Item 1. Report to Shareholders
DECEMBER 31, 2004
REAL ESTATE FUND
Annual Report
T. ROWE PRICE
The views and opinions in this report were current as of December 31, 2004. They
are not guarantees of performance or investment results and should not be taken
as investment advice. Investment decisions reflect a variety of factors, and the
managers reserve the right to change their views about individual stocks,
sectors, and the markets at any time. As a result, the views expressed should
not be relied upon as a forecast of the fund's future investment intent. The
report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual
funds and other public companies to affirm that, to the best of their knowledge,
the information in their financial reports is fairly and accurately stated in
all material respects.
REPORTS ON THE WEB
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T. Rowe Price Real Estate Fund
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Fellow Shareholders
Real estate securities enjoyed another strong year, with real estate investment
trusts (REITs) advancing more than 30% on average for the second year in a row.
Results for our sector of the market outperformed the broad Standard & Poor's
500 Stock Index for the fifth consecutive year. However, we caution investors
that these returns are above the historical trend line and are unsustainable
long term. Nevertheless, performance in 2004 is a telling example of the dangers
of attempting to time markets after sterling returns the year before, and we
encourage shareholders to remain diversified (see our comments under "Investment
Strategy" below).
Performance Comparison
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Periods Ended 12/31/04 6 Months 12 Months
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Real Estate Fund 26.74% 36.82%
Wilshire Real Estate Securities Index 26.05 34.81
Lipper Real Estate Funds Index 24.87 32.13
Your fund delivered excellent absolute and relative returns over the 6- and
12-month periods ended December 31, 2004. Performance compared favorably with
both the Lipper Real Estate Funds Index and the Wilshire Real Estate Securities
Index, as can be seen in the accompanying table.
While results were strong across the broad real estate spectrum, the
fundamentals varied widely among different property types. For example,
retail-oriented properties continued to experience strong demand, which
translated into solid income gains, while office-related properties struggled
with significant vacancies and falling rents. Although office and apartment
properties faced challenging environments, the prospects for improving
fundamentals led investors to reward these segments as well with sizable
returns.
DIVIDEND DISTRIBUTION
On December 13, 2004, your fund's Board of Directors declared a fourth-quarter
income dividend of $0.05 per share, bringing full-year distributions to $0.49.
The fourth-quarter distribution was paid on December 15 to shareholders of
record on December 13. Remember to use your Form 1099-DIV, not your year-end
statement, for tax filing purposes. As reported on the 1099-DIV, a portion of
the fund's income distribution was reclassified as a long-term capital gain.
INVESTMENT STRATEGY
We would like to welcome many new investors who joined the fund in 2004. In our
previous letter to shareholders, we cautioned investors who had grown bearish on
real estate stocks because of past performance that market-timing can be a
mistake. Consequently, investors who ignored this segment of the market last
year because of strong returns in 2003 found that their decision to time the
market cost them dearly. We would like to reiterate that we are not
market-timers ourselves since we regard it to be a futile exercise. It is
important to remain diversified across various segments of the investment
spectrum, and a well-diversified portfolio remains the best approach for
investors with a long-term perspective.
Although we have described our investment philosophy in prior letters, this is
an opportune time to provide you with a brief outline of our investment
objectives. We believe that real estate investments have a place within a
broadly diversified portfolio of assets. Our focus as managers is to provide
shareholders with a quality portfolio of commercial real estate opportunities
that are diversified both by property type and by geography. It is our desire to
identify, partner with, and invest in the best real estate franchises over the
long term. We employ a risk-aware, fundamental bottom-up approach in our search
for rewarding opportunities. Our focus on the long term has resulted in a
turnover rate that has historically been well below our peer group average since
the fund's inception. This strategy has served shareholders well over the years,
as can be seen in the average annual compound total return table for the
one-year, five-year, and since-inception periods ended December 31, 2004. The
table, along with a graph showing the growth of $10,000 versus our benchmarks
since the fund commenced operations in 1997, can be found following this letter.
MARKET ENVIRONMENT AND STRATEGY
The U.S. economy continued to show promising, yet uneven, signs of improvement
in 2004. Despite stubbornly high energy prices, GDP grew at a healthy pace. Job
creation advanced throughout the year, although somewhat sluggishly at times.
Nonetheless, approximately two million jobs were created in 2004, and we stress
again that job growth is crucial to the health of real estate as commercial
properties rely on the demand fostered by economic growth and job formation.
