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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21241

RMR REAL ESTATE FUND
(Exact name of registrant as specified in charter)

400 CENTRE STREET
NEWTON, MASSACHUSETTS 02458
(Address of principal executive offices) (Zip code)

(Name and Address of Agent
for Service of Process)
  Copy to:

Thomas M. O'Brien, President

RMR Real Estate Fund
400 Centre Street
Newton, Massachusetts 02458

 

Robert N. Hickey, Esq.
Sullivan & Worcester LLP
1666 K Street, N.W.
Washington, D.C. 20006

 

 

Thomas J. Reyes, Esq.
State Street Bank and Trust Company
One Federal Street, 9th Floor
Boston, Massachusetts 02110

Registrant's telephone number, including area code: (617) 332-9530
Date of fiscal year end: December 31
Date of reporting period: June 30, 2005





Item 1. Reports to Stockholders.


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Semi-Annual Reports
June 30, 2005

 

 

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RMR Real Estate Fund
RMR Hospitality and Real Estate Fund
RMR F.I.R.E. Fund
RMR Preferred Dividend Fund

About information contained in this report:


NOTICE CONCERNING LIMITED LIABILITY

THE DECLARATIONS OF TRUST OF RMR REAL ESTATE FUND, RMR HOSPITALITY AND REAL ESTATE FUND, RMR F.I.R.E. FUND AND RMR PREFERRED DIVIDEND FUND, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, ARE DULY FILED IN THE OFFICE OF THE SECRETARY, CORPORATIONS DIVISION OF THE COMMONWEALTH OF MASSACHUSETTS, PROVIDES THAT THE NAMES "RMR REAL ESTATE FUND", "RMR HOSPITALITY AND REAL ESTATE FUND", "RMR F.I.R.E. FUND" AND "RMR PREFERRED DIVIDEND FUND" REFERS TO THE TRUSTEES UNDER THE DECLARATIONS COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF ANY OF THE FUNDS SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, ANY OF THESE FUNDS. ALL PERSONS DEALING WITH ANY OF THE FUNDS IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THAT FUND WITH WHICH HE MAY DEAL FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.




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RMR Funds

June 30, 2005

To our shareholders,


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We are pleased to present you with our 2005 semi-annual report
for four funds:

•    RMR Real Estate Fund (AMEX: RMR), which began operations in December 2003;

•    RMR Hospitality and Real Estate Fund (AMEX: RHR), which began operations in April 2004;

•    RMR F.I.R.E. Fund (AMEX: RFR), which began operations in November 2004; and

•    RMR Preferred Dividend Fund (AMEX: RDR), which began operations in May 2005.

We invite you to read through the information contained in this report and to view our website, at
www.rmrfunds.com.

Sincerely,

GRAPHIC

Thomas M. O'Brien
President
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RMR Real Estate Fund
June 30, 2005

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To our shareholders,

In the pages that follow, you will find data summarizing our financial results for the first six months of 2005 and our financial position as of June 30, 2005.

As a result of our investment activities for the first six months of 2005, our net asset value was $16.75 per common share as of June 30, 2005, a 0.8% increase from $16.61 per common share six months earlier. In addition to this increase in net asset value per common share, we made monthly distributions totaling $0.60 per common share during the first six months of 2005.

For the first six months of 2005, our allocation in the manufactured homes sub-sector increased from 4.5% to 6.6% of total investments, our largest sub-sector increase. During the same time period, our allocation in the apartments sub-sector decreased from 18.6% to 13.2% of total investments, our largest sub-sector decrease. These changes partly reflect trading activity based upon our view of the strengths and weaknesses of these sub-sectors and the companies that operate in them and partly reflect the impact of stock market conditions. During the remainder of 2005, we will continue to monitor market conditions and position our portfolio according to our view of those conditions.

For shares that we held continuously during the first six months of 2005, our three best performing investments were Equity Office Properties Trust, Colonial Properties Trust and U-Store-It Trust, with total returns during this period of 17.3%, 16.2% and 13.0%, respectively. Our worst performing investments during the first six months of 2005 were Bedford Property Investors, Inc., Eagle Hospitality Properties Trust, Inc. and Trustreet Properties Inc. with total returns (losses) during the first six months of (15.2)%, (6.5)% and (4.2)%, respectively.

Thank you for your continued support, and be sure to view our website, at www.rmrfunds.com.

Sincerely,

GRAPHIC

Thomas M. O'Brien
President


2


RMR Real Estate Fund
June 30, 2005

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Relevant Market Conditions

Real Estate Industry Fundamentals.    We believe the investment environment for most real estate companies at June 30, 2005, and for the remainder of 2005 is generally positive. We believe that the environment for the remainder of 2005 will include revenue growth and stabilizing to improving occupancy rates. We believe that a majority of real estate investment trust's balance sheets reflect modest debt leverage and low floating rate debt.

Real Estate Industry Technicals.    We believe demand for real estate securities over the long term will continue to increase. Demographic trends in the U.S. include growth in the over age 50 population; we believe that individuals in that age category tend to focus their investments in higher yielding stocks like real estate investments trusts, or REITs. Institutions, too, seem to be increasing their allocations to real estate securities as the market capitalization of REITs has increased. Both of these are positive factors affecting the real estate securities market.

Fund Strategies, Techniques and Performance

Our primary investment objective is to earn and pay a high level of current income to our common shareholders by investing in real estate companies. Our secondary investment objective is capital appreciation. There can be no assurance that we will meet our investment objectives.

During the first six months of 2005, our total return on net asset value, or NAV (including NAV changes and assuming a hypothetical reinvestment of distributions at NAV) was 4.8%. During that same period, the total return for the MSCI US REIT Total Return Index was 6.4% and the total return for the MSCI REIT Preferred Index was 2.8%. We believe these two indices are most relevant to our investments because our investments, excluding short-term investments, as of June 30, 2005, include 72.7% REIT common stocks and 26.1% REIT preferred stocks. The S&P 500 Index (an unmanaged index published as Standard and Poor's Composite Index of 500 Stocks) total return (loss) for the first six months of 2005 was (0.8)%.


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RMR Real Estate Fund
Portfolio of Investments
– June 30, 2005 (unaudited)


 
Company

  Shares

  Value

 

 
Common Stocks – 103.1%            
Real Estate Investment Trusts – 101.5%            
  Apartments – 16.8%            
    AMLI Residential Properties Trust   106,700   $ 3,335,442  
    Apartment Investment & Management Co.   149,100     6,101,172  
    Associated Estates Realty Corp.   141,400     1,305,122  
    BNP Residential Properties, Inc.   200,000     3,200,000  
    Home Properties, Inc.   121,200     5,214,024  
       
 
          19,155,760  
  Diversified – 24.1%            
    Bedford Property Investors, Inc.   150,000     3,453,000  
    Colonial Properties Trust   145,000     6,380,000  
    Commercial Net Lease Realty   289,600     5,928,112  
    Crescent Real Estate Equities Co.   324,000     6,075,000  
    Lexington Corporate Properties Trust   200,000     4,862,000  
    Liberty Property Trust   20,000     886,200  
       
 
          27,584,312  
  Health Care – 11.0%            
    Health Care REIT, Inc.   150,000     5,653,500  
    Nationwide Health Properties, Inc.   250,000     5,902,500  
    Omega Healthcare Investors Inc.   83,200     1,069,952  
       
 
          12,625,952  
  Hospitality – 0.5%            
    Eagle Hospitality Properties Trust, Inc.   60,000     546,600  
  Industrial – 5.8%            
    First Industrial Realty Trust, Inc.   165,000     6,583,500  
  Manufactured Homes – 3.3%            
    Sun Communities, Inc.   100,900     3,752,471  
  Office – 21.4%            
    Arden Realty, Inc.   114,600     4,123,308  
    CarrAmerica Realty Corp.   10,000     361,800  
    Columbia Equity Trust, Inc.   30,000     460,500  
    Equity Office Properties Trust   250,000     8,275,000  
    Glenborough Realty Trust, Inc.   285,000     5,868,150  
    Highwoods Properties, Inc.   85,000     2,529,600  
    Maguire Properties, Inc.   100,000     2,834,000  
       
 
          24,452,358  
See notes to financial statements and notes to portfolio of investments.  

4


  Retail – 11.7%            
    Glimcher Realty Trust   75,000   $ 2,081,250  
    Heritage Property Investment Trust   200,000     7,004,000  
    New Plan Excel Realty Trust   156,200     4,243,954  
       
 
          13,329,204  
  Specialty – 4.8%            
    Getty Realty Corp.   28,600     792,220  
    Trustreet Properties, Inc.   280,000     4,650,800  
       
 
          5,443,020  
  Storage – 2.1%            
    Sovran Self Storage, Inc.   50,000     2,273,000  
    U-Store-It Trust   10,000     190,500  
       
 
          2,463,500  
Total Real Estate Investment Trusts (Cost $102,922,084)         115,936,677  
  Other – 1.6%            
    Panamsat Holding Corp. (Cost $1,584,000)   88,000     1,804,880  
Total Common Stocks (Cost $104,506,084)         117,741,557  
Preferred Stocks – 36.5%            
Real Estate Investment Trusts – 36.5%            
  Apartments – 2.1%            
    Apartment Investment & Management Co., Series G   32,800     872,480  
    Apartment Investment & Management Co., Series T   60,000     1,518,000  
       
 
          2,390,480  
  Diversified – 1.3%            
    Colonial Properties Trust, Series E   62,910     1,541,295  
  Health Care – 7.7%            
    LTC Properties, Inc., Series F   160,000     4,092,000  
    OMEGA Healthcare Investors Inc., Series D   160,000     4,240,000  
    Windrose Medical Properties Trust, Series A*   20,000     495,000  
       
 
          8,827,000  
  Hospitality – 12.6%            
    Ashford Hospitality Trust, Series A   107,900     2,818,888  
    Equity Inns, Inc., Series B   34,000     889,100  
    Eagle Hospitality Properties Trust, Inc., Series A   28,000     719,600  
    FelCor Lodging Trust, Inc., Series A*   83,000     2,027,690  
    FelCor Lodging Trust, Inc., Series C   29,200     716,276  
    Innkeepers USA Trust, Series C   120,000     3,068,400  
    Winston Hotels, Inc., Series B   160,000     4,111,200  
       
 
          14,351,154  
See notes to financial statements and notes to portfolio of investments  

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  Manufactured Homes – 6.2%            
    Affordable Residential Communities, Series A   280,000   $ 7,084,000  
  Office – 0.7%            
    Kilroy Realty Corp., Series F   30,000     762,000  
  Retail – 2.7%            
    CBL & Associates Properties, Inc., Series B   20,000     1,065,000  
    Glimcher Realty Trust, Series F   20,000     535,800  
    Glimcher Realty Trust, Series G   50,000     1,277,500  
    The Mills Corp., Series E   7,100     192,409  
       
 
          3,070,709  
  Specialty – 3.2%            
    New Century Financial Corp., Series A   20,000     506,000  
    RAIT Investment Trust, Series A   125,000     3,150,000  
       
 
          3,656,000  
Total Preferred Stocks (Cost $40,145,246)         41,682,638  
Short-Term Investment – 3.3%            
  Other Investment Companies – 3.3%            
    SSgA Money Market Fund, 2.883%(a) (Cost $3,811,737)   3,811,737     3,811,737  
Total Investments – 142.9% (Cost $148,463,067)         163,235,932  
Other assets less liabilities – 0.9%         1,035,925  
Preferred Shares, at liquidation preference – (43.8)%         (50,000,000 )
Net Assets attributable to common shares – 100%       $ 114,271,857  

Notes to portfolio of investments

*
Convertible into common stock.

(a)
Rate reflects 7 day yield as of June 30, 2005.

See notes to financial statements and notes to portfolio of investments


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RMR Real Estate Fund
Financial Statements
– continued

Statement of Assets and Liabilities


 
June 30, 2005 (unaudited)

   
 

 
Assets        
  Investments in securities, at value (cost $148,463,067)   $ 163,235,932  
  Cash     500,517  
  Dividends and interest receivable     1,200,458  
  Receivable for investments sold     1,004,767  
  Other assets     24,084  
   
 
    Total assets     165,965,758  
   
 
Liabilities        
  Payable for investment securities purchased     1,511,101  
  Advisory fees payable     80,158  
  Distributions payable – preferred shares     29,660  
  Accrued expenses and other liabilities     72,982  
   
 
    Total liabilities     1,693,901  
   
 
Preferred shares at liquidation preference        
  Auction preferred shares, Series T;
$.001 par value per share; 2,000 shares issued and
outstanding at $25,000 per share liquidation preference
    50,000,000  
   
 
Net assets attributable to common shares   $ 114,271,857  
   
 
Composition of net assets        
  Common shares, $.001 par value per share;
unlimited number of shares authorized,
6,824,000 shares issued and outstanding
  $ 6,824  
  Additional paid-in capital     96,710,623  
  Distributions in excess of net investment income     (229,676 )
  Accumulated net realized gain on investments     3,011,221  
  Net unrealized appreciation on investments     14,772,865  
   
 
Net assets attributable to common shares   $ 114,271,857  
   
 
Net asset value per share attributable to common shares
(based on 6,824,000 common shares outstanding)
  $ 16.75  
   
 

See notes to financial statements


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RMR Real Estate Fund
Financial Statements
– continued

Statement of Operations


 
Six Months Ended June 30, 2005 (unaudited)

   
 

 
Investment income        
  Dividends (Cash distributions received or due)   $ 5,327,859  
  Interest     29,567  
   
 
    Total investment income     5,357,426  
   
 
Expenses        
  Advisory     658,477  
  Audit and legal     66,484  
  Administrative     65,351  
  Preferred share remarketing     62,919  
  Custodian     30,594  
  Shareholder reporting     21,000  
  Compliance and internal audit     20,000  
  Trustees' fees and expenses     10,400  
  Other     47,887  
   
 
    Total expenses     983,112  
  Less: expenses waived by the Advisor     (193,670 )
   
 
    Net expenses     789,442  
   
 
      Net investment income     4,567,984  
   
 
Realized and unrealized gain on investments        
  Net realized gain on investments     2,646,894  
  Net change in unrealized appreciation/(depreciation) on investments     (1,501,942 )
   
 
  Net realized and unrealized gain on investment transactions     1,144,952  
  Distributions to preferred shareholders from net investment income     (703,260 )
   
 
    Net increase in net assets attributable to common shares resulting from operations   $ 5,009,676  
   
 

See notes to financial statements


8



RMR Real Estate Fund
Financial Statements
– continued

Statement of Changes in Net Assets


 
 
  Six Months
Ended
June 30,
2005

  Year Ended
December 31,
2004

 

 
 
  (unaudited)

   
 
