Item 1. Report to Shareholders
T. ROWE PRICE REAL ESTATE FUND
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Certified Financials
T. ROWE PRICE REAL ESTATE FUND
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Certified Financials (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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6 Months Year
Ended Ended
6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
NET ASSET VALUE
Beginning of period $ 10.62 $ 10.54 $ 10.19 $ 8.11 $ 8.68 $ 10.69
Investment activities
Net investment
income (loss) 0.26* 0.38* 0.42* 0.38* 0.37* 0.38*
Net realized and
unrealized gain
(loss) 1.11 0.19** 0.46 2.16 (0.49) (1.97)
Total from
investment
activities 1.37 0.57 0.88 2.54 (0.12) (1.59)
Distributions
Net investment
income (0.25) (0.47) (0.53) (0.38) (0.37) (0.40)
Tax return of
capital - (0.02) - (0.09) (0.08) (0.04)
Total
distributions (0.25) (0.49) (0.53) (0.47) (0.45) (0.44)
Redemption fees
added to
paid-in-capital - - - 0.01 - 0.02
NET ASSET VALUE
End of period $ 11.74 $ 10.62 $ 10.54 $ 10.19 $ 8.11 $ 8.68
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Ratios/Supplemental Data
Total return^ 13.02%* 5.38%* 8.87%* 31.92%* (1.23)%* (14.86)%*
Ratio of total
expenses to
average net assets 1.00%*! 1.00%* 1.00%* 1.00%* 1.00%* 1.00%*
Ratio of net
investment income
(loss) to average
net assets 5.00%*! 4.07%* 4.09%* 4.61%* 4.22%* 4.07%*
Portfolio turnover
rate 4.8%! 9.8% 37.2% 19.0% 26.9% 56.8%
Net assets,
end of period
(in thousands) $186,937 $131,736 $68,720 $53,703 $24,725 $27,599
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions and payment of no redemption or account fees.
* Excludes expenses in excess of a 1.00% contractual expense limitation in
effect through 12/31/03.
** The amount presented is calculated pursuant to a methodology prescribed by
the Securities and Exchange Commission for a share outstanding throughout the
period. This amount is inconsistent with the fund's aggregate gains and
losses because of the timing of sales and redemptions of fund shares in
relation to fluctuating market values for the investment portfolio.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE REAL ESTATE FUND
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Certified Financials (Unaudited) June 30, 2003
STATEMENT OF NET ASSETS Shares Value
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In thousands
COMMON STOCKS 97.0%
REAL ESTATE 97.0%
Apartment/ Residential 17.8%
Archstone-Smith Trust, REIT 245,000 $ 5,880
Avalonbay Communities, REIT 99,000 4,221
Camden Property Trust, REIT 153,000 5,347
Equity Residential, REIT 230,000 5,969
Essex Property Trust, REIT 79,000 4,523
Gables Residential Trust, REIT 80,000 2,419
United Dominion Realty Trust, REIT 283,000 4,873
33,232
Diversified 8.7%
Cousins Properties, REIT 132,000 3,683
Rouse, REIT 68,000 2,591
Vornado Realty Trust, REIT 229,000 9,984
16,258
Industrial 9.7%
AMB Property, REIT 190,000 5,352
Centerpoint Properties, REIT 33,000 2,021
EastGroup Properties, REIT 111,000 2,997
ProLogis, REIT 283,000 7,726
18,096
Lodging & Leisure 4.7%
Hilton 200,000 2,558
Innkeepers USA, REIT 145,000 986
LaSalle Hotel Properties, REIT 158,000 2,335
Starwood Hotels & Resorts Worldwide, REIT 101,000 2,888
8,767
Manufactured Housing 3.3%
Manufactured Home Communities, REIT 85,000 2,984
Sun Communities, REIT 83,000 3,262
6,246
Office 21.9%
Arden Realty, REIT 159,000 4,126
Boston Properties, REIT 175,000 7,665
CarrAmerica Realty, REIT 227,000 6,313
Equity Office Properties, REIT 459,000 $ 12,398
Mack-Cali Realty, REIT 68,000 2,474
Maguire Properties, REIT * 108,000 2,079
SL Green Realty, REIT 171,000 5,966
41,021
Office & Industrial 5.5%
Duke Realty, REIT 122,000 3,361
Kilroy Realty, REIT 152,000 4,180
Reckson Associates Realty, REIT 135,000 2,816
10,357
Other Real Estate 1.0%
Catellus Development * 84,000 1,848
1,848
Regional Mall 11.7%
CBL & Associates Properties, REIT 140,000 6,020
General Growth Properties, REIT 105,000 6,556
Simon Property Group, REIT 236,000 9,211
21,787
Self Storage 1.7%
Public Storage, REIT 96,000 3,252
3,252
Shopping Center 11.0%
Kimco Realty, REIT 66,000 2,502
New Plan Excel Realty, REIT 140,000 2,989
Pan Pacific Retail Properties, REIT 98,000 3,856
Regency Centers, REIT 150,000 5,247
Weingarten Realty Investors, REIT 142,000 5,950
20,544
Total Real Estate 181,408
Total Common Stocks (Cost $163,925) 181,408
SHORT-TERM INVESTMENTS 2.1%
Money Market Funds 2.1%
T. Rowe Price Reserve Investment Fund, 1.16% # 3,870,453 3,870