While the Fed raised short-term interest rates in increments from late-June
through December, longer-term rates were virtually unchanged at the end of the
year. In this environment, investors sought alternatives for higher potential
returns, including real estate investments. Consequently, real estate properties
and real estate securities benefited from strong demand. Historically, income
distributions have provided the majority of returns in real estate securities,
but price appreciation has accounted for the bulk of performance during the past
two years. Overall earnings growth has been somewhat muted, implying that much
of the appreciation was fueled by price/earnings expansion within our universe.
As investors, we would prefer to see intrinsic earnings growth drive price
appreciation rather than multiple expansion, and we caution that a compression
of multiples is a risk in our sector. On the other hand, it is possible that
earnings growth from improved property-level fundamentals could counterbalance
the risk of compression.
Fundamentally, we see improvement in some sectors that had previously suffered.
Within the apartment and office sectors, occupancies have picked up in some
areas. During a recovery, occupancies often increase before pricing power is
achieved, which appears to be the case this time. As a result, the improvement
in occupancy has taken place in an environment where rental rates are being
challenged as leases expire and new rates are negotiated. Weakness in the office
and apartment segments, however, stands in stark contrast to the strong
fundamentals in retail properties that have been experiencing robust demand
along with pricing power.
Much has been made of the prices being paid for both real estate properties and
securities. While it is easy to point to some valuations above historical
averages, this situation is reflective of strong private market valuations. In
other words, we see no obvious disconnect between public and private real estate
valuations - although we cannot rule out the possibility that private market
valuations are somewhat rich.
These valuations have generated unusual opportunities for our public companies
to harvest uncommon prices and profits. Many of our holdings are actively
selling properties to private parties in an effort to create shareholder value.
Indeed, companies such as Archstone-Smith Trust, Catellus Development, and
Cousins Properties sold significant portions of their portfolios to private
buyers and made special cash distributions to public shareholders as a result.
We believe these are characteristic of
the benefits available to public real estate companies that can dynamically
exploit opportunities between public and private markets.
PORTFOLIO REVIEW
Retail property investments continued to make strong absolute contributions to
performance, abetted by strength in the office, apartment, and lodging sectors
whose fundamentals have not fared as well in the recent economic climate. We
maintained a broadly diversified portfolio and thus benefited widely.
Industry Diversification
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Percent of Net Assets
6/30/04 12/31/04
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Office 19.0% 20.0%
Apartment/Residential 19.4 17.8
Shopping Center 15.8 15.2
Regional Mall 10.2 11.9
Industrial 10.6 10.8
Lodging and Leisure 7.3 9.2
Diversified 8.1 5.5
Office and Industrial 4.1 3.2
Other Real Estate 0.7 2.1
Self Storage 1.7 1.6
Manufactured Housing 1.9 1.2
Other and Reserves 1.2 1.5
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Total 100.0% 100.0%
Historical weightings reflect current industry/sector classifications.
Lodging continued to show signs of recovery, which has proven a challenging
process in the post-9/11 environment. Property level fundamentals are benefiting
from strong year-over-year growth, and companies are again focused on expanding
and growing revenues, not just on cutting expenses. In our June 2004 letter, we
mentioned that we had begun to increase our exposure to a lodging recovery. We
had maintained positions in quality names such as Starwood Hotels & Resorts
Worldwide and LaSalle Hotel Properties, which were nicely rewarded during the
recovery; indeed the former was among the top-performing REITs in 2004. More
recent additions, including Host Marriott, also provided impressive returns. We
thought it encouraging that the company resumed paying dividends that were
interrupted after 9/11. As total return investors, we welcome income
distributions and are pleased to note that all of our holdings declared cash
distributions in 2004. (Please refer to our portfolio of investments for a
complete listing of fund holdings and the amount each represents of the
portfolio.)
Once again we are able to highlight the positive contributions of our retail
holdings, including our largest position Simon Property Group. Despite some
uncertainty in the U.S. economy, consumers have continued to spend, which has
supported the retail sector. Exceptionally strong demand for quality retail
properties was exhibited in the premium all-cash bid for our Rouse Company
shares. While we benefited substantially as a result, we were nonetheless a bit
saddened to part with our Rouse holding, which had been such a rewarding
investment over time. We continue to see value in quality mall assets and
reinvested some proceeds from the Rouse sale in Macerich and Mills. Macerich
controls a collection of premier regional malls largely positioned in western
states, while Mills holds a more broadly diversified portfolio of regional
malls. Each investment has its own merits, with Macerich offering potential
benefits from a portfolio of redevelopment opportunities while Mills provides
unique opportunities to profit from ground-up development projects.
