our best
performing stocks. Our strongest investment was Equity Office Properties, which
returned 5.2%. Our overweight in the office sector, which returned -3.3%, driven
in our view by the sustained recovery in office fundamentals, contributed
significantly to our relative performance. The largest contributor to our
performance during the quarter was our allocation to REIT preferred stocks. REIT
preferreds, 21.8% of the portfolio, were down only slightly in the quarter,
significantly exceeding REIT common stocks on a total return basis.
Our view of why REIT share prices declined during the quarter is distinct
from popular perception, and hence our outlook for the future is different as
well. The conventional wisdom surrounding REITs is that their outperformance
compared to the broader markets during the past five years necessitates that
they are now overvalued. Additionally, many believe that interest rates are a
key determinant of REIT stock prices and that the rise in interest rates will
cause REITs to underperform -- despite historical evidence to the contrary.
Finally, many fear that a continual rise in interest rates will burst the real
estate 'bubble' -- a condition which, we believe, may exist in some overheated
single-family housing markets but certainly not among commercial property types.
Our perspective is somewhat different. We believe REITs' substantial
outperformance in 2004 resulted in many individuals and institutions being
over-allocated to the REIT asset class at the beginning of 2005,
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
precipitating some re-balancing of portfolios away from REITs. Many investors
have reduced their REIT holdings, which we believe reflects the dispassionate,
disciplined re-allocation by long-time REIT investors. Perhaps a more simple
explanation is that, after strong returns, investors merely took profits, in a
financial market environment that already was subject to overall poor investor
sentiment.
In the meantime, despite this choppy period in the market for REITs, many
companies took advantage of expanding acquisition opportunities. We believe that
most commercial property types are in recovery in most regions of the U.S., and
that REITs, in response, are beginning to expand their portfolios more rapidly.
The flow of real estate assets from private hands to public companies has
accelerated dramatically in the last quarter. Announcements of billion dollar
acquisitions have become routine. However, in contrast to the mid-1990s when
REITs made huge volumes of acquisitions and issued large amounts of common stock
to pay for them, today's acquisitions appear to be financed largely with lower
cost capital. In the first quarter alone, REITs announced purchases of over $10
billion of privately held real estate while raising only $1.3 billion of equity
capital. These acquisitions can potentially enhance their growth rates and have
increased the scope of property portfolios they control.
INVESTMENT OUTLOOK
Many investors seem to be concerned that we are inevitably headed for a REIT
bear market similar to the one that began in 1998. However, in early 1998, real
estate fundamentals peaked after accelerating for six years. Buildings were full
and a construction boom was underway. Valuations were excessive -- REITs traded
at a 25% premium to the value of their underlying real estate assets -- and
investor sentiment was positive. None of these conditions exist today, in our
view.
We believe that investors may want to consider the environment REITs faced
in the 1994 period. The Fed had aggressively raised short-term interest rates
from 3% to 5.5% by year-end, removing the accommodative monetary stimulus that
had jump-started the economy out of the early-1990s recession. The rate of GDP
growth and job growth slowed from white-hot levels to more sustainable levels
and the economic expansion was able to sustain itself for another six years as a
result. As the stock market began to incorporate expectations for a slowing
economy, REIT returns moderated in 1994, to just 3.2% (the S&P 500 returned 1.3%
in 1994), after generating average annual total returns of 23% the prior three
years. As the economy stabilized after this 'mid-course correction,' REITs went
on to generate an average return of 24% annually for the next three years.
While the Fed's current tightening cycle will inevitably cause some
dislocations, and while current economic growth may slow somewhat in the near
term, we believe we are still at the beginning of a recovery in most real estate
markets. REIT earnings growth, in our view, may not accelerate as quickly,
near-term, as the economy undergoes this correction, although we believe there
will be continued healthy growth. Very little new construction is underway and
we believe replacement costs -- the long run determinant of real estate
value -- will continue to rise with raw material costs. Vacancy rates have
declined while effective rents have risen, a trend that we believe will
continue. We therefore expect REITs to enjoy a strong period of internal growth,
even without the benefit of
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
new property acquisitions. In addition, we believe profitable acquisition and
development opportunities exist for the skilled players who can access
inexpensive capital.