Increase (decrease) in net assets resulting from operations              
  Net investment income   $ 4,567,984   $ 3,196,785  
  Net realized gain on investments     2,646,894     4,348,707  
  Net change in unrealized appreciation/(depreciation) on investments     (1,501,942 )   16,866,604  
  Distributions to preferred shareholders from:              
    Net investment income     (703,260 )   (320,690 )
    Net realized gain on investments         (343,770 )
   
 
 
      Net increase in net assets attributable to
common shares resulting from operations
    5,009,676     23,747,636  
   
 
 
  Distributions to common shareholders from:              
    Net investment income     (4,094,400 )   (3,622,828 )
    Net realized gain on investments         (3,883,572 )

Capital shares transactions

 

 

 

 

 

 

 
  Net proceeds from sale of common shares         2,144,250  
  Net proceeds from sale of preferred shares         49,195,335  
   
 
 
    Net increase from capital transactions         51,339,585  
  Less: Liquidation preference of preferred shares issued         (50,000,000 )
   
 
 
    Total increase in net assets attributable to common shares     915,276     17,580,821  

Net assets attributable to common shares

 

 

 

 

 

 

 
  Beginning of period     113,356,581     95,775,760  
   
 
 
  End of period (net of distributions in excess of net investment
income of $229,676 and $0, respectively)
  $ 114,271,857   $ 113,356,581  
   
 
 
Common shares issued and repurchased              
  Shares outstanding, beginning of period     6,824,000     6,674,000  
    Shares issued         150,000  
   
 
 
  Shares outstanding, end of period     6,824,000     6,824,000  
   
 
 

See notes to financial statements


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Financial Highlights – RMR Real Estate Fund

Selected Data for a Common Share Outstanding Throughout the Period


 
 
  Six Months Ended
June 30, 2005

  Year Ended
December 31, 2004

  For the Period
December 18,
2003 (a) to
December 31, 2003

 

 
 
  (unaudited)

   
   
 
Per Common Share Operating Performance (b)                    
Net asset value, beginning of period   $ 16.61   $ 14.35   $ 14.33 (c)
   
 
 
 
Income from Investment Operations                    
Net investment income (d)     0.67 (e)   0.47     0.10  
Net realized and unrealized appreciation on investments     0.17 (e)   3.11     (0.05 )
Distributions to preferred shareholders (common stock equivalent basis) from:                    
  Net investment income     (0.10) (e)   (0.05 )    
  Net realized gain on investments      (e)   (0.05 )    
   
 
 
 
Net increase in net asset value from operations     0.74     3.48     0.05  
Less: Distributions to common shareholders from:                    
  Net investment income     (0.60) (e)   (0.53 )    
  Net realized gain on investments      (e)   (0.57 )    
Common share offering costs charged to capital             (0.03 )
Preferred share offering costs charged to capital         (0.12 )    
   
 
 
 
Net asset value, end of period   $ 16.75   $ 16.61   $ 14.35  
   
 
 
 
Market price, beginning of period   $ 14.74   $ 15.00   $ 15.00  
   
 
 
 
Market price, end of period   $ 14.29   $ 14.74   $ 15.00  
   
 
 
 
Total Return (f)                    
Total investment return based on:                    
  Market price (g)     1.27 %   6.42 %   0.00 %
  Net asset value (g)     4.80 %   24.73 %   0.14 %
Ratios/Supplemental Data:                    
Preferred shares, liquidation preference ($25,000 per share) (000s)   $ 50,000   $ 50,000   $  
Net assets attributable to common shares, end of period (000s)   $ 114,272   $ 113,357   $ 95,776  
Ratio to average net assets attributable to common shares (h) of:                    
  Net investment income, before total preferred share distributions (d)     8.67% (e)   3.22 %   27.45 %
  Total preferred share distributions     1.34 %   0.67 %   0.00 %
  Net investment income, net of preferred share distributions (d)     7.33% (e)   2.55 %   27.45 %
  Expenses, net of fee waivers     1.50 %   1.69 %   2.40 %
  Expenses, before fee waivers     1.87 %   2.05 %   2.65 %
Portfolio turnover rate     9.08 %   35.52 %   17.49 %
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Net asset value at December 18, 2003, reflects the deduction of the average sales load and offering costs of $0.67 per share paid by the holders of common shares from the $15.00 offering price. We paid a sales load and offering costs of $0.68 per share on 6,660,000 common shares sold to the public and no sales load or offering costs on 7,000 common shares sold to affiliates of RMR Advisors for $15 per share.
(d)
Amounts are net of expenses waived by RMR Advisors.
(e)
As discussed in Note A(7) to the financial statements, these amounts are subject to change to the extent 2005 distributions by the issuers of the Fund's investments are characterized as capital gains and return of capital.
(f)
Total return for periods less than one year are not annualized.
(g)
Total return based on per share market price assumes the purchase of common shares at the market price on the first day and sales of common shares at the market price on the last day of the period indicated; dividends and distributions, if any, are assumed to be reinvested at market prices. The total return based on net asset value, or NAV, assumes the purchase of common shares at NAV on the first day and sales of common shares at NAV on the last day of the period indicated; distributions are assumed to be reinvested at NAV. Results represent past performance and do not guarantee future results. Total return would have been lower if RMR Advisors had not contractually waived a portion of its investment advisory fee.
(h)
Annualized.

See notes to financial statements


10



RMR Real Estate Fund
Notes to Financial Statements

June 30, 2005 (unaudited)

Note A

(1)  Organization

RMR Real Estate Fund, or the Fund, was organized as a Massachusetts business trust on July 2, 2002, and is registered under the Investment Company Act of 1940, as amended, as a non-diversified closed end management investment company. The Fund had no operations prior to December 18, 2003, other than matters relating to the Fund's establishment and registration of the Fund's common shares under the Securities Act of 1933.

(2)  Interim Financial Statements

The accompanying June 30, 2005, financial statements have been prepared without audit. The Fund believes the disclosures made are adequate to make the information presented not misleading. In the opinion of the Fund's management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. The Fund's operating results for this interim period are not necessarily indicative of the results that may be expected in the future.

(3)  Use of Estimates

Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires the Fund's management to make estimates and assumptions that may affect the amounts reported in the financial statements and related notes. The actual results could differ from these estimates particularly for reasons described in Note A(7), and for other reasons.

(4)  Portfolio Valuation

Investment securities of the Fund are valued at the latest sales price whenever that price is readily available on the day of valuation; securities for which no sales were reported on that day, unless otherwise noted, are valued at the last available bid price on that day. Securities traded primarily on the NASDAQ Stock Market, or NASDAQ, are normally valued by the Fund at the NASDAQ Official Closing Price, or NOCP, provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:06 p.m., eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. Some fixed income securities may be valued using pricing provided by a pricing service. Any of the Fund's securities which are not readily marketable, which are not traded, which have other characteristics of illiquidity or whose quotations are unreliable are valued by the Fund at fair value as determined in good faith under the supervision of the Fund's board of trustees. Numerous factors may be considered when determining fair value of a security, including cost at date of purchase, type of security, the nature and duration of restrictions on disposition of the security and whether the issuer of the security being fair valued has other securities of the same class outstanding. Short term debt securities with less than 60 days until maturity may be valued at cost, which when combined with interest accrued, approximates market value.

(5)  Securities Transactions and Investment Income

Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the


11


securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost.

(6)  Federal Income Taxes

The Fund has qualified and intends to qualify in the future as a "regulated investment company" and to comply with the applicable provisions of subchapter M of the Internal Revenue Code of 1986, as amended, so that it will generally not be subject to federal income tax.

(7)  Distributable Earnings

The Fund earns income, net of expenses, daily on its investments. It is the policy of the Fund to pay a stable distribution amount to common shareholders on a monthly basis and distributions to Fund shareholders are declared pursuant to this policy. On June 28, 2005, the Fund declared distributions of $0.10 per common share payable in August, September and October 2005. Distributions to Fund shareholders are recorded on the ex-dividend date.

The Fund's distributions may consist of ordinary income (net investment income and short term capital gains), long term capital gains and return of capital. The Fund estimates that the sum of the distributions declared for the 2005 year through June 30, 2005, is not greater than distributions and interest received or accrued by the Fund on its investments over expenses and cost of leverage plus net realized capital gain from sales of securities during 2005.

For financial reporting purposes as required by generally accepted accounting principles, the Fund generally reflects distributions and interest received or accrued on its investments and distributions made to shareholders as ordinary income, long term capital gains and return of capital in accordance with the characterization of these amounts required by the Internal Revenue Code of 1986, as amended. However, it is not possible to characterize distributions received from real estate investment trusts, or REITs, in which the Fund has invested a substantial portion of its assets, during interim periods because these issuers do not report their tax characterization until subsequent to year end 2005. Final characterization of the Fund's 2005 distributions to shareholders is also dependent upon the magnitude or timing of the Fund's securities transactions prior to year end. Therefore, it is likely that some portion of the Fund's 2005 investment income and distributions to shareholders will be recharacterized as long term capital gain and return of capital for financial statement and federal income tax purposes subsequent to year end and reflected accordingly in the Fund's year end financial statements.

To the extent the Fund's net realized capital gains, if any, can be offset by capital loss carry forwards, it is the policy of the Fund not to distribute such gains.

Although subject to adjustments, the cost, gross unrealized appreciation and unrealized depreciation of the Fund's investments for federal income tax purposes, as of June 30, 2005, are as follows:

Cost   $ 148,463,067  
   
 
Gross unrealized appreciation   $ 15,883,130  
Gross unrealized depreciation     (1,110,265 )
   
 
Net unrealized appreciation   $ 14,772,865  
   
 

12


(8)  Concentration of Risk

Under normal market conditions, the Fund's investments are concentrated in income producing common shares, preferred shares and debt securities, including convertible preferred and debt securities, issued by real estate companies and REITs. The value of Fund shares may fluctuate more than the shares of a fund not concentrated in the real estate industry due to economic, legal, regulatory, technological or other developments affecting the United States real estate industry.

Note B

Advisory and Administration Agreements and Other Transactions with Affiliates

The Fund has an advisory agreement with RMR Advisors, Inc., or RMR Advisors, to provide the Fund with a continuous investment program, to make day to day investment decisions and to generally manage the business affairs of the Fund in accordance with its investment objectives and policies. Pursuant to this agreement, RMR Advisors is compensated at an annual rate of 0.85% of the Fund's average daily managed assets. Managed assets means the total assets of the Fund less liabilities other than any indebtedness entered into for purposes of leverage. For purposes of calculating managed assets, indebtedness entered for the purpose of leverage and the liquidation preference of preferred shares are not considered liabilities.

RMR Advisors has contractually agreed to waive a portion of its annual fee equal to 0.25% of the Fund's average daily managed assets until December 18, 2008.

On May 16, 2005, Barry M. Portnoy became the sole owner of RMR Advisors. This change in ownership is deemed to be a change in control resulting in termination of the then existing investment advisory agreement under the Investment Company Act of 1940. A new investment advisory agreement with the same terms as the previous agreement (except for dates of execution and effective dates) was approved by the shareholders on May 11, 2005.

RMR Advisors, and not the Fund, has agreed to pay the lead underwriter of the Fund's initial public offering an annual fee equal to 0.15% of the Fund's managed assets. This fee is paid quarterly in arrears during the term of RMR Advisors' advisory agreement and is paid by RMR Advisors, not the Fund. The aggregate fees paid pursuant to the contract plus reimbursement of legal expenses of the underwriters will not exceed 4.5% of the total price of the common shares in the initial public offering.

RMR Advisors also performs administrative functions for the Fund pursuant to an administration agreement with the Fund. RMR Advisors has entered into a sub-administration agreement with State Street Bank and Trust Company ("State Street") to perform substantially all Fund accounting and other administrative services. Under the administration agreement RMR Advisors is entitled to reimbursement of the cost of providing administrative services. During the six months ended June 30, 2005, the Fund reimbursed RMR Advisors for $65,351 of sub-administrative fees charged by State Street.

The Fund pays each trustee who is not a director, officer or employee of RMR Advisors and who is not an interested person of the Fund as defined under the Investment Company Act of 1940, as amended, (a "disinterested trustee") an annual fee plus fees for board and committee meetings.

The Fund's board of trustees and separately the disinterested trustees have authorized the Fund to make reimbursement payments to RMR Advisors for costs related to the Fund's compliance and internal audit


13



programs. The Fund also participates in pooled insurance programs with RMR Advisors and other funds managed by RMR Advisors and makes payments of the allocated portions of related premiums.

Note C

Securities Transactions

During the six months ended June 30, 2005, there were securities purchases and sales transactions (excluding short term securities) of $14,032,332 and $16,745,343, respectively. Brokerage commissions on securities transactions, exclusive of transactions settled on a net basis, amounted to $26,730 during the six months ended June 30, 2005.

Note D

Preferred Shares

The Fund's 2,000 outstanding Series M auction preferred shares have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid distributions. The preferred shares are senior to the Fund's common shares and rank on parity with any other class or series of preferred shares of the Fund as to the payment of periodic distributions, including distribution of assets upon liquidation. If the Fund does not timely cure a failure to (1) maintain asset coverage for the preferred shares as required by rating agencies, or (2) maintain asset coverage, as defined in the Investment Company Act of 1940, of at least 200%, the preferred shares will be subject to redemption at an amount equal to their liquidation preference plus accumulated but unpaid distributions. The holders of the preferred shares have voting rights equal to the holders of the Fund's common shares and generally vote together with the holders of the common shares as a single class. Holders of the preferred shares, voting as a separate class, also are entitled to elect two of the Fund's trustees. The Fund pays distributions on the preferred shares at a rate set at auctions held generally every seven days. Distributions are generally payable every seven days, on the first business day following the end of a distribution period. The preferred share distribution rate was 3.05% per annum as of June 30, 2005.

Note E

Submission of Proposals to a Vote of Shareholders

The annual meeting of Fund shareholders was held on May 11, 2005. Following is a summary of the proposals submitted to shareholders for vote at the meeting:

Proposal

  Votes for

  Votes against/
withheld

  Votes abstained

Common shares            
  Election of John L. Harrington as trustee   6,621,501   83,622  
  Approval of investment advisory agreement   6,549,776   88,532   66,516
Preferred shares            
  Election of John L. Harrington as trustee   1,984   14  
  Approval of investment advisory agreement   1,983   15  

14


RMR Hospitality and Real Estate Fund
June 30, 2005

    LOGO

To our shareholders,

In the pages that follow, you will find data summarizing our financial results for the first six months of 2005 and our financial position as of June 30, 2005.

As a result of our investment activities for the first six months of 2005, our net asset value was $23.31 per common share as of June 30, 2005, a 1.2% increase from $22.94 per common share six months earlier. In addition to this increase in net asset value per common share, we made monthly distributions totaling $0.75 per common share during the first six months of 2005.

For the first six months of 2005, our investment allocation to the sub-sector of diversified real estate investment trusts, or REITs, increased from 12.0% to 13.6% of total investments, the largest sub-sector increase. During the same time period, our allocation to the hospitality sub-sector decreased from 31.2% to 27.0% of total investments, the largest sub-sector decrease. These changes partly reflect our view of the performance of each sub-sector and the companies in them and partly reflect the impact of stock market conditions. During the remainder of 2005, we will continue to monitor market conditions and position our portfolio according to our view of those conditions.