We added shares of Plum Creek Timber, a REIT that holds about eight million
acres of timberland. The company regularly seeks the best uses for its land and
will sell acreage when it believes there is a better alternative use for it. For
land that remains in Plum Creek's core business of producing timber, there is an
excellent investment profile. Timber growers have the option to harvest and sell
timber when the markets seem favorable, and an option to curtail sales when the
markets are less cooperative. It can be beneficial in the long run to
temporarily halt sales, since unharvested timber continues to grow, resulting in
greater quantity and better product quality for harvesting when markets are
again favorable. Prospects at the company appeared to be improving, and we felt
the 2004 dividend increase reflected management's confidence.
OUTLOOK
Job creation should continue to expand, bringing with it brightening prospects
for further real estate demand. The construction pipeline remains largely in
balance, and a recovery in demand is crucial to maintaining the stream of
property income. We are currently estimating modest single-digit earnings growth
on average for real estate companies, based on a continuation of the economic
recovery. We do note that rising interest rates can pose a risk to our sector,
and that price/earnings compression can be a formidable threat even in the face
of improving earnings, as mentioned earlier. Nevertheless, we are generally
encouraged by signs of improving real estate fundamentals, which underpin the
long-run prospects of continuing cash generation from our portfolio companies.
As always, we appreciate your confidence in the fund and will remain focused on
managing the portfolio with a long-term perspective.
Respectfully submitted,
David M. Lee
President of the fund and chairman of its Investment Advisory Committee
January 21, 2005
The committee chairman has day-to-day responsibility for managing the portfolio
and works with committee members in developing and executing the fund's
investment program.
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RISKS OF INVESTING
The fund's share price can fall because of weakness in the stock market, a
particular industry, or specific holdings. Stock markets can decline for many
reasons, including adverse political or economic developments, changes in
investor psychology, or heavy institutional selling. The prospects for an
industry or company may deteriorate because of a variety of factors, including
disappointing earnings or changes in the competitive environment. In addition,
the investment manager's assessment of companies held in a fund may prove
incorrect, resulting in losses or poor performance even in rising markets.
Funds that invest only in specific industries will experience greater volatility
than funds investing in a broad range of industries. Due to its concentration in
the real estate industry, the fund's share price could be more volatile than
that of a fund with a broader investment mandate. Trends perceived to be
unfavorable to real estate, such as changes in the tax laws or rising interest
rates, could cause a decline in share prices.
GLOSSARY
Beta: A measure of the market risk of a portfolio showing how responsive the
fund is to a given market index. By definition, the beta of the benchmark index
is 1.00. A fund with a 1.10 beta is expected to perform 10% better than the
index in up markets and 10% worse in down markets. Usually, higher betas
represent riskier investments.
Capitalization rate: A ratio, shown as a percentage rate, that estimates the
present value of an income-producing asset. Riskier investments have higher
capitalization rates and lower present values.
Lipper indexes: Fund benchmarks that consist of a small number (10 or 30) of the
largest mutual funds in a particular category as tracked by Lipper Inc.
Price/earnings ratio (or multiple): A valuation measure calculated by dividing
the price of a stock by its current or projected earnings per share. This ratio
gives investors an idea of how much they are paying for current or future
earnings power.
Real estate investment trusts (REITs): Publicly traded companies that own,
develop, and operate apartment complexes, hotels, office buildings, and other
commercial properties.
Wilshire Real Estate Securities Index: A market capitalization-weighted index
composed of publicly traded real estate investment trusts and real estate
operating companies.
T. Rowe Price Real Estate Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/04
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Simon Property Group 5.1%
Vornado Realty Trust 4.4
Equity Office Properties 4.2
Boston Properties 3.9
Archstone-Smith Trust 3.8
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Equity Residential 3.5
ProLogis 3.2
Camden Property Trust 3.1
AMB Property 3.0
SL Green Realty 2.7
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Starwood Hotels & Resorts Worldwide 2.7
CarrAmerica Realty 2.6
Avalonbay Communities 2.6
Regency Centers 2.5
EastGroup Properties 2.5
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Weingarten Realty Investors 2.4
Kimco Realty 2.4
Essex Property Trust 2.2
Reckson Associates Realty 2.2
United Dominion Realty Trust 2.1
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General Growth Properties 2.1
Developers Diversified Realty 2.0
New Plan Excel Realty 2.0
Duke Realty 2.0
Pan Pacific Retail Properties 1.9
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Total 71.1%
Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund.
