CNL GLOBAL REAL ESTATE FUND
CLASS A SHARES
INSTITUTIONAL CLASS SHARES
SEMI-ANNUAL REPORT
THE CNL FUNDS
JUNE 30, 2009
SUB-ADVISED BY CB RICHARD ELLIS GLOBAL REAL ESTATE SECURITIES, LLC
(CNL(R) LOGO)
CNL FUND ADVISORS COMPANY
Table of Contents
Letter to Shareholders .................................................... 1
Portfolio Management Review ............................................... 3
Fund Performance Summary .................................................. 6
Understanding Your Ongoing Costs .......................................... 8
Investment Portfolio ...................................................... 9
Statement of Assets and Liabilities ....................................... 12
Statement of Operations ................................................... 13
Statement of Changes in Net Assets ........................................ 14
Financial Highlights ...................................................... 15
Notes to Financial Statements ............................................. 17
Tax and Other Information ................................................. 25
Approval of Investment Advisory Agreements ................................ 26
This material is authorized for distribution only when preceded or accompanied
by a current prospectus.
The Fund concentrates its investments in real estate securities, including
REITs. A fund with a concentrated investment portfolio is vulnerable to the
risks of the industry in which it invests and is subject to greater risks and
market fluctuations than funds investing in a broader range of industries. Real
estate securities are susceptible to the risks associated with direct ownership
of real estate, such as declines in property values; increases in property
taxes, operating expenses, interest rates or competition; zoning changes; and
losses from casualty and condemnation. The Fund may directly purchase securities
of foreign issuers. Investing in securities of foreign issuers involves special
risks not typically associated with investing in securities of U.S. issuers. The
risks include possible revaluation of currencies, the ability to repatriate
funds, less complete financial information about companies and possible future
adverse political and economic developments. Moreover, securities of many
foreign issuers and their markets may be less liquid and their prices more
volatile than those of securities of comparable U.S. issuers. Note 7 of the
Financial Statements presents additional discussion of the risks of investing in
the Fund.
Letter to Shareholders
Dear Shareholders:
We are pleased to present this semi-annual report for The CNL Funds to you, our
shareholders in the CNL Global Real Estate Fund (the "Fund").
Real estate ownership has been, and likely always will be, a process of
skillfully managing complex assets to generate investment returns that
compensate for the risks involved. The process is currently underway in the real
estate industry to separate the strong and the weak management teams. All real
estate owners and managers are facing the ongoing challenge of devoting
substantial resources to restore and protect operating margins. Concurrently,
investors' pursuit of transparency on multiple fronts is driven by their goal to
align themselves with the strong.
We reaffirm that the Fund's portfolio management team seeks to continue to focus
its investment research on ensuring that the highest quality companies, with
strong balance sheets and seasoned management teams intact, are selected for
inclusion in the Fund while seeking to avoid extraordinary risk. We believe that
the portfolio management team's worldwide presence and in-depth knowledge of the
better management teams and portfolio assets have contributed to the Fund's
outperformance relative to the industry benchmark. While global financial and
economic events in the near term will feed further market volatility, we believe
the stock prices of the highest quality real estate companies will hold their
value and capable management teams will gradually restore operating margins and
profits within the constraints of a new world order for global capital markets.
The first half of 2009 started with the continuation of worldwide economic
dislocation, a gripping recession and persistent financial stress that carried
over from 2008. Equity markets continued their downward spiral in early 2009,
taking along global real estate stocks; the FTSE EPRA/NAREIT Global Real Estate
Index (the "Benchmark Index") declined sharply by 35.7% through March 9, 2009.
Thereafter, global real estate stock prices moved upwards in a choppy manner
with the Benchmark Index finishing up 5.9% for the first six months of 2009.
Throughout this cycle of extreme volatility and dramatic price corrections, the
worldwide stock exchanges continued to function properly and provide investors
access to attractive, value investment opportunities for market entry buyers and
liquidity to investors seeking alternative investments or increased cash
positions.