For shares that we held continuously during the first six months of 2005, our three best performing investments during the period were Gables Residential Trust, Equity Office Properties Trust and Colonial Properties Trust, with total returns during this period of 24.9%, 17.3% and 16.2%, respectively. Our worst performing investments during the first six months of 2005 were Bedford Property Investors, Inc., Eagle Hospitality Properties Trust, Inc. and Trustreet Properties Inc. with total returns (losses) during the first six months of (15.2)%, (6.5)% and (4.2)%, respectively.

Thank you for your continued support, and be sure to view our website, at www.rmrfunds.com.

Sincerely,

GRAPHIC

Thomas M. O'Brien
President


15


RMR Hospitality and Real Estate Fund
June 30, 2005

    LOGO

Relevant Market Conditions

Hospitality Industry Fundamentals.    We believe the favorable operating environment for hospitality companies that existed in 2004 has continued into 2005. In general, strong earnings reports have been released for the first two quarters from most of the major U.S. lodging companies. The first six months of 2005 for the hospitality industry were characterized by improvement in revenue per available room, or RevPAR, as a result of improved demand and limited growth in new room supply. The positive impact of revenue gains was offset somewhat in the period by increased labor, benefits and energy costs.

Barring any material unexpected economic or geopolitical events, we see positive trends continuing through the second half of 2005.

Real Estate Industry Fundamentals.    We believe the investment environment for most real estate companies at June 30, 2005, and for the remainder of 2005 is generally positive. We believe that the environment for the remainder of 2005 will include revenue growth and stabilizing to improving occupancy rates. We believe that a majority of real estate investment trust's balance sheets reflect modest debt leverage and low floating rate debt.

Real Estate Industry Technicals.    We believe demand for real estate securities over the long term will continue to increase. Demographic trends in the U.S. include growth in the over age 50 population; we believe that individuals in that age category tend to focus their investments in higher yielding stocks like real estate investments trusts, or REITs. Institutions, too, seem to be increasing their allocations to real estate securities as the market capitalization of REITs has increased. Both of these are positive factors affecting the real estate securities market.

Fund Strategies, Techniques and Performance

Our primary objective is to earn and pay our shareholders a high level of current income by investing in hospitality and real estate companies. Our secondary objective is capital appreciation. There can be no assurance that we will meet our investment objectives.

During the first six months of 2005, our total return on net asset value, or NAV (including NAV changes and assuming a hypothetical reinvestment of distributions at NAV) was 5.10%. During that same period, the total return for the MSCI US REIT Total Return Index was 6.4% and the total return for the MSCI REIT Preferred Index was 2.8%. We believe these two indices are most relevant to our investments because our investments, excluding short term investments, as of June 30, 2005, include 55.9% REIT common stocks and 28.9% REIT preferred stocks. The S&P 500 Index (an unmanaged index published as Standard and Poor's Composite Index of 500 Stocks) total return (loss) for the first six months of 2005 was (0.8)%.


16


RMR Hospitality and Real Estate Fund
Portfolio of Investments
– June 30, 2005 (unaudited)


Company

  Shares

  Value


Common Stocks – 67.7%          
Real Estate Investment Trusts – 67.5%          
  Apartments – 8.0%          
    Apartment Investment & Management Co.   10,000   $ 409,200
    Associated Estates Realty Corp.   16,600     153,218
    BNP Residential Properties, Inc.   16,000     256,000
    Gables Residential Trust   65,000     2,809,950
    Home Properties, Inc.   9,900     425,898
    Town & Country Trust   20,000     570,200
       
          4,624,466
  Diversified – 15.6%          
    Bedford Property Investors, Inc.   45,300     1,042,806
    Colonial Properties Trust   59,000     2,596,000
    Commercial Net Lease Realty   73,400     1,502,498
    Crescent Real Estate Equities Co.   95,000     1,781,250
    Lexington Corporate Properties Trust   87,000     2,114,970
       
          9,037,524
  Health Care – 7.5%          
    Health Care REIT, Inc.   47,000     1,771,430
    Nationwide Health Properties, Inc.   91,000     2,148,510
    Windrose Medical Properties Trust   30,100     422,303
       
          4,342,243
  Hospitality – 1.2%          
    Ashford Hospitality Trust, Inc.   28,300     305,640
    Eagle Hospitality Properties Trust, Inc.   36,000     327,960
    Hersha Hospitality Trust   6,000     57,240
       
          690,840
  Industrial – 4.6%          
    First Industrial Realty Trust, Inc.   67,000     2,673,300
  Office – 18.0%          
    Brandywine Realty Trust   32,000     980,800
    Equity Office Properties Trust   131,900     4,365,890
    Glenborough Realty Trust, Inc.   75,000     1,544,250
    Highwoods Properties, Inc.   75,000     2,232,000
    Reckson Associates Realty Corp.   38,000     1,274,900
       
          10,397,840
See notes to financial statements and notes to portfolio of investments

17


  Retail – 7.0%          
    Heritage Property Investment Trust   73,900   $ 2,587,978
    New Plan Excel Realty Trust   53,000     1,440,010
       
          4,027,988
  Specialty – 5.0%          
    Getty Realty Corp.   30,000     831,000
    Trustreet Properties, Inc.   124,700     2,071,267
       
          2,902,267
  Storage – 0.6%          
    Sovran Self Storage, Inc.   8,100     368,226
Total Real Estate Investment Trusts (Cost $31,568,754)         39,064,694
  Other – 0.2%          
    Panamsat Holding Corp. (Cost $133,200)   7,400     151,774
Total Common Stocks (Cost $31,701,954)         39,216,468
Preferred Stocks – 34.9%          
Real Estate Investment Trusts – 34.9%          
  Apartments – 2.8%          
    Apartment Investment & Management Co., Series R   38,000     993,700
    Apartment Investment & Management Co., Series U   24,000     602,400
       
          1,596,100
  Diversified – 1.6%          
    Colonial Properties Trust, Series E   23,067     565,142
    Digital Realty Trust, Inc., Series A   15,000     388,725
       
          953,867
  Health Care – 4.4%          
    Health Care REIT, Inc., Series F   40,000     1,010,800
    LTC Properties, Inc., Series F   40,000     1,023,000
    Windrose Medical Properties Trust, Series A*   20,000     495,000
       
          2,528,800
  Hospitality – 14.9%          
    Ashford Hospitality Trust, Series A   46,000     1,201,750
    Boykin Lodging Co., Series A   70,000     1,942,500
    Eagle Hospitality Properties Trust, Series A   28,000     719,600
    Host Marriott Corp., Series E   60,000     1,650,000
    Innkeepers USA Trust, Series C   27,000     690,390
    Winston Hotels, Inc., Series B   95,000     2,441,025
       
          8,645,265
See notes to financial statements and notes to portfolio of investments

18



 
Company

  Shares or
Principal Amount

  Value

 

 
Preferred Stocks – continued              
Manufactured Homes – 0.4%              
    Affordable Residential Communities, Series A     9,600   $ 242,880  
  Office – 9.9%              
    Alexandria Real Estate Equities, Inc., Series C     120,000     3,166,800  
    Bedford Property Investors, Inc., Series B     30,000     757,650  
    SL Green Realty Corp., Series D     70,000     1,795,500  
         
 
            5,719,950  
  Specialty – 0.9%              
    New Century Financial Corp., Series A     20,000     506,000  
Total Preferred Stocks (Cost $19,208,140)           20,192,862  
Debt Securities – 18.1%              
  Hospitality – 18.1%              
    Felcor Lodging LP, 9.00%, 06/01/2011**   $ 1,600,000     1,748,000  
    MeriStar Hospitality Corp., 9.125%, 01/15/2011**     1,000,000     1,050,000  
    MeriStar Hospitality Corp., 10.50%, 06/15/2009**     1,000,000     1,070,000  
    American Real Estate Partners LP, 8.125%, 06/01/2012     2,000,000     2,060,000  
    ITT Corp., 7.75%, 11/15/2025     3,275,000     3,373,250  
    Six flags Inc., 9.75%, 04/15/2013     1,260,000     1,189,125  
Total Debt Securities (Cost $10,046,777)           10,490,375  
Short-Term Investment – 6.3%              
Other Investment Companies – 6.3%              
    SSgA Money Market Fund, 2.883%(a) (Cost $3,643,043)     3,643,043     3,643,043  
Total Investments – 127.0% (Cost $64,599,914)           73,542,748  
Other assets less liabilities – 2.4%           1,376,523  
Preferred Shares, at liquidation preference – (29.4)%           (17,000,000 )
Net Assets attributable to common shares – 100%         $ 57,919,271  

Notes
to Portfolio of Investments
*
Convertible into common stock.
**
Also a Real Estate Investment Trust.
(a)
Rate reflects 7 day yield as of June 30, 2005.

See notes to financial statements and notes to portfolio of investments


19



RMR Hospitality and Real Estate Fund
Financial Statements
– continued

Statement of Assets and Liabilities


June 30, 2005 (unaudited)

   

Assets      
  Investments in securities, at value (cost $64,599,914)   $ 73,542,748
  Cash     500,322
  Receivable for investments sold     811,542
  Dividends and interest receivable     729,426
  Other assets     11,736
   
    Total assets     75,595,774
   
Liabilities      
  Payable for investment securities purchased     500,000
  Advisory fees payable     36,637
  Distributions payable – preferred shares     19,999
  Accrued expenses and other liabilities     119,867
   
    Total liabilities     676,503
   
Preferred shares at liquidation preference      
  Auction preferred shares, Series Th;
$.001 par value per share; 680 shares issued and
outstanding at $25,000 per share liquidation preference
    17,000,000
   
Net assets attributable to common shares   $ 57,919,271
   
Composition of net assets      
  Common shares, $.001 par value per share;
unlimited number of shares authorized,
2,485,000 shares issued and outstanding
  $ 2,485
  Additional paid-in capital     47,460,854
  Undistributed net investment income     100
  Accumulated net realized gain on investments     1,512,998
  Net unrealized appreciation on investments     8,942,834
   
Net assets attributable to common shares   $ 57,919,271
   
Net asset value per share attributable to common shares
(based on 2,485,000 common shares outstanding)
  $ 23.31
   

See notes to financial statements


20



RMR Hospitality and Real Estate Fund
Financial Statements
– continued

Statement of Operations


 
Six Months Ended June 30, 2005 (unaudited)

   
 

 
Investment income        
  Dividends (Cash distributions received or due)   $ 2,022,583  
  Interest     551,448  
   
 
    Total investment income     2,574,031  
   
 
Expenses        
  Advisory     303,603  
  Administrative     65,330  
  Audit and legal     52,500  
  Custodian     30,158  
  Preferred share remarketing     21,392  
  Compliance and internal audit     20,000  
  Shareholder reporting     15,000  
  Trustees' fees and expenses     8,628  
  Other     43,886  
   
 
    Total expenses     560,497  
  Less: expenses waived by the Advisor     (89,295 )
   
 
  Net expenses     471,202  
   
 
    Net investment income     2,102,829  
   
 
Realized and unrealized gain on investments        
  Net realized gain on investments     728,566  
  Net change in unrealized appreciation/(depreciation) on investments     185,287  
   
 
  Net realized and unrealized gain on investment transactions     913,853  
    Distributions to preferred shareholders from net investment income     (238,979 )
   
 
      Net increase in net assets attributable to common shares resulting from operations   $ 2,777,703  
   
 

See notes to financial statements


21


Statement of Changes in Net Assets


 
 
  Six Months
Ended
June 30,
2005

  For the Period
April 27,
2004(a) to
December 31,
2004

 

 
 
  (unaudited)

   
 
Increase (decrease) in net assets resulting from operations              
  Net investment income   $ 2,102,829   $ 1,750,200  
  Net realized gain on investments     728,566     1,055,756  
  Net change in unrealized appreciation on investments     185,287     8,757,547  
  Distributions to preferred shareholders from:              
    Net investment income     (238,979 )   (151,512 )
    Net realized gain on investments         (23,262 )
   
 
 
    Net increase in net assets attributable to common shares resulting from operations     2,777,703     11,388,729  
   
 
 
  Distributions to common shareholders from:              
    Net investment income     (1,863,750 )   (1,615,688 )
    Net realized gain on investments         (248,062 )
   
 
 
Capital shares transactions              
  Net proceeds from sale of common shares         47,720,000  
  Net proceeds from sale of preferred shares         16,660,339  
   
 
 
    Net increase from capital share transactions         64,380,339  
    Less: Liquidation preference of preferred shares issued         (17,000,000 )
   
 
 
      Total increase in net assets attributable to common shares     913,953     56,905,318  
Net assets attributable to common shares              
  Beginning of period     57,005,318     100,000  
   
 
 
  End of period (including undistributed net investment income of $100 and $0, respectively)   $ 57,919,271   $ 57,005,318  
   
 
 
Common shares issued and repurchased              
  Shares outstanding, beginning of period     2,485,000     5,000  
    Shares issued         2,480,000  
   
 
 
  Shares outstanding, end of period     2,485,000     2,485,000  
   
 
 
(a)
Commencement of operations.