T. Rowe Price Real Estate Fund
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Portfolio Highlights
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/04
Largest Purchases Largest Sales
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Equity Office Properties Rouse **
Macerich Company * CBL & Associates Properties
Simon Property Group General Growth Properties
Camden Property Trust
Archstone-Smith Trust
Mills *
Federal Realty Investment Trust
Host Marriott
Plum Creek Timber *
St. Joe *
* Position added
** Position eliminated
T. Rowe Price Real Estate Fund
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Growth of $10,000
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
[Graphic Omitted]
Real Estate Fund
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As of 12/31/04
Real Estate Fund $ 25,315
Wilshire Real Estate Securities Index $ 22,955
Lipper Real Estate Funds Index $ 21,508
Wilshire Lipper
Real Estate Real Estate Real
Securities Funds Estate
Index Index Fund
10/31/97 $ 10,000 $ 10,000 $ 10,000
12/97 10,428 10,356 10,782
12/98 8,611 8,583 9,180
12/99 8,337 8,280 9,067
12/00 10,899 10,396 11,961
12/01 12,038 11,448 13,022
12/02 12,319 11,863 13,722
12/03 16,930 16,278 18,503
12/04 22,955 21,508 25,315
Average Annual Compound Total Return
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This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Since
Inception
Periods Ended 12/31/04 1 Year 5 Years 10/31/97
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Real Estate Fund 36.82% 22.80% 13.84%
Wilshire Real Estate Securities Index 34.81 22.31 12.21
Lipper Real Estate Funds Index 32.13 21.04 11.28
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
The fund charges a 1% redemption fee on shares held 90 days or less. The
performance information does not reflect the deduction of redemption fees; it it
did, performance would be lower. Average annual total return figures include
changes in principal value, reinvested dividends, and capital gain
distributions. Returns do not reflect taxes that the shareholder may pay on fund
distributions or the redemption of fund shares.
T. Rowe Price Real Estate Fund
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Fund Expense Example
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As a mutual fund shareholder, you may incur two types of costs: (1) transaction
costs such as redemption fees or sales loads and (2) ongoing costs, including
management fees, distribution and service (12b-1) fees, and other fund expenses.
The following example is intended to help you understand your ongoing costs (in
dollars) of investing in the fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The example is based on an investment
of $1,000 invested at the beginning of the most recent six-month period and held
for the entire period.
Actual Expenses
The first line of the following table ("Actual") provides information about
actual account values and actual expenses. You may use the information in this
line, together with your account balance, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table ("Hypothetical") is based on
hypothetical account values and expenses derived from the fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the fund's
actual return). You may compare the ongoing costs of investing in the fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying tables. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs, such as redemption
fees or sales loads. Therefore, the second line of the table is useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. To the extent a fund charges transaction costs,
however, the total cost of owning that fund is higher.
T. Rowe Price Real Estate Fund
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/1/04 12/31/04 7/1/04 to 12/31/04
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Actual $1,000 $1,267.40 $5.13
Hypothetical (assumes 5%
return before expenses) 1,000 1,020.61 4.57
*Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.90%), multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half year (184)
divided by the days in the year (366) to reflect the half-year period.
T. Rowe Price Real Estate Fund
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Financial Highlights For a share outstanding throughout each period
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Investor Class
Year
Ended
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning of period $ 13.65 $ 10.62 $ 10.54 $ 10.19 $ 8.11
Investment activities
Net investment income (loss) 0.43 0.36 0.38* 0.42* 0.38*
Net realized and unrealized
gain (loss) 4.49 3.26 0.19** 0.46 2.16
Total from investment
activities 4.92 3.62 0.57 0.88 2.54
Distributions
Net investment income (0.49) (0.52) (0.47) (0.53) (0.38)
Net realized gain (0.18) (0.05) - - -
Tax return of capital - (0.02) (0.02) - (0.09)
Total distributions (0.67) (0.59) (0.49) (0.53) (0.47)
Redemption fees
added to paid-in-capital - - - - 0.01
NET ASSET VALUE
End of period $ 17.90 $ 13.65 $ 10.62 $ 10.54 $ 10.19
-------------------------------------------------
Ratios/Supplemental Data