Time and again over the past 20 years, real estate stock prices have generally
foreshadowed significant price movements for commercial real estate values, and
we believe that this current investment cycle is no different. The observable
value correction process for real properties lags the equities markets due to
(1) the more complex transaction process where the gravity of profound economic
events may be more slowly incorporated into the negotiations and price setting
process and (2) the reporting delay for completed property transactions. The
Benchmark Index declined by 71.7% over a 24-month period ending March 9, 2009;
market participants were quickly factoring the impacts of future real estate
value write-downs, credit market gridlock, foreclosures, bankruptcies, weak
operating fundamentals, higher costs of capital, and investors' pursuit of
liquidity. Throughout this challenging investment environment, the Fund's
portfolio management team maintained its conviction that the stocks of the
higher quality real estate companies were oversold, even while commercial real
estate values remained opaque given the lack of transaction activity and the
continuing gridlock posed by commercial mortgage financing.
We continue to anticipate more headline news impacting sentiment towards the
global REIT sector - distressed asset sales and foreclosure auctions, CMBS
workouts, U.S. Treasury mega-investment in real estate-related assets through
the Public-Private Investment Program, investors abandoning their capital
commitments in leveraged real estate funds, tightening regulations, and banks
and finance companies continuing to struggle under the weight of distressed real
estate-related assets. Meanwhile, the market has embraced the recapitalization
efforts of numerous REITs worldwide that are enhancing the financial flexibility
of their balance sheets to be in a position to pursue and seize the emerging
opportunities within real estate sector chaos. Overall, global REITs have raised
$35 billion of equity in 2009 to polish up their balance sheets and to earn a
first look at distressed seller investment opportunities over the next 12 to 36
months. REIT investors are confirming their confidence in publicly traded REITs
and recharging them with fresh capital to set pricing in the upcoming transfer
of assets from weak hands to proven management teams.
CNL GLOBAL REAL ESTATE FUND - 1
Letter to Shareholders
FINANCIAL RESULTS
During the six months ended June 30, 2009, the Fund received approximately $2
million in gross proceeds from the sale of shares and deployed $7.2 million of
capital to redeem shares. The Fund holds investment interests in 56 public
companies that are listed on the securities exchanges in 10 countries,
eliminating its investment exposure in Finland and Germany during this reporting
period. Net investment income was $394,628 and distributions paid to
shareholders totaled $269,200 for the same period, representing 100% ordinary
income dividends. The net asset value per share had increased from $4.62 per
share on December 31, 2008, to $4.96 per share (Institutional Class) on June 30,
2009, resulting in a total return of +8.79%, including dividends. The Fund's
benchmark registered a total return of +5.88% over the same six month period.
LOOKING AHEAD
The Fund's active investment strategy and diversification rules combined to
deliver favorable returns relative to the industry benchmark, during the six
month period ended June 30, 2009. We are very much aware of the risks that
surround the global investment markets, the regional financial sectors, and the
slate of public companies that we scrutinize and select to meet the Fund's
investment objective. Hopefully, the severe correction in global REITs' stock
prices is behind us and the recalibration of commercial real estate values will
affirm the present price levels for global REITs. We will be paying close
attention to the resolution of the ownership and financial chaos within the real
estate sector. In addition, we will continue to focus our investment attention
on both global REIT companies that have their real estate operations under tight
supervision and that have the resources to dominate within their market
segments.
Thank you for your continuing confidence in the CNL Global Real Estate Fund.
Sincerely,
/s/ Robert A. Bourne /s/ Andrew Hyltin
Robert A. Bourne Andrew Hyltin
Chairman President
The CNL Funds The CNL Funds
August 20, 2009
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
any market forecasts discussed will be realized.
2 - CNL GLOBAL REAL ESTATE FUND
Portfolio Management Review
This report provides management's discussion of performance for CNL Global Real
Estate Fund (the "Fund") for the semi-annual reporting period ended June 30,
2009.
INVESTMENT OBJECTIVE AND PORTFOLIO MANAGEMENT
The Fund seeks to achieve a high total return through a combination of current
income and capital appreciation. The Fund is managed by: Jeremy Anagnos,
Portfolio Manager, Co-Chief Investment Officer and Managing Director, Steve
Carroll, Portfolio Manager, Co-Chief Investment Officer and Managing Director,
and William Morrill, Portfolio Manager, Managing Director of CB Richard Ellis
Global Real Estate Securities LLC. ("CBRE GRES" or the Sub-Adviser).