See notes to financial statements


22


Selected Data for a Common Share Outstanding Throughout the Period


 
 
  Six Months
Ended
June 30, 2005

  For the Period
April 27,
2004 (a) to
December 31, 2004

 

 
 
  (unaudited)

   
 
Per Common Share Operating Performance (b)              
Net asset value, beginning of period   $ 22.94   $ 19.28 (c)
   
 
 
Income from Investment Operations              
Net investment income (d)     0.85 (e)   0.71  
Net realized and unrealized appreciation on investments     0.37 (e)   3.95  
Distributions to preferred shareholders (common stock equivalent basis) from:              
  Net investment income     (0.10) (e)   (0.06 )
  Net realized gain on investments      (e)   (0.01 )
   
 
 
Net increase in net asset value from operations     1.12     4.59  
Less: Distributions to common shareholders from:              
  Net investment income     (0.75) (e)   (0.65 )
  Net realized gain on investments      (e)   (0.10 )
Common share offering costs charged to capital         (0.04 )
Preferred share offering costs charged to capital         (0.14 )
   
 
 
Net asset value, end of period   $ 23.31   $ 22.94  
   
 
 
Market price, beginning of period   $ 19.98   $ 20.00  
   
 
 
Market price, end of period   $ 19.70   $ 19.98  
   
 
 
Total Return (f)              
Total investment return based on:              
  Market price (g)     2.58 %   3.93 %
  Net asset value (g)     5.10 %   23.16 %
Ratios/Supplemental Data:              
Preferred shares, liquidation preference ($25,000 per share) (000s)   $ 17,000   $ 17,000  
Net assets attributable to common shares, end of period (000s)   $ 57,919   $ 57,005  
Ratio to average net assets attributable to common shares (h) of:              
  Net investment income, before total preferred share distributions (d)     7.71% (e)   4.96 %
  Total preferred share distributions     0.88 %   0.50 %
  Net investment income, net of preferred share distributions (d)     6.83% (e)   4.46 %
  Expenses, net of fee waivers     1.73 %   1.86 %
  Expenses, before fee waivers     2.05 %   2.18 %
Portfolio turnover rate     5.16 %   20.83 %
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Net asset value at April 27, 2004, reflects the deduction of the average sales load and offering costs of $0.72 per share paid by the holders of common shares from the $20.00 offering price. We paid a sales load and offering costs of $0.90 per share on 2,000,000 common shares sold to the public and no sales load or offering costs on 480,000 common shares sold to affiliates of RMR Advisors for $20 per share.
(d)
Amounts are net of expenses waived by RMR Advisors.
(e)
As discussed in Note A(7) to the financial statements, these amounts are subject to change to the extent 2005 distributions by the issuers of the Fund's investments are characterized as capital gains and return of capital.
(f)
Total returns for periods less than one year are not annualized.
(g)
Total return based on per share market price assumes the purchase of common shares at the market price on the first day and sales of common shares at the market price on the last day of the period indicated; distributions are assumed to be reinvested at market prices. The total return based on net asset value, or NAV, assumes the purchase of common shares at NAV on the first day and sales of common shares at NAV on the last day of the period indicated; distributions are assumed to be reinvested at NAV. Results represent past performance and do not guarantee future results. Total return would have been lower if RMR Advisors had not contractually waived a portion of its investment advisory fee.
(h)
Annualized.

23



RMR Hospitality and Real Estate Fund
Notes to Financial Statements

June 30, 2005 (unaudited)

Note A

(1)  Organization

RMR Hospitality and Real Estate Fund, or the Fund, was organized as a Massachusetts business trust on January 27, 2004, and is registered under the Investment Company Act of 1940, as amended, as a non-diversified closed end management investment company. The Fund had no operations until April 27, 2004, other than matters relating to the Fund's establishment and registration of the Fund's common shares under the Securities Act of 1933.

(2)  Interim Financial Statements

The accompanying June 30, 2005, financial statements have been prepared without audit. The Fund believes the disclosures made are adequate to make the information presented not misleading. In the opinion of the Fund's management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. The Fund's operating results for this interim period are not necessarily indicative of the results that may be expected in the future.

(3)  Use of Estimates

Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires the Fund's management to make estimates and assumptions that may affect the amounts reported in the financial statements and related notes. The actual results could differ from these estimates particularly for reasons described in Note A(7), and for other reasons.

(4)  Portfolio Valuation

Investment securities of the Fund are valued at the latest sales price whenever that price is readily available on the day of valuation; securities for which no sales were reported on that day, unless otherwise noted, are valued at the last available bid price on that day. Securities traded primarily on the NASDAQ Stock Market, or NASDAQ, are normally valued by the Fund at the NASDAQ Official Closing Price, or NOCP, provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:06 p.m., eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. Some fixed income securities may be valued using pricing provided by a pricing service. Any of the Fund's securities which are not readily marketable, which are not traded, which have other characteristics of illiquidity or whose quotations are unreliable are valued by the Fund at fair value as determined in good faith under the supervision of the Fund's board of trustees. Numerous factors may be considered when determining fair value of a security, including cost at date of purchase, type of security, the nature and duration of restrictions on disposition of the security and whether the issuer of the security being fair valued has other securities of the same class outstanding. Short term debt securities with less than 60 days until maturity may be valued at cost, which when combined with interest accrued, approximates market value.

(5)  Securities Transactions and Investment Income

Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the


24


securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost.

(6)  Federal Income Taxes

The Fund has qualified and intends to qualify in the future as a "regulated investment company" and to comply with the applicable provisions of subchapter M of the Internal Revenue Code of 1986, as amended, so that it will generally not be subject to federal income tax.

(7)  Distributable Earnings

The Fund earns income, net of expenses, daily on its investments. It is the policy of the Fund to pay a stable distribution amount to common shareholders on a monthly basis and distributions to Fund shareholders are declared pursuant to this policy. On June 28, 2005, the Fund declared distributions of $0.125 per common share payable in August, September and October 2005. Distributions to Fund shareholders are recorded on the ex-dividend date.

The Fund's distributions may consist of ordinary income (net investment income and short term capital gains), long term capital gains and return of capital. The Fund estimates that the sum of the distributions declared for the 2005 year through June 30, 2005, is not greater than distributions and interest received or accrued by the Fund on its investments over expenses and cost of leverage plus net realized capital gain from sales of securities during 2005.

For financial reporting purposes as required by generally accepted accounting principles, the Fund generally reflects distributions and interest received or accrued on its investments and distributions made to shareholders as ordinary income, long term capital gains and return of capital in accordance with the characterization of these amounts required by the Internal Revenue Code of 1986, as amended. However, it is not possible to characterize distributions received from real estate investment trusts, or REITs, in which the Fund has invested a substantial portion of its assets, during interim periods because these issuers do not report their tax characterization until subsequent to year end 2005. Final characterization of the Fund's 2005 distributions to shareholders is also dependent upon the magnitude or timing of the Fund's securities transactions prior to year end. Therefore, it is likely that some portion of the Fund's 2005 investment income and distributions to shareholders will be recharacterized as long term capital gain and return of capital for financial statement and federal income tax purposes subsequent to year end and reflected accordingly in the Fund's year end financial statements.

To the extent the Fund's net realized capital gains, if any, can be offset by capital loss carry forwards, it is the policy of the Fund not to distribute such gains.

Although subject to adjustments, the cost, gross unrealized appreciation and unrealized depreciation of the Fund's investments for federal income tax purposes, as of June 30, 2005, are as follows:

Cost   $ 64,599,914  
   
 
Gross unrealized appreciation   $ 9,180,735  
Gross unrealized depreciation     (237,901 )
   
 
Net unrealized appreciation   $ 8,942,834  
   
 

25


(8)  Concentration of Risk

Under normal market conditions, the Fund's investments are concentrated in income producing common shares, preferred shares and debt securities, including convertible preferred and debt securities, issued by hospitality and real estate companies and REITs. The value of Fund shares may fluctuate more than the shares of a fund not concentrated in the hospitality and real estate industries due to economic, legal, regulatory, technological or other developments affecting the United States hospitality and real estate industries.

Note B

Advisory and Administration Agreements and Other Transactions with Affiliates

The Fund has an advisory agreement with RMR Advisors, Inc., or RMR Advisors, to provide the Fund with a continuous investment program, to make day to day investment decisions and to generally manage the business affairs of the Fund in accordance with its investment objectives and policies. Pursuant to this agreement, RMR Advisors is compensated at an annual rate of 0.85% of the Fund's average daily managed assets. Managed assets means the total assets of the Fund less liabilities other than any indebtedness entered into for purposes of leverage. For purposes of calculating managed assets, indebtedness entered for the purpose of leverage and the liquidation preference of preferred shares are not considered liabilities.

RMR Advisors has contractually agreed to waive a portion of its annual fee equal to 0.25% of the Fund's average daily managed assets, until April 27, 2009.

On May 16, 2005, Barry M. Portnoy became the sole owner of RMR Advisors. This change in ownership is deemed to be a change in control resulting in termination of the then existing investment advisory agreement under the Investment Company Act of 1940. A new investment advisory agreement with the same terms as the previous agreement (except for dates of execution and effective dates) was approved by the shareholders on May 11, 2005.

RMR Advisors, and not the Fund, has agreed to pay the lead underwriters of the Fund's initial public offering an annual fee equal to 0.15% in the aggregate of the Fund's managed assets. This fee is paid quarterly in arrears during the term of RMR Advisors' advisory agreement and is paid by RMR Advisors, not the Fund. The aggregate fees paid pursuant to the contract plus reimbursement of legal expenses of the underwriters will not exceed 4.5% of the total price of the common shares sold to non-affiliates in the initial public offering.

RMR Advisors also performs administrative functions for the Fund pursuant to an administration agreement with the Fund. RMR Advisors has entered into a sub-administration agreement with State Street Bank and Trust Company ("State Street") to perform substantially all Fund accounting and other administrative services. Under the administration agreement RMR Advisors is entitled to reimbursement of the cost of providing administrative services. During the six months ended June 30, 2005, the Fund reimbursed RMR Advisors for $65,330 of sub-administrative fees charged by State Street.

The Fund pays each trustee who is not a director, officer or employee of RMR Advisors and who is not an interested person of the Fund as defined under the Investment Company Act of 1940, as amended, (a "disinterested trustee") an annual fee plus fees for board and committee meetings.

The Fund's board of trustees and separately the disinterested trustees have authorized the Fund to make reimbursement payments to RMR Advisors for costs related to the Fund's compliance and internal audit


26



programs. The Fund also participates in pooled insurance programs with RMR Advisors and other funds managed by RMR Advisors and makes payments of the allocated portions of related premiums.

Note C

Securities Transactions

During the six months ended June 30, 2005, there were securities purchases and sales transactions (excluding short term securities) of $3,630,338 and $7,309,107 respectively. Brokerage commissions on securities transactions, exclusive of transactions settled on a net basis, amounted to $3,401 during the six months ended June 30, 2005.

Note D

Preferred Shares

The Fund's 680 outstanding Series Th auction preferred shares have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid distributions. The preferred shares are senior to the Fund's common shares and rank on parity with any other class or series of preferred shares of the Fund as to the payment of periodic distributions, including distribution of assets upon liquidation. If the Fund does not timely cure a failure to (1) maintain asset coverage for the preferred shares as required by rating agencies, or (2) maintain asset coverage, as defined in the Investment Company Act of 1940, of at least 200%, the preferred shares will be subject to redemption at an amount equal to their liquidation preference plus accumulated but unpaid distributions. The holders of the preferred shares have voting rights equal to the holders of the Fund's common shares and generally vote together with the holders of the common shares as a single class. Holders of the preferred shares, voting as a separate class, also are entitled to elect two of the Fund's trustees. The Fund pays distributions on the preferred shares at a rate set at auctions held generally every seven days. Distributions are generally payable every seven days, on the first business day following the end of a distribution period. The preferred share distribution rate was 3.10% per annum as of June 30, 2005.

In June 2005, the Fund's board authorized the issuance of additional preferred shares. Subject to market conditions, the Fund intends to offer additional preferred shares which together with the Series Th preferred shares will represent approximately 33% of the Fund's managed assets after issuance.


27



Note E

Submission of Proposals to a Vote of Shareholders

The annual meeting of Fund shareholders was held on May 11, 2005. Following is a summary of the proposals submitted to shareholders for vote at the meeting:

Proposal

  Votes for

  Votes against/
withheld

  Votes abstained

Common shares            
  Election of John L. Harrington as trustee   2,087,045   16,980  
  Approval of investment advisory agreement   2,075,034   14,583   14,408
Preferred shares            
  Election of John L. Harrington as trustee   680    
  Approval of investment advisory agreement   677     3

28


RMR F.I.R.E. Fund
June 30, 2005

    LOGO

To our shareholders,

In the pages that follow, you will find data summarizing our financial results for the first six months of 2005 and our financial position as of June 30, 2005.

As a result of our investment activities for the first six months of 2005, our net asset value was $23.54 per common share as of June 30, 2005, a 1.9% decrease from $23.99 per common share six months earlier. We paid five monthly distributions totaling $0.73 per common share during the first six months of 2005. We completed investing the proceeds from our December 2004 preferred share offering in the first six months of 2005 and paid our first monthly dividend in February 2005.

Our allocation in the hospitality sub-sector increased from 2.4% to 10.9% of total investments, the largest sub-sector increase. During the same time period, our allocation in bank securities decreased from 16.4% to 12.9% of total investments, the largest sub-sector decrease. These changes partly reflect trading activity based upon our view of business environments in these industries and the strengths and weakness of individual companies and partly reflect stock market conditions for real estate investment trusts and relatively weaker stock market conditions for banks. During the remainder of 2005, we will continue to monitor market conditions and position our portfolio according to our view of those conditions.

For shares that we held continuously during the first six months of 2005, our three best performing investments were Equity Office Properties Trust, Colonial Properties Trust and American Capital Strategies, Ltd., with total returns during the period of 17.3%, 16.2% and 13.1%, respectively. Our worst performing investments during the first six months of 2005 were Freidman, Billings, Ramsey Group, Inc., Bedford Properties Investors, Inc. and Farmers Capital Bank Corp., with total returns (losses) during the first six months of (22.8)%, (15.2)% and (14.3)%, respectively.

Thank you for your continued support, and be sure to view our website, at www.rmrfunds.com.

Sincerely,

GRAPHIC

Thomas M. O'Brien
President


29


RMR F.I.R.E. Fund
June 30, 2005

    LOGO

Relevant Market Conditions

Financial Services Industry Fundamentals.    Financial stocks had a difficult first six months in 2005. The treasury yield curve flattening that has so far been the net result of Federal Reserve rate increases, has reduced most bank's spread between cost of funds and asset yields (commonly referred to as net interest margin). Despite this difficulty weighing on share prices, fundamentals have held firm for most banks. Consumer and real estate loan growth continued during the period and residential mortgage growth was much stronger than expected. Despite fears of possible credit quality deterioration, we have seen very little diminishing loan quality in reported statistics, a factor which has confounded the expectations even of some companies' management teams.

The first six months of 2005 also saw a dramatic slow down of merger activity. Recently, the consolidation that we believe may favorably impact bank share prices seems to have begun again.

Real Estate Industry Fundamentals.    We believe the investment environment for most real estate companies at June 30, 2005, and for the remainder of 2005 is generally positive. We believe that the environment for the remainder of 2005 will include revenue growth and stabilizing to improving occupancy rates. We believe that a majority of real estate investment trust's balance sheets reflect modest debt leverage and low floating rate debt.

Real Estate Industry Technicals.    We believe demand for real estate securities over the long term will continue to increase. Demographic trends in the U.S. include growth in the over age 50 population; we believe that individuals in that age category tend to focus their investments in higher yielding stocks like real estate investments trusts, or REITs. Institutions, too, seem to be increasing their allocations to real estate securities as the market capitalization of REITs has increased. Both of these are positive factors affecting the real estate securities market.

Fund Strategies, Techniques and Performance

Our investment objective is to provide high total returns to our common shareholders through a combination of capital appreciation and current income. There can be no assurance that we will meet our investment objective.

During the first six months of 2005, our total return on net asset value, or NAV (including NAV changes and assuming a hypothetical reinvestment of distributions at NAV) was 1.4%. During the same period the S&P 500 Financial Sector Index total return (loss) was (2.3)%, the total return for the MSCI US REIT Total Return Index was 6.4% and the MSCI REIT Preferred Index was 2.8%. We believe these three indices are most relevant to our investments because our investments, excluding short-term investments, as of June 30, 2005, include 27.6% of financial services stocks, 31.5% REIT common stocks and 38.1% REIT preferred stocks. The S&P 500 Index (an unmanaged index published as Standard and Poor's Composite Index of 500 Stocks) total return (loss) for the first six months of 2005 was (0.8)%.