Total return^ 36.82% 34.84% 5.38%* 8.87%* 31.92%*
Ratio of total expenses to
average net assets 0.90% 1.00% 1.00%* 1.00%* 1.00%*
Ratio of net investment
income (loss) to average
net assets 2.74% 3.49% 4.07%* 4.09%* 4.61%*
Portfolio turnover rate 8.4% 4.5% 9.8% 37.2% 19.0%
Net assets, end of period
(in thousands) $641,014 $291,066 $131,736 $ 68,720 $53,703
^ 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 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Real Estate Fund
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December 31, 2004
Portfolio of Investments (1) Shares Value
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(Cost and value in $ 000s)
COMMON STOCKS 98.5%
REAL ESTATE 98.5%
Apartment/ Residential 17.8%
Archstone-Smith Trust, REIT 635,000 24,321
Avalonbay Communities, REIT 218,000 16,415
Camden Property Trust, REIT 387,000 19,737
Equity Residential, REIT 616,000 22,287
Essex Property Trust, REIT 169,000 14,162
Gables Residential Trust, REIT 92,000 3,293
United Dominion Realty Trust, REIT 553,000 13,714
113,929
Diversified 5.5%
Cousins Properties, REIT 217,000 6,569
Vornado Realty Trust, REIT 373,000 28,396
34,965
Industrial 10.8%
AMB Property, REIT 479,000 19,347
Catellus Development, REIT 252,000 7,711
Centerpoint Properties, REIT 120,000 5,747
EastGroup Properties, REIT 418,000 16,018
ProLogis, REIT 467,000 20,235
69,058
Lodging & Leisure 9.2%
Hilton 270,000 6,140
Host Marriott, REIT 679,000 11,747
LaSalle Hotel Properties, REIT 230,000 7,321
Marriott, Class A 149,000 9,384
Starwood Hotels & Resorts Worldwide, Class B 291,000 16,994
Strategic Hotel Capital, REIT 463,000 7,639
59,225
Manufactured Housing 1.2%
Sun Communities, REIT 197,000 7,929
7,929
Office 20.0%
Arden Realty, REIT 278,000 10,486
Boston Properties, REIT 390,000 25,221
CarrAmerica Realty, REIT 501,000 16,533
Equity Office Properties, REIT 923,000 26,878
Mack-Cali Realty, REIT 193,000 8,884
Maguire Properties, REIT 339,000 9,309
Reckson Associates Realty, REIT 427,000 14,010
SL Green Realty, REIT 283,000 17,136
128,457
Office & Industrial 3.2%
Duke Realty, REIT 374,000 12,768
Kilroy Realty, REIT 188,000 8,037
20,805
Other Real Estate 2.1%
Plum Creek Timber, REIT 167,000 6,420
St. Joe 112,000 7,190
13,610
Regional Mall 11.9%
CBL & Associates Properties, REIT 132,000 10,078
General Growth Properties, REIT 378,000 13,668
Macerich Company, REIT 186,000 11,681
Mills, REIT 131,000 8,353
Simon Property Group, REIT 504,000 32,594
76,374
Self Storage 1.6%
Public Storage, REIT 179,000 9,979
9,979
Shopping Center 15.2%
Developers Diversified Realty, REIT 293,000 13,000
Federal Realty Investment Trust, REIT 226,000 11,673
Kimco Realty, REIT 268,000 15,541
New Plan Excel Realty, REIT 475,000 12,863
Pan Pacific Retail Properties, REIT 194,000 12,164
Regency Centers, REIT 294,000 16,288
Weingarten Realty Investors, REIT 391,000 15,679
97,208
Total Real Estate 631,539
Total Common Stocks (Cost $459,858) 631,539
SHORT-TERM INVESTMENTS 2.0%
Money Market Fund 2.0%
T. Rowe Price Reserve Investment Fund, 2.28% #! 13,208,595 13,209
Total Short-Term Investments (Cost $13,209) 13,209
Total Investments in Securities
100.5% of Net Assets (Cost $473,067) $644,748
--------
(1) Denominated in U.S. dollars unless otherwise noted
# Seven-day yield
! Affiliated company - See Note 4
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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December 31, 2004
Statement of Assets and Liabilities
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(In thousands except shares and per share amounts)
Assets
Investments in securities, at value
Affiliated companies (cost $13,209) $ 13,209
Non-affiliated companies (cost $459,858) 631,539
Total investments in securities 644,748
Other assets 5,938
Total assets 650,686
Liabilities
Total liabilities 9,422
NET ASSETS $ 641,264
---------------
Net Assets Consist of:
Undistributed net realized gain (loss) $ 2,337
Net unrealized gain (loss) 171,681
Paid-in-capital applicable to 35,827,506 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 467,246
NET ASSETS $ 641,264
---------------
NET ASSET VALUE PER SHARE
Investor Class
($641,014,385/35,813,539 shares outstanding) $ 17.90
---------------
Advisor Class
($250,000/13,967 shares outstanding) $ 17.90
---------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Real Estate Fund
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Statement of Operations
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($ 000s)
Year
Ended
12/31/04
Investment Income (Loss)
Dividend income $ 15,122
Expenses
Investment management 2,546
Shareholder servicing 832
Custody and accounting 108
Prospectus and shareholder reports 96
Registration 75
Legal and audit 12
Directors 6
Miscellaneous 6
Reductions/repayments of fees and expenses
Investment management fees (waived) repaid 56
Total expenses 3,737
Net investment income (loss) 11,385
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 10,788
Change in net unrealized gain (loss) on securities 119,162
Net realized and unrealized gain (loss) 129,950
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 141,335