INVESTMENT STRATEGIES AND POLICIES
Under normal circumstances, the Fund invests at least 80% of its net assets in
equity securities issued by real estate and real estate-related companies,
including real estate investment trusts and real estate operating companies. The
Fund considers a company to be a real estate or real estate-related company if
at least 50% of its assets, gross income or net profits are attributable to
ownership, construction, management or sale of residential, commercial or
industrial real estate or whose products or services are related to the real
estate industry, such as manufacturers and distributors of building supplies and
financial institutions that issue mortgages. Real estate companies in other
countries may have similar features to U.S.-qualified REITs; however the
specific characteristics and regulations for REIT-like companies may not be
identical to those of U.S.-qualified REITs. At June 30, 2009, 100% of the Fund's
security holdings were in common stocks associated with real estate companies.
Under normal market conditions, the Fund will invest significantly (at least
40%, unless market conditions are not deemed favorable by CNL Fund Advisors
Company (the "Adviser"), in which case the Fund would invest at least 30%) in
equity securities issued by real estate and real estate-related companies
organized or located outside the U.S. or doing a substantial amount of business
outside the U.S. The Fund will allocate its assets among no less than three
different countries. The Fund may invest up to 15% of its total assets in equity
securities that are traded on the major stock exchanges located in emerging
markets. The Fund may invest in common equities, preferred equities, and
convertible debt issued by real estate and real estate-related companies located
primarily in North America, Europe, and the Asia-Pacific. The Fund also gives
particular investment consideration to equity securities traded on major
exchanges in the following sub-regions: United States, Canada, United Kingdom,
Continental Europe, Japan, Hong Kong, Singapore, and Australia/New Zealand. At
June 30, 2009, approximately 36% of the Fund's holdings were invested in the
common stocks of companies domiciled in the U.S. and the remainder in the common
stocks of real estate companies domiciled outside of the U.S. All of the
companies held on June 30, 2009 were domiciled in developed countries.
The Fund may invest in securities of small-, mid- and large-sized real estate or
real estate-related companies. The Fund seeks to limit risk through various
controls, such as diversifying the portfolio property types and geographic areas
as well as by limiting the size of any one holding. The Fund limits the maximum
holding of the issued capital of any individual company to no more than 10% of
the Fund's assets. At June 30, 2009, the single largest Fund holding accounted
for 5.7% of the Fund's total net assets.
The Sub-Adviser seeks to construct a portfolio with return and risk
characteristics similar to the FTSE EPRA/NAREIT Global Real Estate Index Series
(the Fund's "Benchmark Index"). The Benchmark Index is designed to track the
performance of listed real estate companies and REITs worldwide. The Sub-Adviser
uses the Benchmark Index as a guide in structuring and designing the Fund's
portfolio, but the Fund is not an index fund.
The Fund typically maintains a portion of its assets in cash or cash equivalents
in order to meet redemption requests, pay Fund expenses or satisfy other
liquidity needs. These assets may be invested in overnight or short-term
investment vehicles.
CNL GLOBAL REAL ESTATE FUND - 3
Portfolio Management Review (continued)
PORTFOLIO MANAGEMENT TECHNIQUES
The Fund was managed during 2009 to maintain approximately 95% investment
allocation in common stocks of publicly traded real estate companies. No
leverage was employed at the Fund level for investment purposes. The Fund did
not invest in any exchange-traded funds, real estate closed-end funds,
derivatives, or short positions. The Fund invested in securities that are listed
on major exchanges located in the United States, Canada, Australia, Hong Kong,
Japan, Continental Europe and United Kingdom; the Fund did not hold any
securities listed on security exchanges located in emerging countries during the
first half of 2009.
The Sub-Adviser employs an investment process of top-down global asset
allocation in the various regions, sub-regions, and countries as well as
bottom-up stock selection. This process is continuously revisited and requires
regular rebalancing of the Fund's global portfolio in order to meet its
investment objective, to manage portfolio risk and to satisfy the Fund's
diversification requirements.
CBRE GRES actively manages the portfolio construction process using a top-down
allocation method. The Fund's portfolio managers target sub-regional relative
deviations from the benchmark based on economic outlook, real estate
fundamentals, relative valuation, credit market conditions and qualitative
factors (capital flows, currencies, sub-regional equity and bond market
behavior, etc.).
CBRE GRES' regional portfolio managers are responsible for individual sector and
security recommendations within their respective regions. The regional portfolio
managers recommend those stocks and sectors in their sub-region that they
believe offer superior risk/return attributes relative to their peers.
Individual stock weights are based in part on the global target of securities to
be held, the weight of the security in the benchmark, the liquidity of the
security relative to the amount to be invested, and the relative attractiveness
of the stock to other securities to be included in the portfolio in the region.