By our estimates, REIT stocks are trading at approximately the value of
their underlying assets. However, the most recent round of real estate asset
sales would suggest that our estimates of asset value might be too low. It seems
unusual at this stage in the cycle that REITs should trade at or below asset
value, when, as we believe, fundamentals are improving and growth opportunities
are plentiful. As a result we believe that REIT investments will continue to
deliver competitive total returns.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
JOSEPH M. HARVEY JAMES S. CORL
JOSEPH M. HARVEY JAMES S. CORL
Portfolio Manager 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 March 31, 2005, AMPS
represented 36% 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 65% of our
borrowings at an average interest rate of 4.8%, for an
average remaining period of 2.6 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)............... 36%
% Fixed Rate........................................ 65%
% Variable Rate..................................... 35%
Average Rate on Swaps............................... 4.8%
Average Term on Swaps............................... 2.6 years
Current Rate on AMPS................................ 3.1%
-------------------
(a) Data as of March 31, 2005. Information subject to change.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
MARCH 31, 2005
TOP TEN HOLDINGS
(Unaudited)
MARKET % OF
VALUE MANAGED ASSETS
SECURITY ----------- --------------
1. Vornado Realty Trust................................ $45,956,697 3.79%
2. Mack-Cali Realty Corp. ............................. 45,475,430 3.75
3. Ventas.............................................. 44,091,840 3.64
4. Macerich Co. ....................................... 43,042,621 3.55
5. Liberty Property Trust.............................. 41,596,060 3.43
6. Equity Office Properties Trust...................... 39,602,872 3.27
7. Mills Corp. ........................................ 39,008,460 3.22
Crescent Real Estate Equities Co., 6.75%, Series
8. A................................................... 38,869,424 3.21
9. Prentiss Properties Trust........................... 34,166,832 2.82
10. Brandywine Realty Trust............................. 32,401,560 2.68
SECTOR BREAKDOWN
(Based on Managed Assets)
(Unaudited)
[PIE CHART]
Specialty 0.16%
Cash & Liabilities in Excess of Other Assets 0.44%
Self Storage 1.16%
Mortgage 3.16%
Hotel 6.12%
Health Care 11.26%
Diversified 13.13%
Residential 13.69%
Shopping Center 20.19%
Office/Industrial 30.69%
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2005 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD(a)
--------- -------------- ------------
EQUITIES 155.15%(b)
COMMON STOCK 121.03%
DIVERSIFIED 13.29%
Capital Trust -- Class A.............. 66,100 $ 2,193,198 6.63%
Colonial Properties Trust............. 582,300 22,366,143 7.03
Crescent Real Estate Equities Co...... 996,900 16,289,346 9.18
iStar Financial....................... 400,500 16,492,590 7.12
Vornado Realty Trust.................. 663,443 45,956,697 4.39
--------------
103,297,974
--------------
HEALTH CARE 17.33%
Health Care Property Investors........ 1,113,500 26,133,845 7.16
Healthcare Realty Trust............... 224,600 8,184,424 7.14
Health Care REIT...................... 969,625 31,028,000 7.50
LTC Properties........................ 49,100 851,885 6.92
Nationwide Health Properties.......... 1,205,300 24,359,113 7.32
Ventas................................ 1,766,500 44,091,840 5.77
--------------
134,649,107
--------------
HOTEL 2.38%
Hospitality Properties Trust.......... 391,300 15,800,694 7.13
Strategic Hotel Capital............... 183,400 2,695,980 5.99
--------------
18,496,674
--------------
INDUSTRIAL 2.98%
First Industrial Realty Trust......... 612,900 23,186,007 7.35
--------------
MORTGAGE 4.73%
Gramercy Capital Corp.(c)............. 785,000 13,776,750 4.51
Newcastle Investment Corp............. 776,928 22,997,069 8.45
--------------
36,773,819
--------------
-------------------
(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.
(b) Percentages indicated are based on the net assets applicable to common
shares of the fund.
(c) This security is restricted and cannot be resold without prior registration
under the Securities Act of 1933 unless pursuant to an exemption therefrom.