---------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Real Estate Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 11,385 $ 6,795
Net realized gain (loss) 10,788 3,084
Change in net unrealized gain (loss) 119,162 50,320
Increase (decrease) in net assets
from operations 141,335 60,199
Distributions to shareholders
Net investment income (13,530) (8,868)
Net realized gain (6,207) (985)
Tax return of capital - (388)
Decrease in net assets from distributions (19,737) (10,241)
Capital share transactions *
Shares sold
Investor Class 320,217 140,631
Advisor Class 250 -
Distributions reinvested
Investor Class 17,650 9,296
Shares redeemed
Investor Class (109,735) (40,621)
Redemption fees received
Investor Class 218 66
Increase (decrease) in net assets from
capital share transactions 228,600 109,372
Net Assets
Increase (decrease) during period 350,198 159,330
Beginning of period 291,066 131,736
End of period $ 641,264 $ 291,066
--------- ---------
(Including undistributed net investment income of
$0 at 12/31/04 and $0 at 12/31/03)
T. Rowe Price Real Estate Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
*Share information
Shares sold
Investor Class 20,904 11,591
Advisor Class 14 -
Distributions reinvested
Investor Class 1,112 751
Shares redeemed
Investor Class (7,528) (3,416)
Increase (decrease) in shares outstanding 14,502 8,926
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Real Estate Fund
- --------------------------------------------------------------------------------
December 31, 2004
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. The fund seeks to provide long-term growth
through a combination of capital appreciation and current income. The fund has
two classes of shares: the Real Estate Fund original share class, referred to in
this report as the Investor Class, offered since October 31, 1997, and Real
Estate Fund--Advisor Class (Advisor Class), offered since December 31, 2004.
Advisor Class shares are sold only through unaffiliated brokers and other
unaffiliated financial intermediaries that are compensated by the class for
distribution, shareholder servicing, and/or certain administrative services
under a Board-approved Rule 12b-1 plan. Each class has exclusive voting rights
on matters related solely to that class, separate voting rights on matters that
relate to both classes, and, in all other respects, the same rights and
obligations as the other class.
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, including restricted securities, 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.
Class Accounting
The Advisor Class pays distribution, shareholder servicing, and/or certain
administrative expenses in the form of Rule 12b-1 fees, in an amount not
exceeding 0.25% of the class's average daily net assets; no such fees were
incurred during the period ended December 31, 2004. Shareholder servicing,
prospectus, and shareholder report expenses incurred by each class are charged
directly to the class to which they relate. Expenses common to both classes,
investment income, and realized and unrealized gains and losses are allocated to
the classes based upon the relative daily net assets of each class.
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 $40,000 for the
year ended December 31, 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 Investor Class 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. The fees may cause
the redemption price per share to differ from the net asset value per share.
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 by each class 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 $261,934,000 and $34,875,000, respectively, for the year ended
December 31, 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 significantly 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.
Distributions during the year ended December 31, 2004 were characterized as
follows for tax purposes:
- --------------------------------------------------------------------------------
Ordinary income $ 13,530,000
Long-term capital gain 6,207,000
Total distributions $ 19,737,000
--------------
At December 31, 2004, the tax-basis components of net assets were as follows:
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 171,681,000
Undistributed long-term capital gain 2,337,000
Paid-in capital 467,246,000
Net assets $ 641,264,000
--------------
For the year ended December 31, 2004, the fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications to paid-in capital
relate primarily to a tax practice that treats a portion of the proceeds from
each
redemption of capital shares as a distribution of taxable net investment income
and/or realized capital gain. Reclassifications between income and gain relate
primarily to the character of dividends received from REIT investments. Results
of operations and net assets were not affected by these reclassifications.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 2,145,000
Undistributed net realized gain (2,244,000)
Paid-in capital 99,000
At December 31, 2004, the cost of investments for federal income tax purposes
was $473,067,000.