Total Short-Term Investments (Cost $3,870) 3,870
Value
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In thousands
Total Investments in Securities
99.1% of Net Assets (Cost $167,795) $ 185,278
Other Assets Less Liabilities 1,659
NET ASSETS $ 186,937
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Net Assets Consist of:
Undistributed net investment income (loss) $ 118
Undistributed net realized gain (loss) (1,490)
Net unrealized gain (loss) 17,483
Paid-in-capital applicable to 15,922,085
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 170,826
NET ASSETS $ 186,937
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NET ASSET VALUE PER SHARE $ 11.74
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# Seven-day yield
* Non-income producing
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE REAL ESTATE FUND
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Certified Financials (Unaudited)
STATEMENT OF OPERATIONS
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In thousands
6 Months
Ended
6/30/03
Investment Income (Loss)
Income
Dividend $ 4,446
Income distributions from mutual funds 53
Total income 4,499
Expenses
Investment management 409
Shareholder servicing 238
Custody and accounting 45
Prospectus and shareholder reports 25
Registration 21
Legal and audit 7
Directors 3
Miscellaneous 2
Total expenses 750
Expenses paid indirectly (3)
Net expenses 747
Net investment income (loss) 3,752
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 236
Change in net unrealized gain (loss) on securities 15,284
Net realized and unrealized gain (loss) 15,520
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 19,272
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The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE REAL ESTATE FUND
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Certified Financials (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
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In thousands
6 Months Year
Ended Ended
6/30/03 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 3,752 $ 4,206
Net realized gain (loss) 236 846
Change in net unrealized gain (loss) 15,284 (2,955)
Increase (decrease) in net assets from operations 19,272 2,097
Distributions to shareholders
Net investment income (3,634) (5,077)
Tax return of capital - (225)
Decrease in net assets from distributions (3,634) (5,302)
Capital share transactions *
Shares sold 54,749 102,309
Distributions reinvested 3,365 4,952
Shares redeemed (18,587) (41,122)
Redemption fees received 36 82
Increase (decrease) in net assets from capital
share transactions 39,563 66,221
Net Assets
Increase (decrease) during period 55,201 63,016
Beginning of period 131,736 68,720
End of period $ 186,937 $ 131,736
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*Share information
Shares sold 4,924 9,265
Distributions reinvested 298 458
Shares redeemed (1,700) (3,844)
Increase (decrease) in shares outstanding 3,522 5,879
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE REAL ESTATE FUND
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Certified Financials (Unaudited) June 30, 2003
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Real Estate Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end
management investment company and commenced operations on October 31, 1997.
The fund seeks to provide long-term growth through a combination of capital
appreciation and current income.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America,
which require the use of estimates made by fund management.
Valuation
Investments are valued at the close of the New York Stock Exchange (NYSE),
normally 4 p.m. ET, each day that the NYSE is open for business. Equity
securities listed or regularly traded on a securities exchange or in the
over-the-counter market are valued at the last quoted sale price, or
official closing price for certain markets, at the time the valuations are
made. A security that is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market
for such security. Listed securities not traded on a particular day are
valued at the mean of the latest bid and ask prices for domestic securities
and the last quoted sale price for international securities.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Other investments and those for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Expenses Paid Indirectly
Certain security trades are directed to brokers who have agreed to rebate
a portion of the related commission to the fund to pay fund expenses.