30


RMR F.I.R.E. Fund
Portfolio of Investments – June 30, 2005
(unaudited)


 
Company

  Shares

  Value

 

 
Common Stocks – 90.1%            
Financial Services – 38.5%            
  Banks – 19.7%            
    Comerica Incorporated   14,800   $ 855,440  
    Farmers Capital Bank Corp.   3,035     105,132  
    Fifth Third Bancorp   3,000     123,630  
    First Commonwealth Financial Corp.   28,000     383,600  
    First Horizon National Corp.   11,400     481,080  
    Firstmerit Corp.   22,800     595,308  
    F.N.B. Corp.   28,500     560,025  
    Hudson United Bancorp   17,100     617,310  
    JPMorgan Chase & Co.   7,500     264,900  
    Keycorp   17,100     566,865  
    National City Corp.   27,400     934,888  
    Regions Financial Corp.   23,200     786,016  
    Susquehanna Bancshares, Inc.   12,600     309,834  
    Trustco Bank Corp NY   23,400     305,604  
       
 
          6,889,632  
  Thrifts – 6.3%            
    Capitol Federal Financial   17,400     599,952  
    Flagstar Bancorp, Inc.   25,000     473,250  
    New York Community Bancorp, Inc.   63,200     1,145,184  
    Beverly Hills Bancorp, Inc.   100     1,095  
       
 
          2,219,481  
Other Financial Services – 12.5%            
  American Capital Strategies, Ltd.   17,000     613,870  
    CharterMac   44,200     970,632  
    Capital Trust, Inc.*   4,900     163,709  
    Fannie Mae   17,000     992,800  
    Friedman Billings Ramsey Group, Inc.*   54,000     772,200  
    Lazard Ltd   3,000     69,750  
    MCG Capital Corp.*   46,500     794,220  
       
 
          4,377,181  
Total Financial Services (Cost $14,448,369)         13,486,294  
See notes to financial statements and notes to portfolio of investments  

31


Real Estate – 47.5%            
  Apartments – 2.3%            
    AMLI Residential Properties Trust*   10,800   $ 337,608  
    United Dominion Realty Trust, Inc.*   19,200     461,760  
       
 
          799,368  
  Diversified – 13.2%            
    Colonial Properties Trust*   8,400     369,600  
    Bedford Property Investors, Inc.*   24,000     552,480  
    Liberty Properties Trust*   18,000     797,580  
    Lexington Corporate Properties Trust*   26,400     641,784  
    Crescent Real Estate Equities Co.*   82,400     1,545,000  
    Commercial Net Lease Realty*   34,200     700,074  
       
 
          4,606,518  
  Health Care – 4.1%            
    Nationwide Health Properties, Inc.*   26,000     613,860  
    Health Care Property Investors, Inc.*   3,000     81,120  
    Health Care REIT, Inc.*   17,900     674,651  
    Windrose Medical Properties Trust*   5,000     70,150  
       
 
          1,439,781  
  Hospitality – 1.0%            
    Eagle Hospitality Properties Trust, Inc.*   36,500     332,515  
  Industrial – 3.8%            
    First Industrial Realty Trust, Inc.*   32,900     1,312,710  
  Office – 7.8%            
    Arden Realty, Inc.*   9,600     345,408  
    Equity Office Properties Trust*   23,050     762,955  
    Glenborough Realty Trust, Inc.*   64,400     1,325,996  
    Reckson Associates Realty Corp.*   8,400     281,820  
       
 
          2,716,179  
See notes to financial statements and notes to portfolio of investments  

32


  Manufactured Homes – 2.1%            
    Sun Communities, Inc.*   20,000   $ 743,800  
  Retail – 7.5%            
    Glimcher Realty Trust   44,000     1,221,000  
    Heritage Property Investment Trust*   16,800     588,336  
    The Mills Corp.*   1,600     97,264  
    New Plan Excel Realty Trust*   26,800     728,156  
       
 
          2,634,756  
  Specialty – 4.6%            
    Trustreet Properties, Inc.*   61,000     1,013,210  
    iStar Financial Inc.*   14,000     582,260  
       
 
          1,595,470  
  Storage – 1.1%            
    Sovran Self Storage, Inc. *   8,200     372,772  
Total Real Estate (Cost $16,544,139)         16,553,869  
  Other – 4.1%            
    Panamsat Holding Corp. (Cost $1,274,400)   70,800     1,452,108  
Total Common Stocks (Cost $32,266,908)         31,492,271  
Preferred Stocks – 60.1%            
Real Estate – 57.3%            
  Apartments – 10.5%            
    Apartment Investment & Management Co., Series U*   32,500     815,750  
    Apartment Investment & Management Co., Series V*   27,700     703,580  
    Apartment Investment & Management Co., Series Y*   65,000     1,631,500  
    Home Properties NY, Inc., Series F*   18,800     521,230  
       
 
          3,672,060  
  Diversified – 6.2%            
    Bedford Properties Inv., Series B*   45,000     1,136,475  
    Digital Realty Trust Inc., Series A*   20,000     518,300  
    Cousins Properties, Inc., Series B*   20,000     509,400  
       
 
          2,164,175  
See notes to financial statements and notes to portfolio of investments  

33


  Health Care – 2.0%            
    Health Care REIT, Inc., Series F*   26,900   $ 679,763  
  Hospitality – 15.7%            
    Eagle Hospitality Properties Trust, Series A*   14,000     359,800  
    Winston Hotels, Inc., Series B*   10,900     280,076  
    Equity Inns, Inc., Series B*   50,000     1,307,500  
    Lasalle Hotel Properties, Series A*   36,000     961,920  
    Entertainment Properties Trust, Series B*   40,000     1,014,400  
    Felcor Lodging Trust, Inc., Series C*   64,000     1,569,920  
       
 
          5,493,616  
  Manufactured Homes – 0.5%            
    Affordable Residential, Series A*   6,900     174,570  
  Office – 2.4%            
    Alexandria Real Estate Equities, Series C *   31,600     833,924  
  Retail – 10.3%            
    CBL & Associates Prop., Series D*   10,000     253,300  
    Glimcher Realty Trust, Series F*   26,500     709,935  
    Taubman Centers, Inc., Series G*   15,000     384,750  
    Glimcher Realty Trust, Series G*   41,000     1,047,550  
    Ramco-Gershenson Properties Trust, Series B*   36,000     957,960  
    The Mills Corp., Series E*   9,500     257,450  
       
 
          3,610,945  
  Specialty – 9.7%            
    RAIT Investment Trust, Series B*   59,000     1,523,380  
    MFA Mortgage Investment, Inc., Series A*   13,800     358,800  
    New Century Financial, Series A*   20,000     506,000  
    Thornburg Mortgage, Inc., Series C*   40,000     1,007,599  
       
 
          3,395,779  
Total Real Estate (Cost $20,008,725)         20,024,832  
See notes to financial statements and notes to portfolio of investments  

34


  Financial Services – 2.8%            
    Corts-UNUM Provident Financial Trust   38,000   $ 986,860  
Total Financial Services (Cost $982,300)         986,860  
Total Preferred Stocks (Cost $20,991,025)         21,011,692  
Short-Term Investments – 2.7%            
  Other Investment Companies – 2.7%            
    SSgA Money Market Fund, 2.883%(a), (Cost $941,506)   941,506     941,506  
Total Investments – 152.9% (Cost $54,199,439)         53,445,469  
Other assets less liabilities – 4.3%         1,493,512  
Preferred Shares, at liquidation preference – (57.2)%         (20,000,000 )
Net Assets attributable to common shares – 100%       $ 34,938,981  

Notes to Portfolio of Investments

*
Real Estate Investment Trust
(a)
Rate reflects 7 day yield as of June 30, 2005.

See notes to financial statements and notes to portfolio of investments


35


Statement of Assets and Liabilities


 
June 30, 2005 (unaudited)

   
 

 
Assets        
  Investments in securities, at value (cost $54,199,439)   $ 53,445,469  
  Cash     896  
  Receivable for investments sold     1,043,412  
  Dividends and interest receivable     527,479  
  Other assets     14,768  
   
 
    Total assets     55,032,024  
   
 
Liabilities        
  Advisory fees payable     26,887  
  Distributions payable – preferred shares     11,664  
  Accrued expenses and other liabilities     54,492  
   
 
    Total liabilities     93,043  
   
 
Preferred shares at liquidation preference        
  Auction preferred shares, Series W; $.001 par value per share;
800 shares issued and outstanding at $25,000 per share liquidation preference
    20,000,000  
   
 
Net assets attributable to common shares   $ 34,938,981  
   
 
Composition of net assets        
  Common shares, $.001 par value per share; unlimited number of
shares authorized, 1,484,000 shares issued and outstanding
  $ 1,484  
  Additional paid-in capital     35,212,862  
  Undistributed net investment income     124,163  
  Accumulated net realized gain on investments     354,442  
  Net unrealized depreciation on investments     (753,970 )
   
 
Net assets attributable to common shares   $ 34,938,981  
   
 
Net asset value per share attributable to common shares
(based on 1,484,000 common shares outstanding)
  $ 23.54  
   
 

See notes to financial statements


36


Statement of Operations


 
Six Months Ended June 30, 2005 (unaudited)

   
 

 
Investment income        
  Dividends (Cash distributions received or due)   $ 1,735,553  
  Interest     21,703  
   
 
    Total investment income     1,757,256  
   
 
Expenses        
  Advisory     225,644  
  Administrative     63,628  
  Audit and legal     42,150  
  Custodian     31,449  
  Preferred share remarketing     25,168  
  Compliance and internal audit     20,000  
  Shareholder reporting     10,750  
  Trustees' fees and expenses     11,300  
  Other     45,986  
   
 
    Total expenses     476,075  
  Less: expenses waived by the Advisor     (66,366 )
   
 
    Net expenses     409,709  
   
 
      Net investment income     1,347,547  
   
 
Realized and unrealized gain on investments        
  Net realized gain on investments     249,752  
  Net change in unrealized appreciation/(depreciation) on investments     (895,386 )
   
 
  Net realized and unrealized loss on investment transactions     (645,634 )
    Distributions to preferred shareholders from net investment income     (273,376 )
   
 
      Net increase in net assets attributable to common shares resulting from operations   $ 428,537  
   
 

See notes to financial statements


37


Statement of Changes in Net Assets


 
 
  Six Months Ended
June 30, 2005

  For the Period
November 22,
2004(a) to
December 31,
2004

 

 
 
  (unaudited)

   
 
Increase (decrease) in net assets resulting from operations              
  Net investment income   $ 1,347,547   $ 152,000  
  Net realized gain on investments     249,752     104,690  
  Net unrealized appreciation/(depreciation) on investments     (895,386 )   141,416  
  Distributions to preferred shareholders from net investment income     (273,376 )   (22,688 )
   
 
 
    Net increase in net assets attributable to common shares resulting from operations     428,537     375,418  
   
 
 
  Distributions to common shareholders from net investment income     (1,083,320 )    
Capital shares transactions              
  Net proceeds from sale of common shares         35,496,000  
  Net proceeds from sale of preferred shares         19,622,346  
   
 
 
    Net from capital share transactions         55,118,346  
  Less: Liquidation preference of preferred shares issued         (20,000,000 )
   
 
 
    Total increase (decrease) in net assets attributable to common shares     (654,783 )   35,493,764  
Net assets attributable to common shares              
  Beginning of period     35,593,764     100,000  
   
 
 
  End of period (including undistributed net investment income of $124,163 and $133,312, respectively)   $ 34,938,981   $ 35,593,764  
   
 
 

Common shares issued and repurchased

 

 

 

 

 

 

 
  Shares outstanding, beginning of period     1,484,000     4,000  
    Shares issued         1,480,000  
   
 
 
  Shares outstanding, end of period     1,484,000     1,484,000  
   
 
 
(a)
Commencement of operations.

See notes to financial statements


38


Selected Data for a Common Share Outstanding Throughout the Period


 
 
  Six Months ended June 30, 2005

  For the Period November 22, 2004(a) to December 31, 2004

 

 
 
  (unaudited)

   
 
Per Common Share Operating Performance (b)              
Net asset value, beginning of period   $ 23.99   $ 24.03  (c)
   
 
 
Income from Investment Operations              
Net investment income (d)     0.91  (e)   0.10  
Net realized and unrealized appreciation (depreciation) on investments     (0.44 )(e)   0.17  
Distributions to preferred shareholders (common stock equivalent basis) from:              
  Net investment income     (0.19 )(e)   (0.02 )
  Net realized gain on investments      (e)    
   
 
 
Net increase in net asset value from operations     0.28     0.25  
Less: Distributions to common shareholders from:              
  Net investment income     (0.73 )(e)    
Common share offering costs charged to capital         (0.04 )
Preferred share offering costs charged to capital         (0.25 )
   
 
 
Net asset value, end of period   $ 23.54   $ 23.99  
   
 
 
Market price, beginning of period   $ 24.05   $ 25.00  
   
 
 
Market price, end of period   $ 21.15   $ 24.05  
   
 
 
Total Return (f)              
Total investment return based on:              
  Market price (g)     -8.89 %   -3.80 %
  Net asset value (g)     1.35 %   -0.17 %
Ratios/Supplemental Data:              
Preferred shares, liquidation preference ($25,000 per share) (000s)   $ 20,000   $ 20,000  
Net assets attributable to common shares, end of period (000s)   $ 34,939   $ 35,594  
Ratio to average net assets attributable to common shares (h) of:              
  Net investment income, before total preferred share distributions (d)     8.10 %(e)   3.92 %
  Total preferred share distributions     1.64 %   0.58 %
  Net investment income, net of preferred share distributions (d)     6.46 %(e)   3.34 %
  Expenses, net of fee waivers     2.46 %   3.45 %
  Expenses, before fee waivers     2.86 %   3.73 %
Portfolio turnover rate     31.02 %   0.00 %
(a)
Commencement of operations.

(b)
Based on average shares outstanding.

(c)
Net asset value at November 22, 2004, reflects the deduction of the average sales load and offering costs of $0.97 per share paid by the holders of common shares from the $25.00 offering price. We paid a sales load and offering costs of $1.125 per share on 1,280,000 common shares sold to the public and no sales load or offering costs on 200,000 common shares sold to affiliates of RMR Advisors for $25 per share.

(d)
Amounts are net of expenses waived by RMR Advisors.

(e)
As discussed in Note A(7) to the financial statements, these amounts are subject to change to the extent 2005 distributions by the issuers of the Fund's investments are characterized as capital gains and return of capital.

(f)
Total returns for periods less than one year are not annualized.