The fund prices this security at fair value using procedures approved by the
fund's board of directors.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2005 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
OFFICE 36.04%
Arden Realty.......................... 826,800 $ 27,987,180 5.97%
BioMed Realty Trust................... 59,000 1,215,400 5.24
Brandywine Realty Trust............... 1,140,900 32,401,560 6.20
CarrAmerica Realty Corp. ............. 1,010,600 31,884,430 6.34
Equity Office Properties Trust........ 1,314,400 39,602,872 6.64
Highwoods Properties.................. 415,300 11,138,346 6.34
HRPT Properties Trust................. 1,109,000 13,208,190 7.05
Kilroy Realty Corp. .................. 102,600 4,197,366 4.99
Mack-Cali Realty Corp. ............... 1,073,800 45,475,430 5.95
Maguire Properties.................... 604,800 14,442,624 6.70
Prentiss Properties Trust............. 1,000,200 34,166,832 6.56
Reckson Associates Realty Corp. ...... 794,100 24,378,870 5.53
--------------
280,099,100
--------------
OFFICE/INDUSTRIAL 5.35%
Liberty Property Trust................ 1,065,200 41,596,060 6.25
--------------
RESIDENTIAL 16.66%
APARTMENT 15.93%
AMLI Residential Properties Trust..... 77,000 2,109,030 7.01
American Campus Communities........... 130,800 2,746,800 6.43
Archstone-Smith Trust................. 754,100 25,722,351 5.04
AvalonBay Communities................. 307,200 20,548,608 4.25
Camden Property Trust................. 366,600 17,241,198 5.40
Education Realty Trust................ 220,700 3,670,241 7.16
GMH Communities Trust................. 477,600 5,592,696 7.77
Gables Residential Trust.............. 586,900 19,543,770 7.24
Home Properties....................... 361,600 14,030,080 6.49
Mid-America Apartment Communities..... 309,400 11,293,100 6.41
Town & Country Trust.................. 50,000 1,322,500 6.50
--------------
123,820,374
--------------
MANUFACTURED HOME 0.73%
Affordable Residential Communities.... 448,700 5,676,055 9.88
--------------
TOTAL RESIDENTIAL..................... 129,496,429
--------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2005 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
SELF STORAGE 1.80%
Extra Space Storage................... 314,300 $ 4,243,050 6.74%
Sovran Self Storage................... 87,300 3,459,699 6.11
U-Store-It Trust...................... 361,700 6,293,580 6.44
--------------
13,996,329
--------------
SHOPPING CENTER 20.47%
COMMUNITY CENTER 8.07%
Cedar Shopping Centers................ 268,100 3,817,744 6.32
Heritage Property Investment Trust.... 449,100 13,329,288 7.08
Inland Real Estate Corp. ............. 94,000 1,412,820 6.25
Kramont Realty Trust.................. 1,293,300 30,263,220 5.56
New Plan Excel Realty Trust........... 222,700 5,591,997 6.57
Urstadt Biddle
Properties -- Class A.............. 544,000 8,296,000 5.77
--------------
62,711,069
--------------
REGIONAL MALL 12.40%
Glimcher Realty Trust................. 605,200 14,343,240 8.11
Macerich Co. ......................... 807,857 43,042,621 4.88
Mills Corp. .......................... 737,400 39,008,460 4.74
--------------
96,394,321
--------------
TOTAL SHOPPING CENTER................. 159,105,390
--------------
TOTAL COMMON STOCK
(Identified
cost -- $696,702,694).......... 940,696,889
--------------
PREFERRED STOCK 34.12%
DIVERSIFIED 7.17%
Colonial Properties Trust, 8.125%,
Series D........................... 64,900 1,643,268 8.02
Colonial Properties Trust, 7.62%,
Series E........................... 55,000 1,302,812 8.04
Crescent Real Estate Equities Co.,
6.75%, Series A (Convertible)(a)... 1,806,200 38,869,424 7.84
Digital Realty Trust, 8.50%,
Series A........................... 122,000 3,172,000 8.17
Entertainment Properties Trust, 7.75%,
Series B........................... 128,000 3,207,680 7.73
iStar Financial, 7.80%, Series F...... 166,681 4,308,704 7.54
iStar Financial, 7.65%, Series G...... 87,300 2,193,849 7.59
iStar Financial, 7.50%, Series I...... 40,200 998,970 7.55
--------------
55,696,707
--------------
-------------------
(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)
MARCH 31, 2005 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
HEALTH CARE 0.23%
Health Care REIT, 7.625%, Series F.... 28,300 $ 707,500 7.62%
Omega Healthcare Investors, 8.375%,
Series D........................... 40,000 1,040,000 8.05
--------------
1,747,500
--------------
HOTEL 7.16%
FelCor Lodging Trust, 9.00%,
