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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
October 9, 2003
To Our Shareholders:
We are pleased to submit to you our report for the quarter and nine months
ended September 30, 2003. The net asset value at that date was $16.40. In
addition, during the quarter, three $0.11 per share monthly dividends were
declared and paid.
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 9.7%, bringing the
year to date total return to 32.5%. In September, the fund completed its
previously announced placement of an additional $60 million of auction market
preferred shares. The fund thereafter entered into interest rate swap
transactions in order to reduce the effect that an increase in short-term
interest rates could have on the income potential of the common shares. These
swap transactions have the economic impact of fixing a portion of this
additional leverage at an annual cost of 3.45% over the next five years. The
proceeds of the offering have subsequently been invested in additional REIT
common and preferred securities at dividend yields that we believe should
generate significant incremental net income to the fund's common shareholders.
Bear in mind that, depending on market conditions, leverage may have the effect
of positively or negatively impacting the net asset value of the fund's common
shares.
The REIT bull market rolled on in the third quarter, in a fashion totally
consistent with what we expected at this point in the economic and real estate
cycle. In our view, prices rose because investors recognized the bottoming of
fundamentals, turned their attention to the recovery currently in force and
anticipated that the recovery would continue over the next several quarters. We
believe that recent developments and events validated this price advance. This
has frustrated the growing chorus of REIT skeptics, many of whom believe that
the sector had outperformed for too long and valuations were stretched to
unsustainable levels. Analyst predictions -- such as 'REITs will lag a rising
stock market' and 'REITs are interest rate sensitive' -- never came to pass as
REITs performed well as stock prices rose and interest rates experienced a
record increase.
Widespread expectations by economists that U.S. GDP grew 5% in the third
quarter had a positive impact on most asset classes, with the exception of
long-term bonds. This economic strength was evidenced by improving consumer and
business confidence, strong retail sales, increasing factory orders and growing
manufacturing strength. Despite concerns about the 'jobless recovery,' signs
finally appeared that job losses were abating and, by September, there was an
actual increase in jobs.
Indicators of improving health in the property market abound. Commentators
have noted that vacancy rates in the office sector appear to be nearing their
bottom. The prospect for future job growth should facilitate further improvement
in this sector. In addition, developers and lenders have shown much greater
restraint in this downturn than in the office market in the early 1990s, which
should help the market recover more quickly than it
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
did in the last recession. The apartment sector, which has been battered over
the past several years, showed moderate signs of improvement during the third
quarter. Indicators such as revenue per available room in the hotel industry
turned positive for the first time in over two years, and hotel stocks were the
star performers of the quarter, rising 21%. Retail sales trends and as a result
regional mall fundamentals continued to be very positive and the stocks rose
over 13% in the quarter.
During the quarter, the fund's best performing investments were in the
health care, apartment and regional mall sectors, with each sector contributing
a total return in excess of 10%. The worst performing sector was the diversified
sector, which had a total return of 3.1%. The stock with the most significant
positive impact on the fund's performance was Mills Corp., an owner and operator
of regional malls, while the stock with the most significant negative impact was
Crescent Real Estate Equities, which owns a diversified portfolio of properties,
including office, retail and hotel. REIT preferred stocks underperformed REIT
common stocks during the quarter as a result of the sharp increase in bond
yields during July. While over longer periods of time REIT preferred stocks have
tended to not have a high correlation to the bond market, REIT preferreds would
be expected to underperform during brief periods of rising interest rates, as
was experienced during the third quarter. Importantly, with economic and general
real estate conditions improving, and with so many REITs having taken advantage
of the low interest rate environment to lower their borrowing costs, REITs'
credit profiles are as strong as ever, which we believe should be beneficial to
our REIT preferred holdings.
At the company level, good news far outweighed bad, as a growing number of
REIT managements affirmed or increased earnings guidance, or reported improving
fundamental trends. In the office sector, the recent sale of New York's General
Motors Building for $1.4 billion, nearly $800 per square foot, was a seminal
event. The auction of this property attracted multiple bidders from both the
public and private market and the final selling price far exceeded most
expectations. This transaction provided hard evidence of the value of class A
office properties and in our view had a very positive impact on large New York
office owners such as Vornado Realty Trust (up 36% this year). Whereas office
REITs as a whole have not been the single best performing sector in the REIT
industry, we believe their 22% return this year likely indicates expectations
that service sector job growth will translate into better occupancies and rents
in the future. Responding to strong trends in retail sales, most regional mall
owners have reported double digit earnings increases that have been accompanied
by exceptional dividend increases. Further, the major mall owners have all
completed new property developments or acquisitions that have boosted both
current earnings and prospective growth rates.