The recommendations of regional portfolio managers, and their securities analyst
team members, and the input from the research team members of the Sub-Adviser's
global affiliates are crucial to assessing appropriate global allocation, stock
selection, and risk assessment. We believe the vast global platform of direct
real estate and equity securities real-time information injects substantial
added value to the Sub-Adviser's investment process.
FUND PERFORMANCE
For the six months ended June 30, 2009, the Fund's Class A shares, excluding
sales charges, provided a total return of 8.68% and the Institutional Class
total return was 8.79%. The Benchmark Index return was 5.88% for the six month
period ending June 30, 2009. Class A shares, excluding sales commission,
outperformed the Benchmark Index by 280 basis points (+2.80%) and Institutional
Class shares outperformed the Benchmark Index by 291 basis points (+2.91%). The
Fund consistently outperformed the Benchmark Index subsequent to the Fund price
and Benchmark Index value trough in early March 2009.
When comparing the Fund's risk adjusted return to the Benchmark Index, a
positive alpha of 7.1% was obtained in the period since the Fund's inception of
October 30, 2007, through June 30, 2009. Alpha is a coefficient which measures
risk-adjusted performance, factoring in the risk that is associated with the
specific security or portfolio (in this case the Fund), rather than the overall
market sector (in this case the Benchmark Index). A positive alpha value, which
has been achieved for the Fund as measured since inception through June 30,
2009, implies that the Fund has performed better than the risk-adjusted
expectations, given its volatility (beta) and it is also an indication of
value-added performance by the portfolio manager.
Throughout 2008, global real estate stocks recorded very poor results from a
historical perspective across the board, with most sectors plunging to
historical lows. In 2009, the global regions exhibited unique differences;
Asia-Pacific led the pack with +24.7% year-to-date total return as of June 30,
2009, in sharp contrast with Europe (+2.1%) and North America (-10.1%).
Volatility has persisted, as negative financial and economic news contributed to
significant price swings on a daily and weekly basis, and portfolio management
demanded focus on balancing into and away from the right regions, along with
selecting the right companies.
4 - CNL GLOBAL REAL ESTATE FUND
Portfolio Management Review (continued)
Despite the streaming negative financial and economic news, the portfolio
management team continued to actively screen companies that exhibited balance
sheet quality and strength, (i.e., modest corporate leverage, minimal need for
near-term financing, etc.) and potential cash flow growth.
PORTFOLIO SPECIFICS
On June 30, 2009, the Fund held positions in 56 real estate companies. This
number has remained relatively consistent over the life of the Fund relative to
the 55 and 56 positions at the fiscal year-end of 2007 and 2008, respectively.
Meanwhile the portfolio allocation between the macro-regions shifted in the
first half of 2009 towards the Asia-Pacific region and away from Europe, as
indicated in the below chart:
% OF EQUITIES HOLDINGS IN US$
12/31/2007 12/31/2008 6/30/2009
---------- ---------- ---------
North America Sub-Total 37.50% 41.50% 39.89%
Asia-Pacific Sub-Total 42.80% 41.30% 44.53%
Europe Sub-Total 19.70% 17.20% 15.58%
------ ------ ------
TOTAL 100.00% 100.00% 100.00%
------ ------ ------
The portfolio tilt towards the Asia-Pacific region, combined with the strong
relative performance of the Asia-Pacific region, was one of the contributing
factors to the relative outperformance of the Fund as compared to the Benchmark
Index in the first half of 2009.
As of June 30, 2009 no position represented more than 6% of the Fund and the top
ten holdings accounted for 40.4% of the Fund's assets, reflecting the portfolio
manager's strategy to weight the Fund's investment capital towards larger, more
liquid, high quality real estate companies.
CURRENT STRATEGY AND OUTLOOK
The Sub-Adviser continues to seek investments in higher quality companies that
are expected to weather the current financial and economic crises. Additionally,
the Fund's portfolio managers expect to continue to seek investments in those
economies and companies that offer realistic expectations for long-term cash
flow growth in property-related earnings, where dividend payments are
sustainable by operations and corporate liquidity, and where the stock prices of
real estate companies are well below the reasonable estimates of corporate
enterprise values based on the professional projections of the future direction
of property values.
