Item 1. Report to Shareholders
T. Rowe Price Real Estate Fund
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June 30, 2004
Certified Semiannual Report
This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price Real Estate Fund
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Certified Semiannual Report (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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6 Months Year
Ended Ended
6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
NET ASSET VALUE
Beginning
of period $ 13.65 $ 10.62 $ 10.54 $ 10.19 $ 8.11 $ 8.68
Investment
activities
Net investment
income (loss) 0.30* 0.36 0.38* 0.42* 0.38* 0.37*
Net realized
and unrealized
gain (loss) 0.79 3.26 0.19** 0.46 2.16 (0.49)
Total from
investment
activities 1.09 3.62 0.57 0.88 2.54 (0.12)
Distributions
Net investment
income (0.30) (0.52) (0.47) (0.53) (0.38) (0.37)
Net realized gain - (0.05) - - - -
Tax return
of capital - (0.02) (0.02) - (0.09) (0.08)
Total
distributions (0.30) (0.59) (0.49) (0.53) (0.47) (0.45)
Redemption fees
added to
paid-in-capital - - - - 0.01 -
NET ASSET VALUE
End of period $ 14.44 $ 13.65 $ 10.62 $ 10.54 $ 10.19 $ 8.11
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Ratios/
Supplemental
Data
Total return^ 7.95%* 34.84% 5.38%* 8.87%* 31.92%* (1.23)%*
Ratio of total
expenses to
average
net assets 0.90%*! 1.00% 1.00%* 1.00%* 1.00%* 1.00%*
Ratio of net
investment
income
(loss) to
average
net assets 4.61%*! 3.49% 4.07%* 4.09%* 4.61%* 4.22%*
Portfolio
turnover rate 11.7%! 4.5% 9.8% 37.2% 19.0% 26.9%
Net assets,
end of period
(in thousands) $ 381,499 $ 291,066 $ 131,736 $ 68,720 $ 53,703 $ 24,725
^ 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 0.90% contractual expense limitation in
effect through 4/30/06 and 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 Semiannual Report (Unaudited) June 30, 2004
PORTFOLIO OF INVESTMENTS (1) Shares Value
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(Cost and value in $ 000s)
COMMON STOCKS 98.8%
REAL ESTATE 98.8%
Apartment/ Residential 19.4%
Archstone-Smith Trust, REIT 437,000 12,817
Avalonbay Communities, REIT 212,000 11,982
Camden Property Trust, REIT 233,000 10,672
Equity Residential, REIT 527,000 15,668
Essex Property Trust, REIT 152,000 10,389
Gables Residential Trust, REIT 92,000 3,126
United Dominion Realty Trust, REIT 483,000 9,554
74,208
Diversified 8.1%
Cousins Properties, REIT 180,000 5,931
Rouse, REIT 151,000 7,173
Vornado Realty Trust, REIT 312,000 17,818
30,922
Industrial 10.6%
AMB Property, REIT 357,000 12,363
Centerpoint Properties, REIT 60,000 4,605
EastGroup Properties, REIT 295,000 9,933
ProLogis Trust, REIT 407,000 13,398
40,299
Lodging & Leisure 7.3%
Hilton 198,000 3,694
Host Marriott, REIT * 278,000 3,436
LaSalle Hotel Properties, REIT 185,000 4,514
Marriott, Class A 94,000 4,689
Starwood Hotels & Resorts Worldwide, Class B 174,000 7,804
Strategic Hotel Capital, REIT * 250,000 3,675
27,812
Manufactured Housing 1.9%
Sun Communities, REIT 197,000 7,417
7,417
Office 19.0%
Arden Realty, REIT 190,000 5,588
Boston Properties, REIT 318,000 15,926
CarrAmerica Realty, REIT 368,000 11,125
Equity Office Properties, REIT 432,000 11,750
Mack-Cali Realty, REIT 106,000 4,386
Maguire Properties, REIT 130,000 3,220
Reckson Associates Realty, REIT 282,000 7,744
SL Green Realty, REIT 270,000 12,636
72,375
Office & Industrial 4.1%
Duke Realty, REIT 308,000 9,798
Kilroy Realty, REIT 172,000 5,865
15,663
Other Real Estate 0.7%
Catellus Development, REIT 109,000 2,687
2,687
Regional Mall 10.2%
CBL & Associates Properties, REIT 165,000 9,075
General Growth Properties, REIT 391,000 11,562
Simon Property Group, REIT 356,000 18,305
38,942
Self Storage 1.7%
Public Storage, REIT 141,000 6,487
6,487
Shopping Center 15.8%
Developers Diversified Realty, REIT 207,000 7,322
Federal Realty Investment Trust, REIT 102,000 4,242
Kimco Realty, REIT 219,000 9,965
New Plan Excel Realty, REIT 309,000 7,218
Pan Pacific Retail Properties, REIT 160,000 8,083
Regency Centers, REIT 269,000 11,540
Weingarten Realty, REIT 376,000 11,761
60,131
Total Real Estate 376,943
Total Common Stocks (Cost $309,479) 376,943
SHORT-TERM INVESTMENTS 0.9%
Money Market Fund 0.9%