The industry-wide improvement in REIT balance sheets and growth prospects
has continued unabated this year. The refinancing or retirement of high cost
debt and preferred stock has improved financial strength and flexibility. This,
in turn, has enhanced equity values. Still, it is notable that unsecured
borrowing by REITs this year, at $6.4 billion, trails the $8.1 billion raised in
the same period last year, suggesting that REITs are taking advantage of low
interest rates without increasing financial leverage. Many companies have taken
advantage of strong stock prices to issue what we consider to be judicious
amounts of common equity. This equity has in many cases been used to replace
debt or make property acquisitions, often contributing to increased earnings.
Whereas
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
some commentators and analysts have argued that equity issuance is a warning
sign, the $3.8 billion in common equity raised in the first nine months of 2003
significantly trails the $4.7 billion raised in the same period of 2002. (As a
point of reference, the record for REIT equity issuance was $20 billion in
1997.) Further, considering that the equity market capitalization of the REIT
industry is now over $200 billion, this equity issuance is rather insignificant.
Many commentators and analysts have attributed the REIT rally simply to
money flows, implying that rising prices are exclusively the result of
irrational technical factors rather than fundamental factors. Indeed, while $3.0
billion has been invested in real estate mutual funds so far this year, this is
well below absolute levels experienced historically. (As with equity issuance,
fund inflows reached their peak in 1997, with $4.1 billion of new assets being
invested in real estate mutual funds.) Further, as a percentage of the existing
$23.5 billion in fund assets, it is an even less significant statistic. This
flow of funds, in our opinion, is the result of the aforementioned fundamental
factors. To believe that funds flows are the drivers of bull markets in our view
places cause and effect in reverse order. Demand for an asset class is based on
its investment merits, and that is what causes money to flow into that asset
class.
INVESTMENT OUTLOOK
Perhaps the most passionate debate in the REIT industry revolves around the
current level of stock valuations. Following their strong price advance this
year, REITs are trading, on average, at a modest premium to net asset value
(NAV), approximately 5% to 10% compared to their long-term average of 0%. In
addition, they are trading at a price/cash flow multiple of 11.5, above their
long-term average of 11.3. REIT skeptics assert that this limits any further
upside price potential, and makes them vulnerable to a price decline.
Overlooked, however, is the fact that improving fundamentals are already
translating into higher earnings -- thereby resulting in declining future
price/cash flow ratios. Similarly, as property level cash flows increase, so are
underlying property values. Almost every company that has reported or forecasted
improving operations has seen Wall Street earnings estimates and NAV estimates
rise, sometimes substantially.
Just as fundamental events have validated price movements to date, further
strong returns from REITs (as well as stocks in general), will require the
anticipation of ongoing improvement in economic and real estate fundamentals. As
this economic recovery proceeds, we expect continued increases in increasing
earnings and NAV estimates. As long as this prospect remains intact, we would
expect share prices to perform in accordance.
One further factor often overlooked is the access to capital and
acquisitions that is available to most of the established high quality REITs.
Their strengthened balance sheets have provided them with wide flexibility in
acquiring and financing property. Their access to public and private debt and
equity capital is simply unprecedented. Just a few of the many examples are the
international joint ventures the ProLogis company has established, raising over
$1 billion of equity for investment in Europe and Asia. AMB Property Corp. has
raised $200 million for the acquisition of domestic industrial properties.
Health Care Property Investors has raised $200
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
million of equity in a joint venture to purchase medical office buildings. CBL &
Associates and Developers Diversified have sold large shopping center portfolios
to newly created companies in Australia, while retaining the management of them.
As investor appetite for real estate has grown, more and more REITs are becoming
the beneficiaries of this capital, and they are seeing more and more attractive
acquisition opportunities. This has enabled them to achieve a competitive rate
of return on new investments as well as to earn management and incentive fees.
Again, we expect these transactions to boost both current and future earning
power.
A vast number of investors have become more interested in current income,
due no doubt to the combination of market volatility, the low interest rate
environment and the general focus on dividends brought on by the recently
enacted legislation reducing the tax on corporate dividends. (REITs are excluded
from this lower tax rate.) Strong dividend income, and indeed the possibility
for dividend growth, are an important part of this equation and the REIT
industry remains on the forefront of delivering growing income to shareholders.
