--------------------------------------------------------------------------------
                 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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                                       3


 



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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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                                       4


 



--------------------------------------------------------------------------------
                 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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                                       11


 



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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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                                       12


 



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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)
                                                                                                   -----------
                                                                                                   -----------

 
-------------------
(a) Based on LIBOR (London Interbank Offered Rate). Represents rates in effect
    at March 31, 2005.
 
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                                       13


 



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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
                                                            ------------            ------
                                                            ------------            ------

 
-------------------
(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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                                       14


 



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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
 
--------------------------------------------------------------------------------
                                       15


 



--------------------------------------------------------------------------------
                 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.
 
--------------------------------------------------------------------------------
                                       16


 



--------------------------------------------------------------------------------
                 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
 
--------------------------------------------------------------------------------
                                       17


 



--------------------------------------------------------------------------------
                 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.

 
--------------------------------------------------------------------------------
                                       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