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 December 31,
2004, the effective annual group fee rate was 0.31%, and investment management
fee payable totaled $352,000.
The Investor Class 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 class for any expenses, excluding interest,
taxes, brokerage commissions, and extraordinary expenses, that would otherwise
cause the class's ratio of total expenses to average net assets (expense ratio)
to exceed its expense limitation of 0.90%. Through April 30, 2008, the class 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 class's expense ratio to
exceed
its expense limitation. Pursuant to this agreement, at December 31, 2004,
management fees waived in the amount of $66,000 remain subject to repayment
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 prices 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 Investor Class. For the year ended December 31, 2004, expenses
incurred pursuant to these service agreements were $64,000 for Price Associates,
$464,000 for T. Rowe Price Services, Inc., and $110,000 for T. Rowe Price
Retirement Plan Services, Inc. At period-end, a total of $77,000 of these
expenses was payable.
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 and
affiliates of the fund. 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 year
ended December 31, 2004, dividend income from the Reserve Funds totaled
$116,000, and the value of shares of the Reserve Funds held at December 31, 2004
and December 31, 2003 was $13,209,000 and $6,459,000, respectively.
As of December 31, 2004, T. Rowe Price Group, Inc. and/or its wholly owned
subsidiaries owned 13,967 shares of the Advisor Class, representing less than 1%
of the fund's net assets.
T. Rowe Price Real Estate Fund
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Real Estate Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Real Estate Fund,
Inc. (the "Fund") at December 31, 2004, and the results of its operations, the
changes in its net assets and the financial highlights for each of the fiscal
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2005
T. Rowe Price Real Estate Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/04
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $2,145,000 from short-term capital gains,
o $6,305,000 from long-term capital gains, of which $5,075,000 was subject to
the 15% rate gains category, and $1,230,000 to the 25% rate gains category.
For taxable non-corporate shareholders, $590,000 of the fund's income represents
qualified dividend income subject to the 15% rate category.
For corporate shareholders, $272,000 of the fund's income qualifies for the
dividends-received deduction.
Information on Proxy Voting Policies, Procedures, and Records
- --------------------------------------------------------------------------------
A description of the policies and procedures used by T. Rowe Price funds and
portfolios to determine how to vote proxies relating to portfolio securities is
available in each fund's Statement of Additional Information, which you may
request by calling 1-800-225-5132 or by accessing the SEC's Web site,
www.sec.gov. The description of our proxy voting policies and procedures is also
available on our Web site, www.troweprice.com. To access it, click on the words
"Company Info" at the top of our homepage for individual investors. Then, in the
window that appears, click on the "Proxy Voting Policy" navigation button in the
top left corner.
Each fund's most recent annual proxy voting record is available on our Web site
and through the SEC's Web site. To access it through our Web site, follow the
directions above, then click on the words "Proxy Voting Record" at the bottom of
the Proxy Voting Policy page.
How to Obtain Quarterly Portfolio Holdings
- --------------------------------------------------------------------------------
The fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The fund's Form N-Q is available electronically on the SEC's Web site
(www.sec.gov); hard copies may be reviewed and copied at the SEC's Public
Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information
on the Public Reference Room, call 1-800-SEC-0330.
T. Rowe Price Real Estate Fund
- --------------------------------------------------------------------------------
About the Fund's Directors and Officers
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, compliance matters, advisory fees, expenses, and other
business affairs, and is responsible for protecting the interests of
shareholders. The majority of the fund's directors are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of T.
Rowe Price. The Board of Directors elects the fund's officers, who are listed in
the final table. The business address of each director and officer is 100 East
Pratt Street, Baltimore, MD 21202. The Statement of Additional Information
includes additional information about the fund directors and is available
without charge by calling a T. Rowe Price representative at 1-800-225-5132.
Independent Directors
Name
(Year of Birth) Principal Occupation(s) During Past 5 Years
Year Elected * and Directorships of Other Public Companies
Anthony W. Deering Director, Chairman of the Board, President, and
(1945) Chief Executive Officer, The Rouse Company, real
2001 estate developers; Director, Mercantile Bank
(4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an
(1943) acquisition and management advisory firm
1997
David K. Fagin Director, Golden Star Resources Ltd., Canyon
(1938) Resources Corp. (5/00 to present), and Pacific
1997 Rim Mining Corp. (2/02 to present); Chairman and
President, Nye Corp.