Despite the softest real estate market in 10 years and flat to declining cash
flows industry-wide, REIT managements were able to add value by making judicious
investment decisions and taking advantage of favorable capital and financing
markets. This is demonstrated by the fact that REIT dividends, based on a
weighted average of the 100 largest companies in the NAREIT Equity REIT Index,
grew in 2002 at a 3.5% rate and continue to grow so far in 2003, at a 3.4% rate.
We expect 48 of these 100 largest REITs to increase their dividends this year
while only six will have reduced them. In our view, this year should be the
trough year for REIT earnings, and we expect the rate of dividend growth to rise
in 2004 and accelerate thereafter. Therefore, just like in the price/cash flow
ratio and NAV analyses, we believe the current average REIT dividend yield (6.0%
at quarter-end) must be viewed in the context of future growth potential as
well.
With respect to our outlook for the major property sectors, our portfolio
weights reflect our view that the office sector is in the early stages of
recovery, while it still has some of the lowest valuations. Regional mall growth
rates have remained strong and valuations have remained favorable; however,
their dividend yields have been driven down, causing us to slightly lower our
position in this sector. Rising interest rates and the creation of new jobs have
begun to improve apartment demand, and we have increased our holdings in this
sector accordingly. Industrial valuations appear to already anticipate an early
recovery in fundamentals, which coupled with the lack of satisfactory yield has
caused us to maintain a low weighting in this sector. While shopping center
fundamentals have remained sound, we believe the sector is fully valued and
likely to experience a slowing growth rate.
Notwithstanding our long-term view of REIT industry prospects, we believe it
would not be reasonable to expect a continuation of the extraordinary returns
REITs have delivered so far this year. While we do not consider REITs to be
expensive, the undervaluation they may have experienced in recent years has in
our view been corrected. Our forecast is for a reversion to the long-term
average total return--which was 11.6% for the 10-year period ended September
30, 2003--with most of that return coming from dividends. Successful
investing, particularly in real estate, requires a long-term time horizon. It is
therefore ironic that so many real estate analysts have adopted a posture that
embraces short-term market-timing. If we have learned anything from the past few
tumultuous years of the securities markets, it is that market-timing is a trap
for the unsophisticated. We believe
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
more than ever in the power of REITs to deliver competitive total returns over
the long-term while providing investors with excellent portfolio diversification
benefits.
Sincerely,
Signature: MARTIN COHEN Signature: ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
Signature: GREG E. BROOKS
GREG E. BROOKS
Portfolio Manager
Cohen & Steers is online at COHENANDSTEERS.COM
We have enhanced both the look and features of our Web site
to give you more information about our company, our funds
and the REIT market in general. Check out our interactive
Asset Allocation Tool, which allows you to hypothetically
add REITs to any portfolio to see how they impact expected
total returns and risk. Or try the Fund Performance
Calculator and see how our funds have performed versus the
S&P 500 Index or Nasdaq Composite. As always, you can also
get daily net asset values, fund fact sheets, portfolio
highlights, recent news articles and our overall insights on
the REIT market.
So visit us today at COHENANDSTEERS.COM
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD(a)
---------- ------------ --------
EQUITIES 152.34%
COMMON STOCK 117.39%
DIVERSIFIED 14.18%
Colonial Properties Trust............................ 557,300 $ 20,079,519 7.38%
Crescent Real Estate Equities Co..................... 1,396,200 20,244,900 10.34
iStar Financial...................................... 371,400 14,466,030 6.80
Newcastle Investment Corp. .......................... 109,600 2,519,704 8.70
Vornado Realty Trust................................. 687,443 33,024,762 5.66
------------
90,334,915
------------
HEALTH CARE 16.97%
Health Care Property Investors....................... 575,200 26,861,840 7.11
Health Care REIT..................................... 969,625 29,912,931 7.59
Nationwide Health Properties......................... 1,205,300 21,080,697 8.46
Ventas............................................... 1,766,500 30,242,480 6.25
------------
108,097,948
------------
HOTEL 1.05%
Hospitality Properties Trust......................... 191,400 6,714,312 8.21
------------
INDUSTRIAL 4.64%
First Industrial Realty Trust........................ 614,500 19,707,015 8.54
Keystone Property Trust.............................. 484,900 9,824,074 6.52
------------
29,531,089
------------
OFFICE 35.46%
Arden Realty......................................... 826,800 23,084,256 7.23
Brandywine Realty Trust.............................. 1,140,900 29,309,721 6.85
CarrAmerica Realty Corp.............................. 1,010,600 30,166,410 6.70
Equity Office Properties Trust....................... 1,314,400 36,185,432 7.26
Highwoods Properties................................. 908,800 21,683,968 7.12
Mack-Cali Realty Corp................................ 1,073,800 42,092,960 6.43
Maguire Properties................................... 604,800 12,398,400 7.80
Prentiss Properties Trust............................ 1,000,200 31,006,200 7.23
------------
225,927,347
------------
-------------------
(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.