(g)
Total return based on per share market price assumes the purchase of common shares at the market price on the first day and sales of common shares at the market price on the last day of the period indicated; dividends and distributions, if any, are assumed to be reinvested at market prices. The total return based on net asset value, or NAV, assumes the purchase of common shares at NAV on the first day and sales of common shares at NAV on the last day of the period indicated; distributions are assumed to be reinvested at NAV. Results represent past performance and do not guarantee future results. Total return would have been lower if RMR Advisors had not contractually waived a portion of its investment advisory fee.

(h)
Annualized.

39



RMR F.I.R.E. Fund
Notes to Financial Statements

June 30, 2005 (unaudited)

Note A

(1)  Organization

RMR F.I.R.E. Fund, or the Fund, was organized as a Massachusetts business trust on August 6, 2004, and is registered under the Investment Company Act of 1940, as amended, as a non-diversified closed end management investment company. The Fund had no operations until November 22, 2004, other than matters relating to the Fund's establishment and registration of the Fund's common shares under the Securities Act of 1933.

(2)  Interim Financial Statements

The accompanying June 30, 2005, financial statements have been prepared without audit. The Fund believes the disclosures made are adequate to make the information presented not misleading. In the opinion of the Fund's management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. The Fund's operating results for this interim period are not necessarily indicative of the results that may be expected in the future.

(3)  Use of Estimates

Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires the Fund's management to make estimates and assumptions that may affect the amounts reported in the financial statements and related notes. The actual results could differ from these estimates particularly for reasons described in Note A(7), and for other reasons.

(4)  Portfolio Valuation

Investment securities of the Fund are valued at the latest sales price whenever that price is readily available on the day of valuation; securities for which no sales were reported on that day, unless otherwise noted, are valued at the last available bid price on that day. Securities traded primarily on the NASDAQ Stock Market, or NASDAQ, are normally valued by the Fund at the NASDAQ Official Closing Price, or NOCP, provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:06 p.m., eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. Some fixed income securities may be valued using pricing provided by a pricing service. Any of the Fund's securities which are not readily marketable, which are not traded, which have other characteristics of illiquidity or whose quotations are unreliable are valued by the Fund at fair value as determined in good faith under the supervision of the Fund's board of trustees. Numerous factors may be considered when determining fair value of a security, including cost at date of purchase, type of security, the nature and duration of restrictions on disposition of the security and whether the issuer of the security being fair valued has other securities of the same class outstanding. Short term debt securities with less than 60 days until maturity may be valued at cost, which when combined with interest accrued, approximates market value.


40


(5)  Securities Transactions and Investment Income

Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost.

(6)  Federal Income Taxes

The Fund has qualified and intends to qualify in the future as a "regulated investment company" and to comply with the applicable provisions of subchapter M of the Internal Revenue Code of 1986, as amended, so that it will generally not be subject to federal income tax.

(7)  Distributable Earnings

The Fund earns income, net of expenses, daily on its investments. It is the policy of the Fund to pay a stable distribution amount to common shareholders on a monthly basis and distributions to Fund shareholders are declared pursuant to this policy. On June 28, 2005, the Fund declared distributions of $0.146 per common share payable in August, September and October 2005. Distributions to Fund shareholders are recorded on the ex-dividend date.

The Fund's distributions may consist of ordinary income (net investment income and short term capital gains), long term capital gains and return of capital. The Fund estimates that the sum of the distributions declared for the 2005 year through June 30, 2005, is not greater than distributions and interest received or accrued by the Fund on its investments over expenses and cost of leverage plus net realized capital gain from sales of securities during 2005.

For financial reporting purposes as required by generally accepted accounting principles, the Fund generally reflects distributions and interest received or accrued on its investments and distributions made to shareholders as ordinary income, long term capital gains and return of capital in accordance with the characterization of these amounts required by the Internal Revenue Code of 1986, as amended. However, it is not possible to characterize distributions received from real estate investment trusts, or REITs, in which the Fund has invested a substantial portion of its assets, during interim periods because these issuers do not report their tax characterization until subsequent to year end 2005. Final characterization of the Fund's 2005 distributions to shareholders is also dependent upon the magnitude or timing of the Fund's securities transactions prior to year end. Therefore, it is likely that some portion of the Fund's 2005 investment income and distributions to shareholders will be recharacterized as long term capital gain and return of capital for financial statement and federal income tax purposes subsequent to year end and reflected accordingly in the Fund's year end financial statements.

To the extent the Fund's net realized capital gains, if any, can be offset by capital loss carry forwards, it is the policy of the Fund not to distribute such gains.


41



Although subject to adjustments, the cost, gross unrealized appreciation and unrealized depreciation of the Fund's investments for federal income tax purposes, as of June 30, 2005, are as follows:

Cost   $ 54,199,439  
   
 
Gross unrealized appreciation   $ 802,361  
Gross unrealized depreciation     (1,556,331 )
   
 
Net unrealized depreciation   $ (753,970 )
   
 

(8)  Concentration of Risk

Under normal market conditions, the Fund's investments are concentrated in common and preferred shares issued by F.I.R.E companies. "F.I.R.E." is a commonly used acronym for the combined financial services, insurance and real estate industries. The value of Fund shares may fluctuate more than the shares of a fund not concentrated in the F.I.R.E. industries due to economic, legal, regulatory, technological or other developments affecting the United States F.I.R.E. industries.

Note B

Advisory and Administration Agreements and Other Transactions with Affiliates

The Fund has an advisory agreement with RMR Advisors, Inc., or RMR Advisors, to provide the Fund with a continuous investment program, to make day to day investment decisions and to generally manage the business affairs of the Fund in accordance with its investment objectives and policies. Pursuant to this agreement, RMR Advisors is compensated at an annual rate of 0.85% of the Fund's average daily managed assets. Managed assets means the total assets of the Fund less liabilities other than any indebtedness entered for purposes of leverage. For purposes of calculating managed assets, the liquidation preference of preferred shares are not considered liabilities.

RMR Advisors has contractually agreed to waive a portion of its annual fee equal to 0.25% of the Fund's average daily managed assets, until November 22, 2009.

On May 16, 2005, Barry M. Portnoy became the sole owner of RMR Advisors. This change in ownership is deemed to be a change in control resulting in termination of the then existing investment advisory agreement under the Investment Company Act of 1940. A new investment advisory agreement with the same terms as the previous agreement (except for dates of execution and effective dates) was approved by shareholders on May 11, 2005.

RMR Advisors, and not the Fund, has agreed to pay the lead underwriters of the Fund's initial public offering an annual fee equal to 0.15% in the aggregate of the Fund's managed assets. This fee is paid quarterly in arrears during the term of RMR Advisors' advisory agreement and is paid by RMR Advisors, not the Fund. The aggregate fees paid during the term of the contract plus reimbursement of legal expenses of the underwriters will not exceed 4.5% of the total price of the common shares sold to non-affiliates in the initial public offering.

RMR Advisors also performs administrative functions for the Fund pursuant to an administration agreement with the Fund. RMR Advisors has entered into a sub-administration agreement with State Street Bank and Trust Company ("State Street") to perform substantially all Fund accounting and other administrative


42



services. Under the administration agreement RMR Advisors is entitled to reimbursement of the cost of providing administrative services. During the six months ended June 30, 2005, the Fund reimbursed RMR Advisors for $63,628 of sub-administrative fees charged by State Street.

The Fund pays each trustee who is not a director, officer or employee of RMR Advisors and who is not an interested person of the Fund as defined under the Investment Company Act of 1940, as amended, (a "disinterested trustee") an annual fee plus fees for board and committee meetings.

The Fund's board of trustees and separately the disinterested trustees have authorized the Fund to make reimbursement payments to RMR Advisors for costs related to the Fund's compliance and internal audit programs. The Fund also participates in pooled insurance programs with RMR Advisors and other funds managed by RMR Advisors and makes payments of the allocated portions of related premiums.

Note C

Securities Transactions

During the six months ended June 30, 2005, there were securities purchases and sales transactions (excluding short term securities) of $24,287,405 and $15,808,877, respectively. Brokerage commissions on securities transactions, exclusive of transactions settled on a net basis, amounted to $21,985 during the six months ended June 30, 2005.

Note D

Preferred Shares

The Fund's 800 outstanding Series W auction preferred shares have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid distributions. The preferred shares are senior to the Fund's common shares and rank on parity with any other class or series of preferred shares of the Fund as to the payment of periodic distributions, including distribution of assets upon liquidation. If the Fund does not timely cure a failure to (1) maintain asset coverage for the preferred shares as required by rating agencies, or (2) maintain asset coverage, as defined in the Investment Company Act of 1940, of at least 200%, the preferred shares will be subject to redemption at an amount equal to their liquidation preference plus accumulated but unpaid distributions. The holders of the preferred shares have voting rights equal to the holders of the Fund's common shares and generally vote together with the holders of the common shares as a single class. Holders of the preferred shares, voting as a separate class, also are entitled to elect two of the Fund's trustees. The Fund pays distributions on the preferred shares at a rate set at auctions held generally every seven days. Distributions are generally payable every seven days, on the first business day following the end of a distribution period. The preferred share distribution rate was 3.05% per annum as of June 30, 2005.


43



Note E

Submission of Proposals to a Vote of Shareholders

The annual meeting of Fund shareholders was held on May 11, 2005. Following is a summary of the proposals submitted to shareholders for vote at the meeting:

Proposal

  Votes for

  Votes against/
withheld

  Votes abstained

Common shares            
  Election of John L. Harrington as trustee   1,444,548   12,133  
  Approval of investment advisory agreement   1,432,125   6,459   18,097
Preferred shares            
  Election of John L. Harrington as trustee   798   2  
  Approval of investment advisory agreement   789   1   10

44


RMR Preferred Dividend Fund
June 30, 2005

    LOGO

To our shareholders,

In the pages that follow, you will find data summarizing our financial results for the period from May 25, 2005, the date we commenced operations, through June 30, 2005, and our financial position as of June 30, 2005.

As a result of our investment activities for this initial period, our net asset value increased to $19.25 per common share as of June 30, 2005, a 0.8% increase from $19.09 per common share on May 25, 2005. In July 2005, we declared our first monthly distributions to common shareholders of $0.15 per common share to be paid in each of August and September 2005.

During this period we believe we have taken the initial steps in building what we believe will be a sound investment portfolio. Subsequent to June 30, 2005, we issued auction rate preferred shares, as described in the accompanying financial statements, and have begun to invest the net proceeds of that issuance.

Thank you for your continued support, and be sure to view our website, at www.rmrfunds.com.

Sincerely,

GRAPHIC

Thomas M. O'Brien
President


45


RMR Preferred Dividend Fund
June 30, 2005

    LOGO

Relevant Market Conditions

Real Estate Industry Fundamentals.    We believe the investment environment for most real estate companies at June 30, 2005, and for the remainder of 2005 is generally positive. We believe that the environment for the remainder of 2005 will include revenue growth and stabilizing to improving occupancy rates. We believe that a majority of real estate investment trust's balance sheets reflect modest debt leverage and low floating rate debt.

Real Estate Industry Technicals.    We believe demand for real estate securities over the long term will continue to increase. Demographic trends in the U.S. include growth in the over age 50 population; we believe that individuals in that age category tend to focus their investments in higher yielding preferred and common stocks like real estate investments trusts, or REITs. Institutions, too, seem to be increasing their allocations to real estate securities as the market capitalization of REITs has increased. Both of these are positive factors affecting the real estate securities market.

Fund Strategies, Techniques and Performance

Our primary investment objective is to provide our common shareholders high current income. Our secondary investment objective is capital appreciation. There can be no assurance that we will meet our investment objectives.

During the period from May 25, 2005 through June 30, 2005, our total return on net asset value, or NAV was 0.8%. During that same period, the total return for the MSCI REIT Preferred Index was 1.0%. We believe this index is most relevant to our investments because our investments as of June 30, 2005, excluding short-term investments, include 76.4% REIT preferred stocks. The S&P 500 Index (an unmanaged index published as Standard and Poor's Composite Index of 500 Stocks) total return for the same period was 0.3%.


46


RMR Preferred Dividend Fund
Portfolio of Investments – June 30, 2005
(unaudited)


 
Company

  Principal Amount

  Value

 

 
Preferred Stocks – 57.2%              
  Real Estate Investment Trusts – 54.1%              
    Apartments – 4.0%              
      Apartment Investment & Management Co., Series R   $ 68,000   $ 1,778,200  
    Diversified – 3.9%              
      Crescent Real Estate Equities Co., Series B     63,700     1,703,338  
    Hospitality – 15.5%              
      Boykin Lodging Co., Series A     20,000     555,000  
      Eagle Hospitality Properties Trust, Series A     95,000     2,441,500  
      Entertainment Properties Trust, Series A     40,000     1,080,400  
      Felcor Lodging Trust, Series C     85,000     2,085,050  
      Host Marriott Corp., Series E     15,000     412,500  
      Sunstone Hotel Investors, Inc., Series A     12,500     321,875  
         
 
            6,896,325  
    Retail – 12.3%              
      CBL & Associates Properties, Inc. Series B     4,600     244,950  
      Mills Corp., Series C     87,500     2,359,438  
      Mills Corp., Series E     10,000     271,000  
      Pennsylvania Real Estate Investment Trust, Series A     44,000     2,596,000  
         
 
            5,471,388  
    Specialty – 18.4%              
      Accredited Mortgage Loan REIT Trust, Series A     1,500     39,630  
      American Home Mortgage Investment Corp., Series A     92,000     2,588,880  
      Impac Mortgage Holdings, Inc., Series C     42,400     1,075,264  
      MFA Mortgage Investments, Inc., Series A     40,000     1,040,000  
      New Century Financial Corp., Series A     100,000     2,530,000  
      Newcastle Investment Corp., Series B     30,000     807,000  
      Thornburg Mortgage Inc., Series C     2,500     62,975  
         
 
            8,143,749  
      Total Real Estate Investment Trusts (Cost $23,808,976)           23,993,000  
    Other – 3.1%              
      Ford Motor Co., 6/15/43 Series     9,400     198,340  
      General Motors Corp., 5/15/48 Series     26,100     525,393  
      Westcoast Hospitality Corp., Series A     24,000     638,400  
      Total Other (Cost $1,359,045)           1,362,133  
Total Preferred Stocks (Cost $25,168,021)           25,355,133  
See notes to financial statements  