Series B........................... 652,500 16,769,250 8.02
FelCor Lodging Trust, 8.00%,
Series C........................... 104,300 2,451,050 8.31
Host Marriott Corp., 10.00%,
Series B........................... 14,100 354,192 9.92
Host Marriott Corp., 10.00%,
Series C........................... 30,700 785,613 9.77
Host Marriott Corp., 8.875%,
Series E........................... 10,000 269,500 8.23
Innkeepers USA Trust, 8.00%,
Series C........................... 91,300 2,291,630 7.97
LaSalle Hotel Properties, 10.25%,
Series A........................... 1,000,000 26,700,000 9.60
Strategic Hotel Capital, 8.50%,
Series A, 144A..................... 132,200 3,288,475 8.54
Sunstone Hotel Investors, 8.00%,
Series A........................... 111,000 2,769,450 8.00
--------------
55,679,160
--------------
MORTGAGE 0.19%
Newcastle Investment Corp., 9.75%,
Series B........................... 56,000 1,506,400 9.08
--------------
OFFICE 3.28%
Cousins Properties, 7.50%,
Series B........................... 200,000 5,000,000 7.46
HRPT Properties Trust, 8.75%,
Series B........................... 120,000 3,207,600 8.18
Highwoods Properties, 8.625%,
Series A........................... 13,195 13,442,406 8.47
Kilroy Realty Corp., 7.50%,
Series F........................... 49,000 1,215,200 7.56
Maguire Properties, 7.625%,
Series A........................... 106,600 2,649,010 7.67
--------------
25,514,216
--------------
OFFICE/INDUSTRIAL 0.17%
PS Business Parks, 8.75%, Series F.... 4,100 107,010 8.38
PS Business Parks, 7.00%, Series H.... 40,000 971,200 7.20
ProLogis, 8.54%, Series C............. 4,000 234,250 7.29
--------------
1,312,460
--------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2005 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
RESIDENTIAL 4.67%
APARTMENT 4.60%
Apartment Investment & Management Co.,
10.10%, Series R................... 940,000 $ 24,722,000 9.51%
Associated Estates Realty Corp.,
8.70%, Series B.................... 90,000 2,304,000 8.50
Home Properties, 9.00%, Series F...... 196,000 5,141,080 8.65
Mid-America Apartment Communities,
8.30%, Series H.................... 138,100 3,549,170 8.07
--------------
35,716,250
--------------
MANUFACTURED HOME 0.07%
American Land Lease, 7.75%,
Series A........................... 22,000 561,000 7.64
--------------
TOTAL RESIDENTIAL..................... 36,277,250
--------------
SHOPPING CENTER 10.99%
COMMUNITY CENTER 5.00%
Cedar Shopping Centers, 8.875%,
Series A........................... 61,000 1,601,250 8.45
Developers Diversified Realty Corp.,
8.60%, Series F.................... 1,039,400 27,325,826 8.18
Federal Realty Investment Trust,
8.50%, Series B.................... 276,300 7,321,950 8.02
Urstadt Biddle Properties, 8.50%,
Series C........................... 24,000 2,640,000 7.73
--------------
38,889,026
--------------
FREE STANDING 0.09%
Commercial Net Lease Realty, 9.00%,
Series A........................... 25,000 667,500 8.43
--------------
REGIONAL MALL 5.90%
CBL & Associates Properties, 8.75%,
Series B........................... 430,000 23,073,800 8.15
CBL & Associates Properties, 7.375%,
Series D........................... 325,000 8,034,000 7.46
Glimcher Realty Trust, 8.75%,
Series F........................... 40,000 1,040,000 8.41
Glimcher Realty Trust, 8.125%,
Series G........................... 40,000 1,004,000 8.09
Mills Corp., 9.00%, Series B.......... 55,300 1,459,920 8.56
Mills Corp., 9.00%, Series C.......... 159,600 4,175,136 8.60
Mills Corp., 8.75%, Series E.......... 84,000 2,194,080 8.37
Simon Property Group, 8.75%,
Series F........................... 30,000 781,800 8.39
Simon Property Group, 8.375%,
Series J........................... 14,000 910,000 6.44
Taubman Centers, 8.30%, Series A...... 127,600 3,218,072 8.23
--------------
45,890,808
--------------
TOTAL SHOPPING CENTER................. 85,447,334
--------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2005 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
--------- -------------- ------------
SPECIALTY 0.26%
Capital Automotive REIT, 7.50%,
Series A........................... 80,000 $ 1,980,000 7.58%
--------------
TOTAL PREFERRED STOCK
(Identified
cost -- $248,302,703).......... 265,161,027
--------------
TOTAL EQUITIES (Identified
cost -- $945,005,397).......... 1,205,857,916
--------------
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER 1.31%
Prudential FDG Corp., 2.12%, due
04/01/05