Karen N. Horn Managing Director and President, Global Private
(1943) Client Services, Marsh Inc. (1999-2003); Managing
2003 Director and Head of International Private
Banking, Bankers Trust (1996-1999); Director, Eli
Lilly and Company and Georgia Pacific
(5/04 to present)
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates,
(1934) Inc., consulting environmental and civil engineers
2001
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a
(1946) real estate investment company; Partner,
2001 Blackstone Real Estate Advisors, L.P.; Director,
AMLI Residential Properties Trust and The Rouse
Company, real estate developers
*Each independent director oversees 112 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
Inside Directors
Name
(Year of Birth)
Year Elected *
[Number of T. Rowe Price Principal Occupation(s) During Past 5 Years
Portfolios Overseen] and Directorships of Other Public Companies
James A.C. Kennedy, CFA Director and Vice President, T. Rowe Price and
(1953) T. Rowe Price Group, Inc.; Director, T. Rowe
1997 Price Global Investment Services Limited and
[43] T. Rowe Price International, Inc.
James S. Riepe Director and Vice President, T. Rowe Price; Vice
(1943) Chairman of the Board, Director, and Vice
1997 President, T. Rowe Price Group, Inc.; Chairman of
[112] the Board and Director, T. Rowe Price Global Asset
Management Limited, T. Rowe Price Global
Investment Services Limited, T. Rowe Price
Investment Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price
Services, Inc.; Chairman of the Board, Director,
President, and Trust Officer, T. Rowe Price Trust
Company; Director, T. Rowe Price International,
Inc.; Chairman of the Board, Real Estate Fund
*Each inside director serves until retirement, resignation, or election of a
successor.
Officers
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
Stephen W. Boesel (1944) Vice President, T. Rowe Price, T. Rowe
Vice President, Real Estate Fund Price Group, Inc., and T. Rowe Price
Trust Company
Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe
Vice President, Real Estate Fund Price Group, Inc., and T. Rowe Price
Trust Company
Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe
Treasurer, Real Estate Fund Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe
Price Trust Company
Anna M. Dopkin, CFA (1967) Vice President, T. Rowe Price and
Vice President, Real Estate Fund T. Rowe Price Group, Inc.
Joseph B. Fath, CPA (1971) Vice President, T. Rowe Price; formerly
Vice President, Real Estate Fund intern, T. Rowe Price (to 2001); Chief
Financial Officer and Cofounder,
Broadform, Inc. (to 2000)
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe
Vice President, Real Estate Fund Price Group, Inc., T. Rowe Price
International, Inc., and T. Rowe Price
Trust Company
John R. Gilner (1961) Chief Compliance Officer and Vice
Chief Compliance Officer, President, T. Rowe Price; Vice
Real Estate Fund President, T. Rowe Price Investment
Services, Inc., and T. Rowe Price Group,
Inc.
Gregory S. Golczewski (1966) Vice President, T. Rowe Price and
Vice President, Real Estate Fund T. Rowe Price Trust Company
Henry H. Hopkins (1942) Director and Vice President, T. Rowe
Vice President, Real Estate Fund Price Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, T. Rowe
Price, T. Rowe Price Group, Inc.,
T. Rowe Price International, Inc., and
T. Rowe Price Retirement Plan Services,
Inc.
Thomas J. Huber, CFA (1966) Vice President, T. Rowe Price and
Vice President, Real Estate Fund T. Rowe Price Group, Inc.
David M. Lee, CFA (1962) Vice President, T. Rowe Price and
President, Real Estate Fund T. Rowe Price Group, Inc.
Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price
Secretary, Real Estate Fund and T. Rowe Price Investment Services,
Inc.
Philip A. Nestico (1976) Vice President, T. Rowe Price
Vice President, Real Estate Fund
Charles M. Ober, CFA (1950) Vice President, T. Rowe Price and
Vice President, Real Estate Fund T. Rowe Price Group, Inc.
Theodore E. Robson, CFA (1965) Vice President, T. Rowe Price, T. Rowe
Vice President, Real Estate Fund Price Group, Inc., and T. Rowe Price
International, Inc.
Julie L. Waples (1970) Vice President, T. Rowe Price
Vice President, Real Estate Fund
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
The registrant has adopted 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. A copy of this code of ethics is filed as an exhibit to this Form
N-CSR. No substantive amendments were approved or waivers were granted to this
code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
Audit Fees $6,382 $8,057
Audit-Related Fees 890 468
Tax Fees 1,731 2,092
All Other Fees - 124
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $903,000 and $821,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
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. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. 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 change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter covered by
this report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(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 February 18, 2005
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 February 18, 2005
By /s/ Joseph A. Carrier
-----------------------------------
Joseph A. Carrier
Principal Financial Officer
Date February 18, 2005