47


Debt Securities – 13.6%              
    Six Flags Inc., 9.75%, 04/15/2013   $ 2,740,000   $ 2,585,875  
    Ford Motor Co., 7.75%, 6/15/2043     1,200,000     1,796,049  
    General Motors Corp., 8.375%, 7/15/2033     1,300,000     1,670,000  
Total Debt Securities (Cost $5,972,384)           6,051,924  
Short-Term Investments – 29.4%              
  Commercial Paper – 29.4%              
    American Express Credit Corporation, 2.6%, 7/1/2005     2,000,000     2,000,000  
    American General Finance Corp., 2.6%, 7/1/2005     2,000,000     2,000,000  
    General Electric Capital Corp., 2.6%, 7/1/2005     2,000,000     2,000,000  
    HSBC Finance Corp., 2.6%, 7/1/2005     2,000,000     2,000,000  
    Prudential Funding. Corp., 2.6%, 7/1/2005     2,000,000     2,000,000  
    State Street Boston Corp., 2.6%, 7/1/2005     1,039,000     1,039,000  
    UBS Finance Co., 2.6%, 06/27/2005     2,000,000     2,000,000  
Total Commercial Paper (Cost $13,039,000)           13,039,000  
Total Investments – 100.2% (Cost $44,179,405)           44,446,057  
Other assets less liabilities – (0.2)%           (74,504 )
Net assets attributable to common shares – 100%         $ 44,371,553  

See notes to financial statements


48



RMR Preferred Dividend Fund
Financial Statements

Statement of Assets and Liabilities


June 30, 2005 (unaudited)

   

Assets      
  Investments in securities, at value (cost $44,179,405)   $ 44,446,057
  Cash     530,220
  Dividends and interest receivable     213,194
   
    Total assets     45,189,471
   
Liabilities      
  Payable for investment securities purchased     770,825
  Advisory fees payable     10,870
  Accrued expenses and other liabilities     36,223
   
    Total liabilities     817,918
   
Net assets attributable to common shares   $ 44,371,553
   
Composition of net assets      
  Common shares, $.001 par value per share; unlimited number of
shares authorized, 2,305,000 shares issued and outstanding
  $ 2,305
  Additional paid-in capital     43,994,445
  Undistributed net investment income     108,151
  Net unrealized appreciation on investments     266,652
   
Net assets attributable to common shares   $ 44,371,553
   
Net asset value per share attributable to common shares
(based on 2,305,000 common shares outstanding)
  $ 19.25
   

See notes to financial statements


49


Statement of Operations


 
For the Period May 25, 2005(a) to June 30, 2005 (unaudited)

   
 

 
Investment income        
  Dividends (Cash distributions received or due)   $ 90,066  
  Interest     83,207  
   
 
    Total investment income     173,273  
   
 
Expenses        
  Advisory     36,946  
  Administrative     13,500  
  Shareholder reporting     10,000  
  Audit and legal     8,000  
  Custodian     6,546  
  Compliance and internal audit     3,500  
  Trustees' fees and expenses     1,950  
  Other     8,586  
   
 
    Total expenses     89,028  
  Less: expenses waived by the Advisor     (23,906 )
   
 
    Net expenses     65,122  
   
 
      Net investment income     108,151  
  Net change in unrealized appreciation/(depreciation) on investments     266,652  
   
 
      Net increase in net assets attributable to common shares resulting from operations   $ 374,803  
   
 
(a)
Commencement of operations.

See notes to financial statements


50



RMR Preferred Dividend Fund
Financial Statements
– continued

Statement of Changes in Net Assets


For the Period May 25, 2005(a) to June 30, 2005 (unaudited)

   

Increase in net assets resulting from operations      
  Net investment income   $ 108,151
  Net unrealized appreciation/(depreciation) on investments     266,652
   
    Net increase in net assets attributable to common shares resulting from operations     374,803
Capital shares transactions      
  Net proceeds from sale of common shares     43,896,750
   
    Total increase in net assets attributable to common shares     44,271,553
Net assets attributable to common shares      
  Beginning of period     100,000
   
  End of period (including undistributed net investment income of $108,151)   $ 44,371,553
   
Common shares      
  Shares outstanding, beginning of period     5,000
  Shares issued     2,300,000
   
  Shares outstanding, end of period     2,305,000
   
(a)
Commencement of operations.

See notes to financial statements


51


Financial Highlights – RMR Preferred Dividend Fund

Selected Data for a Common Share Outstanding Throughout the Period


 
 
  For the Period
May 25, 2005 (a) to
June 30, 2005

 

 
 
  (unaudited)

 
Per Common Share Operating Performance (b)        
Net asset value, beginning of period   $ 19.09 (c)
   
 
Income from Investment Operations        
Net investment income (d)     0.05 (e)
Net realized and unrealized appreciation on investments     0.11 (e)
   
 
Net increase in net asset value from operations     0.16  
   
 
Net asset value, end of period   $ 19.25  
   
 
Market price, beginning of period   $ 20.00  
   
 
Market price, end of period   $ 19.80  
   
 
Total Return (f)        
Total investment return based on:        
  Market price (g)     -1.00 %
  Net asset value (g)     0.84 %
Ratios/Supplemental Data:        
Net assets attributable to common shares, end of period (000s)   $ 44,372  
Ratio to average net assets attributable to common shares (h) of:        
  Net investment income (d)     2.49 %
  Expenses, net of fee waivers     1.50 %
  Expenses, before fee waivers     2.05 %
Portfolio turnover rate     0.00 %
(a)
Commencement of operations.
(b)
Based on average shares outstanding.
(c)
Net asset value at May 25, 2005, reflects the deduction of the average sales load and offering costs of $0.91 per share paid by the holders of common shares from the $20.00 offering price. We paid a sales load and offering costs of $0.94 per share on 2,237,500 common shares sold to the public and no sales load or offering costs on 67,500 common shares sold to affiliates of RMR Advisors for $20 per share.
(d)
Amounts are net of expenses waived by RMR Advisors.
(e)
As discussed in Note A(7) to the financial statements, these amounts are subject to change to the extent 2005 distributions by the issuers of the Fund's investments are characterized as capital gains.
(f)
Total returns for periods less than one year are not annualized.
(g)
Total return based on per share market price assumes the purchase of common shares at the market price on the first day and sales of common shares at the market price on the last day of the period indicated. The total return based on net asset value, or NAV, assumes the purchase of common shares at NAV on the first day and sales of common shares at NAV on the last day of the period indicated. Results represent past performance and do not guarantee future results. Total return would have been lower if RMR Advisors had not contractually waived a portion of its investment advisory fee.
(h)
Annualized.

52



RMR Preferred Dividend Fund
Notes to Financial Statements

June 30, 2005 (unaudited)

Note A

(1)  Organization

RMR Preferred Dividend Fund, or the Fund, was organized as a Massachusetts business trust on November 8, 2004, and is registered under the Investment Company Act of 1940, as amended, as a non-diversified closed end management investment company. The Fund had no operations until May 25, 2005, other than matters relating to the Fund's establishment, registration of the Fund's common shares under the Securities Act of 1933, and the sale of 5,000 common shares for $100,000 to RMR Advisors, Inc., or RMR Advisors. On May 25, 2005, the Fund sold 2,300,000 common shares in an initial public offering including 62,500 common shares sold to affiliates of RMR Advisors. Proceeds to the Fund were $43,896,750 after deducting underwriting commissions and $89,500 of offering expenses. There were no underwriting commissions or offering expenses paid on common shares sold to the affiliates of RMR Advisors. On July 11, 2005, the Fund sold 275,000 common shares pursuant to an over allotment agreement with the underwriters for net proceeds of $5,241,500 after deducting underwriting commissions and $11,000 of offering expenses.

(2)  Interim Financial Statements

The accompanying June 30, 2005, financial statements have been prepared without audit. The Fund believes the disclosures made are adequate to make the information presented not misleading. In the opinion of the Fund's management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. The Fund's operating results for this interim period are not necessarily indicative of the results that may be expected in the future.

(3)  Use of Estimates

Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires the Fund's management to make estimates and assumptions that may affect the amounts reported in the financial statements and related notes. The actual results could differ from these estimates particularly for reasons described in Note A(7), and for other reasons.

(4)  Portfolio Valuation

Investment securities of the Fund are valued at the latest sales price whenever that price is readily available on the day of valuation; securities for which no sales were reported on that day, unless otherwise noted, are valued at the last available bid price on that day. Securities traded primarily on the NASDAQ Stock Market, or NASDAQ, are normally valued by the Fund at the NASDAQ Official Closing Price, or NOCP, provided by NASDAQ each business day. The NOCP is the most recently reported price as of 4:00:06 p.m., eastern time, unless that price is outside the range of the "inside" bid and asked prices (i.e., the bid and asked prices that dealers quote to each other when trading for their own accounts); in that case, NASDAQ will adjust the price to equal the inside bid or asked price, whichever is closer. Because of delays in reporting trades, the NOCP may not be based on the price of the last trade to occur before the market closes. Some fixed income securities may be valued using pricing provided by a pricing service. Any of the Fund's securities which are not readily marketable, which are not traded, which have other characteristics of illiquidity or whose quotations are unreliable are valued by the Fund at fair value as determined in good faith under the supervision of the Fund's board of trustees. Numerous factors may be considered when determining fair value of a security, including cost at date of purchase, type of security, the nature and duration of restrictions on disposition of the security and whether the issuer of the security being fair valued has other securities of the same class outstanding.


53


Short term debt securities with less than 60 days until maturity may be valued at cost, which when combined with interest accrued, approximates market value.

(5)  Securities Transactions and Investment Income

Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost.

(6)  Federal Income Taxes

The Fund has qualified and intends to qualify in the future as a "regulated investment company" and to comply with the applicable provisions of subchapter M of the Internal Revenue Code of 1986, as amended, so that it will generally not be subject to federal income tax.

(7)  Distributable Earnings

The Fund earns income, net of expenses, daily on its investments. It is the policy of the Fund to pay a stable distribution amount to common shareholders on a monthly basis and distributions to Fund shareholders are expected to be declared pursuant to this policy. Subsequent to June 30, 2005, the Fund declared distributions of $0.15 per common share payable in August and September 2005. Distributions to Fund shareholders are recorded on the ex-dividend date.

The Fund's distributions may consist of ordinary income (net investment income and short term capital gains), long term capital gains and return of capital.

For financial reporting purposes as required by generally accepted accounting principles, the Fund generally reflects distributions and interest received or accrued on its investments and distributions made to shareholders as ordinary income and long term capital gains in accordance with the characterization of these amounts required by the Internal Revenue Code of 1986, as amended. However, it is not possible to characterize distributions received from real estate investment trusts, or REITs, in which the Fund has invested a substantial portion of its assets, during interim periods because these issuers do not report their tax characterization until subsequent to year end. Final characterization of the Fund's 2005 distributions to shareholders is also dependent upon the magnitude or timing of the Fund's securities transactions prior to year end 2005.

To the extent the Fund's net realized capital gains, if any, can be offset by capital loss carry forwards, it is the policy of the Fund not to distribute such gains.

Although subject to adjustments, the cost, gross unrealized appreciation and unrealized depreciation of the Fund's investments for federal income tax purposes, as of June 30, 2005, are as follows:

Cost   $ 44,179,405  
   
 
Gross unrealized appreciation   $ 322,039  
Gross unrealized depreciation     (55,387 )
   
 
Net unrealized appreciation   $ 266,652  
   
 

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(8)  Organization Expenses and Common Offering Costs

RMR Advisors paid all the organizational expenses and all of the offering costs (other than the sales load) of the Fund's initial public offering of common shares which exceeded $0.04 per share on shares sold to the public. The total amount of expenses and costs incurred by RMR Advisors is estimated at $420,000. The Fund incurred offering costs of $89,500 in connection with the common shares sold in the initial public offering which were charged as a reduction of paid in capital and $11,000 in connection with the common shares sold pursuant to the over allotment option.

(9)  Concentration of Risk

Under normal market conditions, the Fund's investments are concentrated in preferred securities issued by real estate investment trusts. The value of Fund shares may fluctuate more than the shares of a fund not concentrated in the real estate industry due to economic, legal, regulatory, technological or other developments affecting the United States real estate industry.

Note B

Advisory and Administration Agreements and Other Transactions with Affiliates

The Fund has an advisory agreement with RMR Advisors to provide the Fund with a continuous investment program, to make day to day investment decisions and to generally manage the business affairs of the Fund in accordance with its investment objectives and policies. Pursuant to this agreement, RMR Advisors is compensated at an annual rate of 0.85% of the Fund's average daily managed assets. Managed assets means the total assets of the Fund less liabilities other than any indebtedness entered into for purposes of leverage. For purposes of calculating managed assets, indebtedness entered for the purpose of leverage and the liquidation preference of preferred shares are not considered liabilities.

RMR Advisors has contractually agreed to waive a portion of its annual fee equal to 0.55% of the Fund's average daily managed assets, until May 24, 2010.

RMR Advisors also performs administrative functions for the Fund pursuant to an administration agreement with the Fund. RMR Advisors has entered into a sub-administration agreement with State Street Bank and Trust Company ("State Street") to perform substantially all Fund accounting and other administrative services. Under the administration agreement RMR Advisors is entitled to reimbursement of the cost of providing administrative services. As of June 30, 2005, the Fund has a liability to RMR Advisors of $13,500 for sub-administrative fees charged by State Street during the period ending June 30, 2005.

The Fund pays each trustee who is not a director, officer or employee of RMR Advisors and who is not an interested person of the Fund as defined under the Investment Company Act of 1940, as amended, (a "disinterested trustee") an annual fee plus fees for board and committee meetings.

The Fund's board of trustees and separately the disinterested trustees have authorized the Fund to make reimbursement payments to RMR Advisors for costs related to the Fund's compliance and internal audit programs. The Fund also participates in pooled insurance programs with the Advisor and other funds managed by the Advisor and makes payments of the allocated portions of related premiums.


55



Note C

Securities Transactions

During the period ended June 30, 2005, there were securities purchases and sales transactions (excluding short term securities) of $31,139,359 and $0, respectively. Brokerage commissions on securities transactions, exclusive of transactions settled on a net basis, amounted to $0 during the period ended June 30, 2005.

Note D

Use of Leverage

On July 18, 2005, the Fund issued 900 auction preferred shares, Series M, for $22,500,000, or net proceeds of $22,132,500 after deducting underwriting commissions and offering expenses of $367,500. The preferred shares have a liquidation preference of $25,000 per share plus an amount equal to accumulated plus unpaid distributions. The preferred shares are senior to the Fund's common shares and rank on parity with any other class or series of preferred shares of the Fund as to the payment of periodic distributions, including distributions of assets on liquidation. If the Fund does not timely cure a failure to (1) maintain asset coverage for the preferred shares as required by rating agencies, or (2) maintain asset coverage, as defined in the Investment Company Act of 1940, of at least 200%, the preferred shares will be subject to redemption at an amount equal to their liquidation preference plus accumulated but unpaid distributions. The holders of the preferred shares have voting rights equal to the holders of the Fund's common shares and generally vote together with the holders of the common shares as a single class. Holders of the preferred shares, voting as a separate class, also are entitled to elect two of the Fund's trustees. The Fund pays distributions on the preferred shares at a rate set at auctions held generally every seven days. Distributions are generally payable every seven days, on the first business day following the end of a distribution period. The initial preferred share distribution rate was 3.10% per annum as of July 18, 2005.