CNL GLOBAL REAL ESTATE FUND - 5
Fund Performance Summary
ALL FUND PERFORMANCE SHOWN IS HISTORICAL, ASSUMES REINVESTMENT OF ALL DIVIDEND
AND CAPITAL GAIN DISTRIBUTIONS, AND DOES NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE FLUCTUATE WITH CHANGING MARKET CONDITIONS
SO THAT, WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE SHOWN
BELOW. PLEASE VISIT www.thecnlfunds.com FOR THE FUND'S MOST RECENT MONTHLY
PERFORMANCE.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
(PERFORMANCE GRAPH)
FTSE/EPRA NAREIT investment @ $10k Class A (no load) @ $10k Class A (with load) @ $10k
---------------------------------- ------------------------ --------------------------
10/29/2007 10000 10000 9425
10/31/2007 10155.2 10180 9594.72
11/30/2007 9371.8 9340 8803.02
12/31/2007 8885.32 8722.6 8221.11
1/31/2008 8507.13 8510.59 8021.29
2/29/2008 8352.41 8349.06 7869.05
3/31/2008 8385.14 8520.69 8030.81
4/30/2008 8909.54 9015.37 8497.05
5/31/2008 8691.04 8692.31 8192.57
6/30/2008 7667.4 7678.01 7236.58
7/31/2008 7730.12 7718.42 7274.66
8/31/2008 7569.97 7374.93 6950.92
9/30/2008 6869.18 6698.25 6313.15
10/31/2008 4954.73 4881.61 4600.95
11/30/2008 4235.89 4201.63 3960.07
12/31/2008 4645.04 4717.97 4446.72
1/31/2009 4047.78 4073.22 3839.04
2/28/2009 3380.12 3428.46 3231.35
3/31/2009 3618.74 3765.88 3549.37
4/30/2009 4366.53 4537.58 4276.7
5/31/2009 4918.04 5165.23 4868.27
6/30/2009 4918.07 5127.26 4832.48
GROWTH OF A $100,000 INVESTMENT - INSTITUTIONAL CLASS SHARES
(PERFORMANCE GRAPH)
FTSE/EPRA NAREIT investment @ $100k Institutional Class @ $100k
----------------------------------- ---------------------------
10/29/2007 100000 100000
10/31/2007 101552 101800
11/30/2007 93718 93500
12/31/2007 88853.2 87266
1/31/2008 85071.3 85144.9
2/29/2008 83524.1 83528.9
3/31/2008 83851.4 85347
4/30/2008 89095.4 90296.1
5/31/2008 86910.4 86963
6/30/2008 76674 77012.2
7/31/2008 77301.2 77315.8
8/31/2008 75699.7 73976.3
9/30/2008 68691.8 67137.3
10/31/2008 49547.3 49030.6
11/30/2008 42358.9 42215.1
12/31/2008 46450.4 47420.3
1/31/2009 40477.8 40851.2
2/28/2009 33801.2 34487.5
3/31/2009 36187.3 37791.5
4/30/2009 43665.3 45638.9
5/31/2009 49180.4 51937.5
6/30/2009 49180.7 51589.6
Based on an initial investment of $10,000 (Class A Shares) and $100,000
(Institutional Class Shares), the graph above illustrates the total return of
CNL Global Real Estate Fund against the Benchmark Index. The Fund's Benchmark
Index is designed to track the performance of listed real estate companies and
REITs worldwide. The free-float adjusted index constituents are liquidity, size
and revenue screened and are broken down into eight index families covering the
world's largest investment markets in various currencies. The Benchmark Index is
unmanaged and has no cash in its portfolio, no sales charge and incurs no
operating expenses. An investor cannot invest directly in the index. The graphs
do not reflect the deduction of taxes that a U.S. taxable shareholder will pay
on Fund distributions or the redemption of Fund shares.
6 - CNL GLOBAL REAL ESTATE FUND
Fund Performance Summary (continued)
The maximum sales charge for Class A shares is 5.75%. Average annual returns
(Unadjusted for Sales Charges) do not reflect sales charges and would have been
lower if they had. Institutional Class shares are not subject to sales charges.
To discourage short-term trading, the Fund imposes a 1.00% redemption fee on
shareholders redeeming shares held less than 75 days, which has the effect of
lowering the total returns for short-term shareholders.