Additionally, credits earned on temporarily uninvested cash balances at
the custodian are used to reduce the fund's custody charges. Total
expenses in the accompanying statement of operations are presented before
reduction for rebates and credits, which totaled $3,000 and $0,
respectively, for the six months ended June 30, 2003.
Redemption Fees
A 1% fee is assessed on redemptions of fund shares held less than 6 months.
Such fees are deducted from redemption proceeds and retained by the fund,
and have the primary effect of increasing paid-in capital.
Other
Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $45,987,000 and $3,447,000, respectively, for the
six months ended June 30, 2003.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute to
shareholders all of its taxable income and gains. Federal income tax
regulations differ from generally accepted accounting principles;
therefore, distributions determined in accordance with tax regulations may
differ in amount or character from net investment income and realized gains
for financial reporting purposes. Financial reporting records are adjusted
for permanent book/tax differences to reflect tax character. Temporary
differences are not adjusted. The amount and character of tax-basis
distributions and composition of net assets are finalized at fiscal
year-end; accordingly, tax-basis balances have not been determined as of
June 30, 2003.
The fund intends to retain realized gains to the extent of available
capital loss carryforwards. As of December 31, 2002, the fund had
$1,701,000 of unused capital loss carryforwards, of which $1,463,000
expire in 2007, and $238,000 expire in 2008.
At June 30, 2003, the cost of investments for federal income tax purposes
was $167,795,000. Net unrealized gain aggregated $17,483,000 at period-end,
of which $18,511,000 related to appreciated investments and $1,028,000
related to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides
for an annual investment management fee, which is computed daily and paid
monthly. The fee consists of an individual fund fee, equal to 0.30% of the
fund's average daily net assets, and the fund's pro-rata share of a group
fee. The group fee is calculated based on the combined net assets of
certain mutual funds sponsored by Price Associates (the group) applied to a
graduated fee schedule, with rates ranging from 0.48% for the first $1
billion of assets to 0.295% for assets in excess of $120 billion. The
fund's portion of the group fee is determined by the ratio of its net
assets to those of the group. At June 30, 2003, the effective annual group
fee rate was 0.32%, and investment management fee payable totaled $84,000.
Under the terms of the investment management agreement, the manager is
required to bear any expenses, excluding interest, taxes, brokerage
commissions, and extraordinary expenses, through December 31, 2003, which
would cause the fund's ratio of total expenses to average net assets
(expense ratio) to exceed 1.00%. Thereafter, through December 31, 2005, the
fund is required to reimburse the manager for these expenses, provided that
average net assets have grown or expenses have declined sufficiently to
allow reimbursement without causing the fund's expense ratio to exceed
1.00%. Pursuant to this agreement, $57,000 of management fees were not
accrued by the fund for the six months ended June 30, 2003. At June 30,
2003, unaccrued management fees in the amount of $284,000 remain subject to
reimbursement by the fund through December 31, 2003, and $179,000 through
December 31, 2005.
In addition, the fund has entered into service agreements with Price
Associates and two wholly owned subsidiaries of Price Associates
(collectively, Price). Price Associates computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.
provides shareholder and administrative services in its capacity as the
fund's transfer and dividend disbursing agent. T. Rowe Price Retirement
Plan Services, Inc. provides sub-accounting and recordkeeping services for
certain retirement accounts invested in the fund. Expenses incurred
pursuant to these service agreements totaled $192,000 for the six months
ended June 30, 2003, of which $38,000 was payable at period-end.
The fund may invest in the T. Rowe Price Reserve Investment Fund and T.
Rowe Price Government Reserve Investment Fund (collectively, the Reserve
Funds), open-end management investment companies managed by Price
Associates. The Reserve Funds are offered as cash management options only
to mutual funds, trusts, and other accounts managed by Price Associates
and/or its affiliates, and are not available to the public. The Reserve
Funds pay no investment management fees. Distributions from the Reserve
Funds to the fund for the six months ended June 30, 2003, totaled $53,000.
Item 2. Code of Ethics.
Not required at this time.
Item 3. Audit Committee Financial Expert.
Not required at this time.
Item 4. Principal Accountant Fees and Services.
Not required at this time.
Item 5. Audit Committee of Listed Registrants.
Not required at this time.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) Not required at this time.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Real Estate Fund, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 22, 2003
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date August 22, 2003