T. Rowe Price Reserve Investment Fund, 1.16% # 3,370,852 3,371
Total Short-Term Investments (Cost $3,371) 3,371
Total Investments in Securities
99.7% of Net Assets (Cost $312,850) $ 380,314
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(1) Denominated in U.S. dollars unless otherwise noted
# 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 Semiannual Report (Unaudited) June 30, 2004
STATEMENT OF ASSETS AND LIABILITIES
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(In thousands except shares and per share amounts)
Assets
Investments in securities, at value (Cost $312,850) $ 380,314
Other assets 2,738
Total assets 383,052
Liabilities
Total liabilities 1,553
NET ASSETS $ 381,499
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Net Assets Consist of:
Undistributed net investment income (loss) $ 122
Undistributed net realized gain (loss) 177
Net unrealized gain (loss) 67,464
Paid-in-capital applicable to 26,423,446 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 313,736
NET ASSETS $ 381,499
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NET ASSET VALUE PER SHARE $ 14.44
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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 Semiannual Report (Unaudited)
STATEMENT OF OPERATIONS
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($ 000s)
6 Months
Ended
6/30/04
Investment Income (Loss)
Dividend income $ 9,444
Expenses
Investment management 1,054
Shareholder servicing 376
Custody and accounting 54
Prospectus and shareholder reports 41
Registration 40
Legal and audit 7
Directors 3
Miscellaneous 3
Reductions/repayments pursuant to expense limitation
Investment management fees (waived) repaid (34)
Total expenses 1,544
Net investment income (loss) 7,900
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 177
Change in net unrealized gain (loss) on securities 14,945
Net realized and unrealized gain (loss) 15,122
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 23,022
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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 Semiannual Report (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
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($ 000s)
6 Months Year
Ended Ended
6/30/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 7,900 $ 6,795
Net realized gain (loss) 177 3,084
Change in net unrealized gain (loss) 14,945 50,320
Increase (decrease) in net
assets from operations 23,022 60,199
Distributions to shareholders
Net investment income (7,778) (8,868)
Net realized gain - (985)
Tax return of capital - (388)
Decrease in net assets from distributions (7,778) (10,241)
Capital share transactions *
Shares sold 132,885 140,631
Distributions reinvested 6,931 9,296
Shares redeemed (64,795) (40,621)
Redemption fees received 168 66
Increase (decrease) in net assets
from capital share transactions 75,189 109,372
Net Assets
Increase (decrease) during period 90,433 159,330
Beginning of period 291,066 131,736
End of period $ 381,499 $ 291,066
-----------------------------------
(Including undistributed net
investment income of $122 at
6/30/04 and $0 at 12/31/03)
*Share information
Shares sold 9,357 11,591
Distributions reinvested 470 751
Shares redeemed (4,730) (3,416)
Increase (decrease) in shares outstanding 5,097 8,926
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Real Estate Fund
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Certified Semiannual Report (Unaudited) June 30, 2004
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
The fund values its investments and computes its net asset value per share 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, for certain markets, the official closing price at
the time the valuations are made, except for OTC Bulletin Board securities,
which are valued at the mean of the latest bid and asked prices. 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 asked prices for domestic securities and the last quoted sale price for
international securities.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share 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 the T. Rowe Price Valuation Committee,
established by the fund's Board of Directors.