(Identified cost -- $10,161,000).... $10,161,000 10,161,000
----------- --------------
TOTAL INVESTMENTS (Identified
cost -- $955,166,397).............. 156.46% 1,216,018,916(a)
LIABILITIES IN EXCESS OF OTHER
ASSETS............................. (0.62)% (4,773,212)
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). (36.03)% (280,000,000)
LIQUIDATION VALUE OF AUCTION MARKET
PREFERRED SHARES: SERIES M28 AND
SERIES M7 (Equivalent to $25,000
per share based on 2,400 shares
outstanding for Series M28 and
3,760 shares outstanding for
Series M7)......................... (19.81)% (154,000,000)
------ --------------
NET ASSETS APPLICABLE TO COMMON
SHARES (Equivalent to $20.00 per
share based on 38,856,074 shares
of capital stock outstanding)...... 100.00% $ 777,245,704
------ --------------
------ --------------
-------------------
(a) At March 31, 2005, net unrealized appreciation was $260,852,519 based on
cost for federal income tax purposes of $955,166,397. This consisted of
aggregate gross unrealized appreciation on investments of $262,868,941
and aggregate gross unrealized depreciation on investments of $2,016,422.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 2005 (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 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 March 31, 2005 are as follows:
UNREALIZED
NOTIONAL FLOATING RATE(a) APPRECIATION/
COUNTERPARTY AMOUNT FIXED RATE (RESET MONTHLY) TERMINATION DATE (DEPRECIATION)
--------------------------------- ----------- ---------- --------------- ---------------- --------------
Banc of America.................. $14,000,000 3.2120% 2.7160% October 2, 2008 $ 522,109
Merrill Lynch Derivative
Products....................... $46,000,000 4.5600% 2.7450% April 5, 2005 (61,401)
Merrill Lynch Derivative
Products....................... $46,000,000 5.2100% 2.7450% April 5, 2007 (1,000,122)
Merrill Lynch Derivative
Products....................... $46,000,000 5.5800% 2.7450% April 5, 2009 (1,935,636)
Royal Bank of Canada............. $14,000,000 3.6800% 2.8500% October 22, 2008 314,216
Royal Bank of Canada............. $44,000,000 4.2580% 2.7600% March 9, 2010 442,347
UBS AG........................... $24,000,000 4.4500% 2.8100% April 15, 2005 (30,890)
UBS AG........................... $24,000,000 5.1200% 2.8100% April 15, 2007 (476,355)
UBS AG........................... $24,000,000 5.4950% 2.8100% April 15, 2009 (931,537)
-----------
$(3,157,269)
-----------
-----------
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(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
at March 31, 2005.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
FINANCIAL HIGHLIGHTS(a)
MARCH 31, 2005 (UNAUDITED)
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
--------------------------- ---------------
NET ASSET VALUE:
Beginning of period: 12/31/04.............. $874,240,743 $22.50
Net investment income.................. $ 9,217,615 $ 0.24
Net realized and unrealized gain on
investments and interest rate swap
transactions........................ (86,996,801) (2.25)
Distributions from net investment income
to:
Common shareholders.................... (16,319,551) (0.42)
Preferred shareholders................. (2,896,302) (0.07)
------------ ------
Net decrease in net asset value............ (96,995,039) (2.50)
------------ ------
End of period: 3/31/2005................... $777,245,704 $20.00
------------ ------
------------ ------
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(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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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
AVERAGE ANNUAL TOTAL RETURNS
(PERIODS ENDED MARCH 31, 2005) (UNAUDITED)
BASED ON NET ASSET VALUE BASED ON MARKET VALUE
----------------------------------- -----------------------------------
SINCE INCEPTION SINCE INCEPTION
ONE YEAR (2/28/02) ONE YEAR (2/28/02)
-------- --------------- -------- ---------------
4.55% 20.62% 2.93% 16.27%
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.
OTHER INFORMATION
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 (SEC)
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 has adopted
a level rate distribution policy. Under this policy, 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 will be
notified of the estimated amount of capital returned to shareholders for each
distribution and this information will also be available at cohenandsteers.com.