AVERAGE ANNUAL TOTAL RETURNS
SIX MONTHS SINCE
ENDED JUNE 30, SIX MONTHS INCEPTION SINCE
2009 ENDED JUNE 30, (10/30/07)+ INCEPTION
UNADJUSTED FOR 2009 UNADJUSTED FOR (10/30/07)+
CNL GLOBAL REAL ESTATE FUND SALES CHARGES WITH LOAD SALES CHARGES WITH LOAD
--------------------------- -------------- -------------- -------------- -----------
Class A Shares 8.68% 2.45% (32.95)% (35.28)%
Institutional Class Shares 8.79% N/A (32.70)% N/A
FTSE EPRA/NAREIT Global
Real Estate Index Series++ 5.88% N/A (34.60)% N/A
Returns do not reflect the payment of taxes that a shareholder may pay on
distributions or upon redemption of Fund shares.
+ Represents commencement date of investment operations (i.e., began to
invest in accordance with its investment objective).
++ The FTSE EPRA/NAREIT Global Real Estate Index is an index that tracks the
performance of listed real estate companies and REITs worldwide.
The annualized gross and net expense ratios, respectively, for each class of
shares as in the April 30, 2009 prospectus were as follows: Class A--4.43% and
1.80%; and Institutional Class--4.18% and 1.55%. Through April 30, 2010, the
Adviser has contractually agreed to waive its fee and/or reimburse the Fund for
expenses incurred to the extent necessary to maintain the Fund's annual
operating expenses at 1.80% for Class A shares and 1.55% for Institutional Class
shares.
Performance results reflect applicable expense waivers in effect during the
period shown. Without such waivers Fund performance would be lower. See the
prospectus for more information.
NET ASSET VALUE AND DISTRIBUTION INFORMATION PER SHARE
INSTITUTIONAL
CLASS A CLASS
------- -------------
NET ASSET VALUE:
6/30/09 $ 4.95 $ 4.96
DISTRIBUTION INFORMATION:
3/31/09--Net Investment Income $0.0197 $0.0219
6/30/09--Net Investment Income $0.0331 $0.0363
CNL GLOBAL REAL ESTATE FUND - 7
Understanding Your Ongoing Costs (Unaudited)
As a Fund shareholder, you incur two types of costs: (1) ongoing costs including
management fees, Fund expenses, and distribution (12b-1) fees, if applicable;
and (2) transaction costs, including sales charges (loads) on purchase payments
and redemption fees, if applicable. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 at the beginning of the period
and held for the entire period from January 1, 2009, through June 30, 2009.
ACTUAL EXPENSES
The first section of the table below (Actual Fund Return) provides information
about actual account values and expenses. You may use the information in this
line, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value on January 1, 2009 divided by $1,000 = 8.6), then
multiply the result by the expense number associated with your share class on
the line entitled "Expenses Paid During the Period" to estimate the expenses you
paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table (Hypothetical 5% Fund Return) below provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing cost of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second section of the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
INSTITUTIONAL
ACTUAL FUND RETURN CLASS A CLASS
------------------ --------- -------------
Beginning Account Value January 1, 2009 $1,000.00 $1,000.00
Ending Account Value June 30, 2009 $1,086.80 $1,087.90
Expenses Paid per $1,000(a) $ 9.31 $ 8.02
INSTITUTIONAL
HYPOTHETICAL 5% FUND RETURN CLASS A CLASS
--------------------------- --------- -------------
Beginning Account Value January 1, 2009 $1,000.00 $1,000.00
Ending Account Value June 30, 2009 $1,015.87 $1,017.11
Expenses Paid per $1,000(a) $ 9.00 $ 7.75
INSTITUTIONAL
ANNUALIZED EXPENSE RATIOS(b) CLASS A CLASS
---------------------------- --------- -------------
1.80% 1.55%
(a) Expenses are equal to the Fund's annualized expense ratios for each class
of shares, multiplied by the average account value over the period,
multiplied by the actual days in the period (181); and then dividing that
result by the actual number of days in the fiscal year (365). The data
reflects the 181 day period from January 1, 2009, through June 30, 2009.
(b) The annualized gross expense ratio, based on the six months ended June 30,
2009, was: Class A--4.53% and Institutional Class--4.27%.