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- ------------ --------
OFFICE/INDUSTRIAL 9.23%
Kilroy Realty Corp. ................................. 142,600 $ 4,071,230 6.94%
Liberty Property Trust............................... 1,065,200 39,391,096 6.54
Reckson Associates Realty Corp.--Class B............. 663,800 15,366,970 11.19
------------
58,829,296
------------
RESIDENTIAL--APARTMENT 17.67%
AMLI Residential Properties Trust.................... 24,100 631,420 7.33
Apartment Investment & Management Co. ............... 516,100 20,313,696 8.33
Archstone-Smith Trust................................ 754,100 19,893,158 6.48
AvalonBay Communities................................ 307,200 14,376,960 5.98
Camden Property Trust................................ 366,600 14,088,438 6.61
Gables Residential Trust............................. 586,900 18,968,608 7.46
Home Properties...................................... 361,600 14,174,720 6.22
Mid-America Apartment Communities.................... 272,700 8,230,086 7.75
Post Properties...................................... 70,000 1,906,100 6.61
------------
112,583,186
------------
SELF STORAGE 0.45%
Sovran Self Storage.................................. 86,400 2,864,160 7.27
------------
SHOPPING CENTER 17.74%
COMMUNITY CENTER 6.00%
Heritage Property Investment Trust................... 253,500 7,321,080 7.27
Kramont Realty Trust................................. 1,293,300 21,921,435 7.67
New Plan Excel Realty Trust.......................... 70,600 1,644,980 7.08
Urstadt Biddle Properties--Class A................... 544,000 7,344,000 6.22
------------
38,231,495
------------
REGIONAL MALL 11.74%
CBL & Associates Properties.......................... 50,000 2,495,000 5.25
Glimcher Realty Trust................................ 605,200 12,751,564 9.11
Macerich Co. ........................................ 807,857 30,496,602 6.04
Mills Corp. ......................................... 737,400 29,016,690 5.74
------------
74,759,856
------------
TOTAL SHOPPING CENTER................................ 112,991,351
------------
TOTAL COMMON STOCK (Identified
cost--$673,428,925)........................... 747,873,604
------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- ------------ --------
PREFERRED STOCK 34.95%
DIVERSIFIED 6.68%
Colonial Properties Trust, 8.125%, Series D.......... 64,900 $ 1,687,400 7.81%
Crescent Real Estate Equities Co., 6.75%, Series A
(Convertible)(a).................................. 1,826,000 36,976,500 8.35
iStar Financial, 7.80%, Series F..................... 94,600 2,388,650 7.72
Newcastle Investment Corp., 9.75%, Series B.......... 56,000 1,514,800 9.02
------------
42,567,350
------------
HEALTH CARE 0.43%
Health Care Property Investors, 8.70%, Series B...... 9,600 239,808 8.73
LTC Properties, 8.50%, Series E...................... 90,600 2,491,500 7.75
------------
2,731,308
------------
HOTEL 7.28%
FelCor Lodging Trust, 9.00%, Series B................ 652,500 16,058,025 9.14
Host Marriott Corp., 10.00%, Series A................ 7,000 176,750 9.90
Host Marriott Corp., 10.00%, Series B................ 14,100 351,795 10.02
Host Marriott Corp., 10.00%, Series C................ 30,700 767,500 10.00
Innkeepers USA Trust, 8.625%, Series A............... 80,300 2,015,530 8.61
LaSalle Hotel Properties, 10.25%, Series A........... 1,000,000 27,000,000 9.48
------------
46,369,600
------------
INDUSTRIAL 0.31%
Keystone Property Trust, 9.125%, Series D............ 75,000 1,991,250 8.59
------------
OFFICE 2.77%
CarrAmerica Realty Corp., 8.55%, Series C............ 46,600 1,175,252 8.49
HRPT Properties Trust, 8.75%, Series B............... 120,000 3,217,200 8.17
Highwoods Properties, 8.625%, Series A............... 13,195 13,244,481 8.59
------------
17,636,933
------------
OFFICE/INDUSTRIAL 0.09%
PS Business Parks, 9.25%, Series A................... 10,800 276,210 9.03
PS Business Parks, 8.75%, Series F................... 4,100 109,060 8.23
ProLogis, 8.54%, Series C............................ 4,000 223,750 7.63
------------
609,020
------------
-------------------
(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, 2003 (UNAUDITED)
NUMBER DIVIDEND
OF SHARES VALUE YIELD