Rebates and Credits
Subject to best execution, the fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the fund in cash. Commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $10,000 for the
six months ended June 30, 2004. Additionally, the fund earns credits on
temporarily uninvested cash balances at the custodian that reduce the fund's
custody charges. Custody expense in the accompanying financial statements is
presented before reduction for credits.
Redemption Fees
A 1% fee is assessed on redemptions of fund shares held less than 6 months to
deter short-term trading and protect the interests of long-term shareholders.
Redemption fees are withheld from proceeds that shareholders receive from the
sale or exchange of fund shares. The fees are paid to the fund, and have the
primary effect of increasing paid-in capital.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Dividends received from
mutual fund investments are reflected as dividend income; capital gain
distributions are reflected as realized gain/loss. Dividend income and capital
gain distributions are recorded on the ex-dividend date. Investment transactions
are accounted for on the trade date. Realized gains and losses are reported on
the identified cost basis. Distributions to shareholders are recorded on the
ex-dividend date. Income distributions are declared and paid on a quarterly
basis. Capital gain distributions, if any, are declared and paid by the fund,
typically on an annual basis.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $98,781,000 and $19,827,000, respectively, for the six months ended
June 30, 2004.
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 under Subchapter M of the
Internal Revenue Code 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.
Financial records are not adjusted for temporary differences. 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, 2004.
At June 30, 2004, the cost of investments for federal income tax purposes was
$312,850,000. Net unrealized gain aggregated $67,464,000 at period-end, of which
$106,685,000 related to appreciated investments and $39,221,000 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 average daily net assets to those of the group. At June 30, 2004,
the effective annual group fee rate was 0.31%, and investment management fee
payable totaled $175,000.
The fund is also subject to a contractual expense limitation through April 30,
2006. During the limitation period, the manager is required to waive its
management fee and reimburse the fund for any expenses, excluding interest,
taxes, brokerage commissions, and extraordinary expenses, that would otherwise
cause the fund's ratio of total expenses to average net assets (expense ratio)
to exceed its expense limitation of 0.90%. Through April 30, 2008, the fund is
required to repay the manager for expenses previously reimbursed and management
fees waived to the extent its net assets have grown or expenses have declined
sufficiently to allow repayment without causing the fund's expense ratio to
exceed its expense limitation. Pursuant to this agreement, at June 30, 2004,
management fees waived remain subject to repayment by the fund in the following
amounts: $122,000 through December 31, 2005 and $34,000 through April 30, 2008
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
subaccounting and recordkeeping services for certain retirement accounts
invested in the fund. Expenses incurred pursuant to these service agreements
totaled $289,000 for the six months ended June 30, 2004, of which $44,000 was
payable at period-end.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the 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 to mutual funds, trusts,
and other accounts managed by Price Associates and/or its affiliates, and are
not available for direct purchase by members of the public. The Reserve Funds
pay no investment management fees. During the six months ended June 30, 2004,
dividend income from the Reserve Funds totaled $40,000.
T. Rowe Price Real Estate Fund
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Certified Semiannual Report
INFORMATION ON PROXY VOTING
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A description of the policies and procedures that the T. Rowe Price Real Estate
Fund uses to determine how to vote proxies relating to portfolio securities is
available, without charge, upon request by calling 1-800-225-5132. It also
appears in the fund's Statement of Additional Information (Form 485B), which can
be found on the SEC's Web site, www.sec.gov.
Item 2. Code of Ethics.
A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions is filed as an
exhibit to the registrant's annual Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the registrant's
most recent fiscal half-year.
Item 3. Audit Committee Financial Expert.
Disclosure required in registrant's annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Disclosure required in registrant's annual Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 11. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed
with the registrant's annual Form N-CSR.
(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.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(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 16, 2004
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 16, 2004
By: /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date: August 16, 2004