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RMR Real Estate Fund
RMR Hospitality and Real Estate Fund
RMR F.I.R.E. Fund
RMR Preferred Dividend Fund
June 30, 2005

For the purposes of the following, RMR Real Estate Fund, RMR Hospitality and Real Estate Fund, RMR F.I.R.E. Fund and RMR Preferred Dividend Fund are each referred to as a "Fund" or collectively as the "Funds".

Consideration of Advisory Agreements

RMR Advisors serves as the investment advisor to each of RMR Real Estate Fund, RMR Hospitality and Real Estate Fund, RMR F.I.R.E. Fund and RMR Preferred Dividend Fund. On May 16, 2005, a change of ownership of RMR Advisors occurred.

RMR Real Estate Fund, RMR Hospitality and Real Estate Fund and RMR F.I.R.E. Fund

The change of ownership was deemed to be a change in control of RMR Advisors that resulted in the assignment, and therefore termination, of the then current advisory agreements. On May 16, 2005, each Fund entered into a new advisory agreement with RMR Advisors, each such agreement having been approved: (1) on February 14, 2005, by the boards of each Fund, and separately by the disinterested trustees of each Fund, subject to the change in ownership of RMR Advisors occuring; and (2) on May 11, 2005, by the shareholders of each Fund.

In making their determination to approve each new agreement, each board, including the disinterested trustees, considered all of the factors described below.

Each board considered the benefits to shareholders of retaining RMR Advisors. The boards' considerations included, among others: the nature, scope and quality of services that RMR Advisors has provided under each Fund's then current advisory agreement and would provide under the new agreements; that the advisory and other fees paid and the contractual fee waivers would not change as a result entering the new agreements; the quality and depth of personnel of RMR Advisors' organization before and after the change in ownership; the capacity and future commitment of RMR Advisors to perform its duties under each new agreement; the financial condition and profitability of RMR Advisors; the experience and expertise of RMR Advisors as an investment adviser; the performance of each Fund as compared to similar funds; the level of fees paid to RMR Advisors and the total expense ratio of each Fund as compared to similar funds; and the potential for economies of scale. Each board also considered RMR Advisors' representation that it would provide advisory and other services to each Fund of a scope and quality at least equivalent to the scope and quality provided to each Fund under the then current advisory agreements with RMR Advisors and that, other than the change of ownership, no structural, managerial or operational changes are expected to affect any of the Funds. Each board also considered that the terms of the new agreements would be substantially the same as the terms of the current agreements, except for dates of execution and effectiveness.

Each board considered the level and depth of knowledge of RMR Advisors. In evaluating the quality of services provided by RMR Advisors, each board took into account its familiarity with RMR Advisors' management through board meetings, conversations and reports. Each board also took into account RMR Advisors' compliance policies and procedures.

Each board compared the advisory fees and total expense ratio of its respective Fund with various comparative Fund data. Each board considered the Fund's recent performance results and noted that the board reviews on a


57



quarterly basis information about the Fund's performance results, portfolio composition and investment strategies. Each board further noted that RMR Advisors has waived a portion of its management fee in order to reduce the Fund's operating expenses. Each board also took into consideration the financial condition and profitability of RMR Advisors and any indirect benefits derived by RMR Advisors from RMR Advisors' relationship with the Funds.

In considering the approval of the new agreements, each board, including the disinterested trustees, did not identify any single factor as controlling. Based on each board's evaluation of all factors that it deemed to be relevant, each board, including the disinterested trustees of each board, concluded that: RMR Advisors has demonstrated that it possesses the capability and resources to perform the duties required of it under the new agreement for that Fund; RMR Advisors maintains an appropriate compliance program; performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives; and the proposed advisory fee rates are fair and reasonable, given the scope and quality of the services provided and to be provided by RMR Advisors. Each board noted in particular that the change in ownership of RMR Advisors did not present any material change in the type and quality of service it would provide to each Fund.

RMR Preferred Dividend Fund

At a meeting held on February 14, 2005, the board of trustees, including a majority of the disinterested trustees, approved two advisory agreements between RMR Advisors and the Fund in order to comply with the statutory requirements relating to the anticipated change in ownership of RMR Advisors. The first advisory agreement was effective from February 14, 2005 until May 16, 2005. The second advisory agreement was effective on May 16, 2005, the date of change of ownership of RMR Advisors. The two advisory agreements were substantially the same, except for dates of execution and effectiveness. In making their determination to approve the advisory agreements, the board, including the disinterested trustees, considered all of the factors described below.

In considering the approval of these two advisory agreements, the board reviewed various materials and considered: (1) the level of fees of the Fund as compared to competitive funds of a comparable size; (2) the estimated expense ratio of the Fund as compared to competitive funds of a comparable size, the fact that the estimated expense ratio of the Fund is reasonable compared to other funds and the fact that RMR Advisors has agreed to waive a portion of its fee during the first five years of the Fund's existence; (3) the nature, extent and quality of the services provided by RMR Advisors, including the experience of RMR Advisors and its affiliates in managing public companies; (4) the performance of similar funds managed by RMR Advisors; (5) anticipated benefits derived by RMR Advisors from its relationship with the Fund; (6) the costs of providing services to the Fund; (7) the financial condition and anticipated profitability of the Fund to RMR Advisors; (8) the benefits, in particular the research and related services, within the meaning of Section 28(e) of the Securities Exchange Act of 1934 which could be derived by RMR Advisors as a result of allocation of its brokerage transactions and the fact that RMR Advisors does not expect to seek or participate in these so-called "soft-dollar" arrangements; and (9) any potential for economies of scale. The board of trustees also considered that RMR Advisors agreed to pay all of the Fund's organizational costs and all of the Fund's offering costs for the initial offering of the Fund's common shares, other than sales load, that exceeded an amount equal to $0.04 per common share issued to non-affiliates.

The board also considered that the terms of both agreements would be substantially the same, except for dates of execution and effectiveness. The board considered RMR Advisors' representation that it would provide advisory and other services to the Fund of a scope and quality at least equivalent under both advisory agreements with RMR Advisors and that, other than the change of ownership, no structural, managerial or operational changes are expected to affect the Fund.


58



The board considered the level and depth of knowledge of RMR Advisors. In evaluating the quality of services provided by RMR Advisors, the board of trustees took into account its familiarity with RMR Advisors' management through board meetings, conversations and reports of the other funds managed by RMR Advisors.

The board of trustees considered the historical performance of the other funds managed by RMR Advisors and noted that it would review on a quarterly basis information about the Fund's performance results, portfolio composition and investment strategies. The board of trustees also took into account RMR Advisors' compliance policies and procedures.

The board compared the advisory fees and estimated total expense ratio of the Fund with various comparative fund data. The board further noted that RMR Advisors would waive a portion of its management fee for the first five years in order to reduce the Fund's operating expenses. The board also took into consideration the financial condition and profitability of RMR Advisors and any indirect benefits to be derived by RMR Advisors from its relationship with the Fund. The board of trustees concluded, based upon a review of the financial statements provided by RMR Advisors, that the level of profitability to RMR Advisors from its relationship with the Fund was reasonable.

In considering the approval of the advisory agreements, the board, including the disinterested trustees, did not identify any single factor as controlling. Based on the board's evaluation of all factors that it deemed to be relevant, the board of trustees, including the disinterested trustees, concluded that: RMR Advisors has demonstrated that it possesses the capability and resources to perform the duties required of it under the advisory agreements; RMR Advisors maintains an appropriate compliance program; and the proposed advisory fee rates are fair and reasonable, given the scope and quality of the services to be rendered by RMR Advisors. The board noted that the change in ownership of RMR Advisors did not present any material change in the type and quality of service it would provide to the Fund.

Privacy Policy

Each of the Funds are committed to maintain shareholder privacy and to safeguard shareholder nonpublic personal information.

The Funds do not receive any nonpublic personal information relating to shareholders who purchase Fund shares through an intermediary that acts as the record owner of the shares. If a shareholder is the record owner of any Fund's shares, that Fund may receive nonpublic personal information on shareholder account documents or otherwise and also have access to specific information regarding shareholder Fund share transactions, either directly or through the Fund's transfer agent.

The Funds do not disclose any nonpublic personal information about shareholders or any former shareholders to anyone, except as permitted by law or as is necessary to service shareholder accounts. The Funds restrict access to nonpublic personal information about shareholders to employees of the Funds and RMR Advisors with a legitimate business need for the information.

Proxy Voting Policies and Procedures

A description of the policies and procedures that are used by the investment advisor of the Funds to vote proxies relating to each Fund's portfolio securities is available: (1) without charge, upon request, by calling us at 1-866-790-8165; and (2) as an exhibit to each Fund's annual report, (except RMR Preferred Dividend Fund which started operations on May 25, 2005), on Form N-CSR, which is available on the website of the U.S. Securities and Exchange Commission (the "Commission") at http://www.sec.gov. Information regarding how the investment advisor has voted the proxies received by each Fund, except RMR Preferred Dividend Fund which started operations on May 25, 2005, during the 12 month period ended June 30, 2004, is


59



available (1) without charge, on request, by calling us at 1-866-790-3165, or (2) by visiting the Commission's website at http://www.sec.gov and accessing each Fund's Form N-PX information regarding how the investment advisor has voted the proxies of each Fund during the 12-month period ended June 30, 2005, will become available when the Funds file their report on Form N-PX which is due by August 31, 2005.

Procedures for the Submission of Confidential and Anonymous Concerns or Complaints about Accounting, Internal Accounting Controls or Auditing Matters

The Funds are committed to compliance with all applicable securities laws and regulations, accounting standards, accounting controls and audit practices and have established procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters. Any shareholder or other interested party who desires to communicate with our independent trustees or any other trustees, individually or as a group, may do so by filling out a report at the "Contact Us" section of our website (www.rmrfunds.com), by calling our toll-free confidential message system at 866-511-5038, or by writing to the party for whom the communication is intended, care of our director of internal audit, RMR Funds, 400 Centre Street, Newton, MA 02458. Our director of internal audit will then deliver any communication to the appropriate party or parties.

Portfolio Holdings Reports

Each Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q, which are available on the Commission's website at http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and copied at the Commission's public reference room in Washington, D.C. Information on the operation of the public reference room may be obtained by calling the Commission at 1-800-SEC-0330. Each Fund provides additional data at its website at www.rmrfunds.com.


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WARNING REGARDING FORWARD LOOKING STATEMENTS

THESE SEMI-ANNUAL REPORTS INCLUDE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON THE BELIEFS AND EXPECTATIONS OF EACH OF RMR REAL ESTATE FUND, RMR HOSPITALITY AND REAL ESTATE FUND, RMR F.I.R.E. FUND AND RMR PREFERRED DIVIDEND FUND (EACH A "FUND" OR COLLECTIVELY "THE FUNDS"), THEIR TRUSTEES, THEIR OFFICERS, OR THEIR INVESTMENT ADVISOR, BUT THEY ARE NOT GUARANTEED TO OCCUR. FOR EXAMPLE, MR. O'BRIEN'S LETTERS STATE THE BELIEF THAT INVESTMENT ENVIRONMENT FOR REAL ESTATE COMPANIES FOR REMAINDER OF 2005 IS POSITIVE AND COULD SUGGEST THAT THE MARKET PRICES OF REAL ESTATE SECURITIES IN WHICH THE FUNDS INVEST AS WELL AS THE MARKET PRICE OF THE FUNDS' SHARES COULD INCREASE. IN FACT, THE INVESTMENT ENVIRONMENT FOR REAL ESTATE COMPANIES FOR THE REMAINDER OF 2005 MAY NOT REMAIN POSITIVE AND THE MARKET PRICES OF REAL ESTATE SECURITIES AND OF THE FUNDS' SHARES MAY NOT INCREASE BUT MAY DECLINE. SIMILARLY, MR. O'BRIEN'S REFERENCES TO THE FINANCIAL SERVICES SECTOR CONSOLIDATING AND THE REAL ESTATE SECTOR CONTINUING TO IMPROVE MIGHT NOT HAPPEN. THESE UNEXPECTED RESULTS MAY OCCUR FOR MANY DIFFERENT REASONS, WHICH, SUCH AS A GENERAL DECLINE IN ECONOMIC ACTIVITY, ARE BEYOND THE FUNDS' CONTROL OCCUR; AND INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.


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Item 2. Code of Ethics.

The information is not required for the semi-annual report on Form N-CSR.


Item 3. Audit Committee Financial Expert.

The information is not required for the semi-annual report on Form N-CSR.


Item 4. Principal Accountant Fees and Services.

The information is not required for the semi-annual report on Form N-CSR.


Item 5. Disclosure of Audit Committees for Listed Companies.

The information is not required for the semi-annual report on Form N-CSR.


Item 6. Schedule of Investments

The information required under Item 6 is included as part of the report to shareholders filed under Item 1 of this Form N-CSR.


Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

The information is not required for the semi-annual report on Form N-CSR.


Item 8. Portfolio Managers of Closed-End Investment Companies.

The information is not required for this semi-annual report on Form N-CSR.


Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

During the six months ended June 30, 2005, there were no purchases made by or on behalf of the registrant or any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares of the registrant's equity securities that are registered by the registrant pursuant to Section 12 of the Exchange Act.


Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of trustees.


Item 11. Controls and Procedures.

(a)
The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940), as amended (the "1940 Act") are effective, as of a date within 90 days of the filing date of this report, based on their evaluation of these controls and procedures.

(b)
There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.


Item 12. Exhibits.

(a)
(2) Certifications of principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act are attached hereto.

(b)
Certifications of principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.


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.

    RMR REAL ESTATE FUND

 

 

By:

/s/  
THOMAS M. O'BRIEN      
Thomas M. O'Brien
President
Date: August 22, 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/  
THOMAS M. O'BRIEN      
Thomas M. O'Brien
President
Date: August 22, 2005

 

 

By:

/s/  
MARK L. KLEIFGES      
Mark L. Kleifges
Treasurer
Date: August 22, 2005



QuickLinks

NOTICE CONCERNING LIMITED LIABILITY
RMR Real Estate Fund Financial Statements – continued
RMR Real Estate Fund Financial Statements – continued
RMR Real Estate Fund Financial Statements – continued
RMR Real Estate Fund Notes to Financial Statements June 30, 2005 (unaudited)
RMR Hospitality and Real Estate Fund Financial Statements – continued
RMR Hospitality and Real Estate Fund Financial Statements – continued
RMR Hospitality and Real Estate Fund Notes to Financial Statements June 30, 2005 (unaudited)
RMR F.I.R.E. Fund Notes to Financial Statements June 30, 2005 (unaudited)
RMR Preferred Dividend Fund Financial Statements
RMR Preferred Dividend Fund Financial Statements – continued
RMR Preferred Dividend Fund Notes to Financial Statements June 30, 2005 (unaudited)
WARNING REGARDING FORWARD LOOKING STATEMENTS
SIGNATURES