---------- ------------ --------
RESIDENTIAL--APARTMENT 5.42%
Apartment Investment & Management Co., 8.75%,
Series D........................................... 5,530 $ 138,527 8.74%
Apartment Investment & Management Co., 10.10%,
Series R........................................... 950,000 25,270,000 9.40
Home Properties, 9.00%, Series F..................... 196,000 5,512,500 8.00
Mid-America Apartment Communities, 8.30%, Series H... 138,100 3,604,410 7.97
------------
34,525,437
------------
SHOPPING CENTER 11.97%
COMMUNITY CENTER 6.16%
Commercial Net Lease Realty, 9.00%, Series A......... 25,000 668,750 8.41
Developers Diversified Realty Corp., 8.60%,
Series F........................................... 1,039,400 27,751,980 8.05
Federal Realty Investment Trust, 8.50%, Series B..... 310,300 8,378,100 7.89
Urstadt Biddle Properties, 8.50%, Series C........... 24,000 2,442,000 8.35
------------
39,240,830
------------
OUTLET CENTER 0.11%
Chelsea Property Group, 8.375%, Series A............. 14,000 727,125 8.07
------------
REGIONAL MALL 5.70%
CBL & Associates Properties, 8.75%, Series B(a)...... 430,000 23,284,500 8.09
Glimcher Realty Trust, 8.75%, Series F............... 40,000 1,024,000 8.55
Mills Corp., 9.00%, Series B......................... 55,300 1,470,980 8.46
Mills Corp., 9.00%, Series C......................... 159,600 4,261,320 8.43
Mills Corp., 8.75%, Series E......................... 84,000 2,221,800 8.28
Simon Property Group, 8.75%, Series F................ 30,000 807,600 8.14
Taubman Centers, 8.30%, Series A..................... 127,600 3,212,968 8.26
------------
36,283,168
------------
TOTAL SHOPPING CENTER................................ 76,251,123
------------
TOTAL PREFERRED STOCK (Identified
cost--$208,182,170)........................... 222,682,021
------------
TOTAL EQUITIES (Identified
cost--$881,611,095)........................... 970,555,625
------------
-------------------
(a) 158,000 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, 2003 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
----------- ------------
COMMERCIAL PAPER 3.78%
UBS Financial, 0.90%, due 10/1/03
(Identified cost -- $24,060,000).............. $24,060,000 $ 24,060,000
------------
TOTAL INVESTMENTS (Identified
cost--$905,671,095) .......................... 156.12% 994,615,625
LIABILITIES IN EXCESS OF OTHER ASSETS .......... (2.75)% (17,538,613)
LIQUIDATION VALUE OF TAXABLE AUCTION MARKET
PREFERRED SHARES:
SERIES T, SERIES W, SERIES TH, SERIES F AND
SERIES M28 (Equivalent to $25,000 per share
based on 2,800 shares outstanding for Series T,
Series W, Series TH and Series F and
2,400 shares outstanding for Series M28) ..... (53.37)% (340,000,000)
------------
NET ASSETS--COMMON STOCK (Equivalent to $16.40 per
share based on 38,856,074 shares of capital
stock outstanding) ........................... 100.00% $637,077,012
------------
------------
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
SCHEDULE OF INVESTMENTS--(CONTINUED)
SEPTEMBER 30, 2003 (UNAUDITED)
NOTE 1. INVESTMENTS IN INTEREST RATE SWAPS
The fund has entered into interest rate swap transactions with Merrill Lynch
Derivative Products and UBS AG. 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 158,000 shares of CBL &
Associates Properties, 8.75%, Series B and 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, 2003 are as follows:
NOTIONAL FIXED FLOATING RATE(a) TERMINATION UNREALIZED
COUNTERPARTY AMOUNT RATE (RESET MONTHLY) DATE DEPRECIATION
------------ ------ ---- --------------- ---- ------------
Merrill Lynch Derivative
Products.................... $46,000,000 4.560% 1.120% 4/5/2005 $ (2,091,046)
Merrill Lynch Derivative
Products.................... $46,000,000 5.210% 1.120% 4/5/2007 $ (4,071,071)
Merrill Lynch Derivative
Products.................... $46,000,000 5.580% 1.120% 4/5/2009 $ (5,160,166)
UBS AG........................ $24,000,000 4.450% 1.120% 4/15/2005 $ (1,065,773)
UBS AG........................ $24,000,000 5.120% 1.120% 4/15/2007 $ (2,055,487)
UBS AG........................ $24,000,000 5.495% 1.120% 4/15/2009 $ (2,594,411)
------------
$(17,037,954)
------------
------------
-------------------
(a) Based on LIBOR (London Interbank Offered Rate).