Distributions of capital decrease the fund's total assets and, therefore, could
have the effect of increasing the fund's expense ratio. In
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
addition, in order to make these distributions, the fund may have to sell
portfolio securities at a less than opportune time.
PRIVACY POLICY *
In the course of doing business with Cohen & Steers, you may share personal
information with us. We are committed to maintaining the privacy of this
information and recognize the importance of preventing unauthorized access to
it. You may provide personal information on account applications and requests
for forms or other literature (such as your address and social security number)
and through account transactions with us (such as purchases, sales and account
balances). You may also provide us with this information through written,
electronic and telephone account inquiries.
We do not sell personal information about current and former customers to
anyone, and we do not disclose it unless necessary to process a transaction,
service an account or as otherwise required or permitted by law. For example, we
may disclose information to companies that perform administrative or marketing
services for Cohen & Steers, such as transfer agents, or printers that assist us
in the distribution of investor materials. These organizations will use this
information only for purposes of providing the required services or as otherwise
may be required by law. We may also share personal information within the Cohen
& Steers family of companies to provide you with additional information about
our products and services.
We maintain physical, electronic and procedural safeguards to protect your
personal information. Within Cohen & Steers, we restrict access to your personal
information to those employees who need it to perform their jobs, such as
servicing your account or informing you of new products and services.
The accuracy of your personal information is important. If you need to
correct or update your personal or account information, please call us at
800-330-7348. We will be happy to review, correct or update your personal or
account information.
-------------------
* This privacy policy applies to the following Cohen & Steers companies: Cohen &
Steers Capital Management, Inc., Cohen & Steers Securities, LLC, Cohen &
Steers Capital Advisors, LLC and the Cohen & Steers Funds.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR TOTAL RETURN: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
REALTY SHARES INSTITUTIONAL REALTY SHARES
DESIGNED FOR INVESTORS SEEKING MAXIMUM TOTAL DESIGNED FOR INSTITUTIONAL INVESTORS SEEKING
RETURN, INVESTING PRIMARILY IN REITS MAXIMUM TOTAL RETURN, INVESTING PRIMARILY IN
SYMBOL: CSRSX REITS
SYMBOL: CSRIX
FOR HIGH CURRENT INCOME: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
REALTY INCOME FUND REALTY FOCUS FUND
DESIGNED FOR INVESTORS SEEKING HIGH CURRENT DESIGNED FOR INVESTORS SEEKING MAXIMUM CAPITAL
INCOME, INVESTING PRIMARILY IN REITS APPRECIATION, INVESTING IN A LIMITED NUMBER OF
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX REITS AND OTHER REAL ESTATE SECURITIES
SYMBOLS: CSFAX, CSFBX, CSFCX, CSSPX
FOR TOTAL RETURN: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
INTERNATIONAL REALTY FUND UTILITY FUND
DESIGNED FOR INVESTORS SEEKING MAXIMUM TOTAL DESIGNED FOR INVESTORS SEEKING MAXIMUM TOTAL
RETURN, INVESTING PRIMARILY IN INTERNATIONAL RETURN, INVESTING PRIMARILY IN UTILITIES
REAL ESTATE SECURITIES SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX
SYMBOLS: IRFAX, IRFCX, IRFIX
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.
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 E. Kroon Equiserve Trust Company
Director 250 Royall Street
Canton, MA 02021
Richard J. Norman (800) 426-5523
Director
TRANSFER AGENT -- PREFERRED SHARES
Frank K. Ross The Bank of New York
Director 100 Church Street
New York, NY 10007
Willard H. Smith Jr.
Director LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
C. Edward Ward, Jr. 425 Lexington Avenue
Director New York, NY 10017
Adam Derechin New York Stock Exchange Symbol: RQI
Vice president and assistant treasurer
Web site: cohenandsteers.com
Joseph M. Harvey
Vice president This report is for shareholder
information. This is not a
John McLean prospectus intended for use in the
Chief compliance officer purchase or sale of fund shares.
Past performance is of course no
Lawrence B. Stoller guarantee of future results and your
Assistant secretary investment may be worth more or less
at the time you sell.
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18
COHEN & STEERS
QUALITY INCOME REALTY FUND
757 THIRD AVENUE
NEW YORK, NEW YORK 10017
Announcing our new open-end fund, Cohen & Steers International Realty Fund
COHEN & STEERS
--------------------------
QUALITY INCOME REALTY FUND
QUARTERLY REPORT
MARCH 31, 2005