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COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
FINANCIAL HIGHLIGHTS(a)
SEPTEMBER 30, 2003 (UNAUDITED)
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
--------------------------- ---------------
NET ASSET VALUE:
Beginning of period: 12/31/02.............. $511,951,856 $13.25
Net investment income.................. $ 40,357,349 $ 1.03
Net realized and unrealized gain on
investments and interest rate swap
transactions........................ 123,193,784 3.19
Offering and organization costs charged
to paid in capital--Preferred
shares.............................. (935,773) (0.02)
Distributions from net investment income
to:
Common shareholders.................... (37,804,867) (0.98)
Preferred shareholders................. (2,723,352) (0.07)
Capital stock transactions:
Distributions reinvested.......... 3,038,015
------------
Net increase in net asset value............ 125,125,156 3.15
------------ ------
End of period: 9/30/03..................... $637,077,012 $16.40
------------ ------
------------ ------
AVERAGE ANNUAL TOTAL RETURNS(b)
(PERIODS ENDED SEPTEMBER 30, 2003) (UNAUDITED)
ONE YEAR SINCE INCEPTION (2/28/02)
-------- -------------------------
31.52% 24.53%
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) Financial information included in this report has been taken from the
records of the fund without examination by independent accountants.
(b) 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:
LOGO OF COHEN & STEERS LOGO OF COHEN & STEERS
EQUITY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH DIVIDEND IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
YIELD AND CAPITAL APPRECIATION, INVESTING RETURN THROUGH BOTH CURRENT INCOME AND
PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY IN
REITS
A, B, C AND I SHARES AVAILABLE
SYMBOL: CSRSX
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX
FOR CAPITAL APPRECIATION: FOR TOTAL RETURN:
LOGO OF COHEN & STEERS LOGO OF COHEN & STEERS
SPECIAL EQUITY FUND INSTITUTIONAL REALTY SHARES
IDEAL FOR INVESTORS SEEKING MAXIMUM CAPITAL IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
APPRECIATION, INVESTING IN A LIMITED NUMBER RETURN THROUGH BOTH CURRENT INCOME AND
OF REITS AND OTHER REAL ESTATE COMPANIES CAPITAL APPRECIATION, INVESTING PRIMARILY IN
REITS
CONCENTRATED, HIGHLY FOCUSED PORTFOLIO OFFERS LOW TOTAL EXPENSE RATIO
SYMBOL: CSSPX HIGHER MINIMUM PURCHASE REQUIRED
SYMBOL: CSRIX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-REIT, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT EACH FUND INCLUDING ALL CHARGES
AND EXPENSES, AND SHOULD BE READ CAREFULLY BEFORE YOU INVEST.
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
Gregory C. Clark FUND SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
Bonnie Cohen Boston, MA 02110
Director
TRANSFER AGENT--COMMON SHARES
George Grossman Equiserve Trust Company
Director 150 Royall Street
Canton, MA 02021
Richard J. Norman (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
Greg E. Brooks
Vice president LEGAL COUNSEL
Simpson Thacher & Bartlett
Adam Derechin 425 Lexington Avenue
Vice president and assistant treasurer 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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15
LOGO OF COHEN & STEERS
QUALITY INCOME REALTY FUND
QUARTERLY REPORT
SEPTEMBER 30, 2003
COHEN & STEERS
QUALITY INCOME REALTY FUND
757 THIRD AVENUE
NEW YORK, NY 10017