8 - CNL GLOBAL REAL ESTATE FUND
Investment Portfolio (Unaudited) as of June 30, 2009
CNL GLOBAL REAL ESTATE FUND
TEN LARGEST HOLDINGS (AS A PERCENTAGE OF TOTAL NET ASSETS)
MARKET
VALUE (US$) PERCENT
----------- -------
Mitsubishi Estate Co., Ltd. ............................ 1,289,916 5.7%
Westfield Group ........................................ 1,130,618 4.9
Unibail-Rodamco ........................................ 1,091,895 4.8
Simon Property Group, Inc. (REIT) ...................... 997,588 4.4
Mitsui Fudosan Co., Ltd. ............................... 919,240 4.0
Vornado Realty Trust (REIT) ............................ 894,926 3.9
Capitaland Ltd. ........................................ 811,481 3.6
Hang Lung Properties Ltd. .............................. 741,301 3.2
China Resources Land Ltd. .............................. 696,484 3.0
Kerry Properties Ltd. .................................. 670,390 2.9
--------- ----
TOTAL .................................................. 9,243,839 40.4%
========= ====
COUNTRY SUMMARY (AS A PERCENTAGE OF TOTAL COMMON STOCK INVESTMENT PORTFOLIO)(a)
MARKET
VALUE (US$) PERCENT
----------- -------
United States .......................................... 8,099,976 35.7%
Hong Kong .............................................. 3,502,485 15.4
Japan .................................................. 3,226,451 14.2
United Kingdom ......................................... 1,775,087 7.8
Australia .............................................. 1,719,593 7.6
Singapore .............................................. 1,665,650 7.3
France ................................................. 1,411,807 6.2
Canada ................................................. 961,773 4.2
Sweden ................................................. 201,519 0.9
Netherlands ............................................ 151,043 0.7
---------- -----
TOTAL .................................................. 22,715,384 100.0%
========== =====
----------
(a) Country summary represents the allocation of holdings based on the country
domicile of the holding or underlying company. It does not represent the
geographic diversification of the underlying property holdings of the real
estate companies.
Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form is available on the
SEC's Web site at www.sec.gov, and it may be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Information on the operation of the
SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CNL GLOBAL REAL ESTATE FUND - 9
Investment Portfolio (Unaudited) as of June 30, 2009
CNL GLOBAL REAL ESTATE FUND
VALUE
SHARES (US$)
------- ---------
COMMON STOCKS 99.4%(a)
AUSTRALIA 7.5%
Stockland ....................................... 228,327 588,975
Westfield Group ................................. 123,534 1,130,618
---------
1,719,593
CANADA 4.2%
Allied Properties Real Estate Investment Trust .. 18,839 238,899
Boardwalk Real Estate Investment Trust .......... 13,759 386,811
Canadian Real Estate Investment Trust ........... 13,901 293,999
Riocan Real Estate Investment Trust(b, c) ....... 3,202 42,064
---------
961,773
FRANCE 6.2%
Fonciere des Regions ............................ 4,243 319,912
Unibail-Rodamco ................................. 7,303 1,091,895
---------
1,411,807
HONG KONG 15.3%
China Resources Land Ltd. ....................... 315,470 696,484
Hang Lung Properties Ltd. ....................... 229,132 741,301
Henderson Land Development Co., Ltd. ............ 60,757 344,353
Kerry Properties Ltd. ........................... 153,000 670,390
Shui On Land Ltd. ............................... 194,170 132,293
Sino-Ocean Land Holdings Ltd. ................... 350,960 400,317
Sun Hung Kai Properties Ltd. .................... 41,533 517,347
---------
3,502,485
JAPAN 14.1%
Global One Real Estate Investment Co., Ltd. ..... 14 101,903
Japan Excellent, Inc. ........................... 17 71,940
Japan Real Estate Investment Corp. .............. 28 232,258
Mitsubishi Estate Co., Ltd. ..................... 77,698 1,289,916
Mitsui Fudosan Co., Ltd. ........................ 53,000 919,240
Nippon Building Fund, Inc. ...................... 45 384,658
NTT Urban Development Corp. ..................... 235 226,536
---------
3,226,451
NETHERLANDS 0.7%
Prologis European Properties .................... 39,778 151,043
SINGAPORE 7.3%
CapitaCommercial Trust .......................... 359,372 202,462
CapitaLand Ltd. ................................. 319,161 811,481
CapitaMall Trust ................................ 220,226 211,807
Yanlord Land Group Ltd. ......................... 280,596 439,900
---------
1,665,650
SWEDEN 0.9%
Kungsleden AB ................................... 43,557 201,519
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10 - CNL GLOBAL REAL ESTATE FUND
Investment Portfolio (Unaudited) as of June 30, 2009
CNL GLOBAL REAL ESTATE FUND
VALUE
SHARES (US$)
------- ---------
UNITED KINGDOM 7.8%
Big Yellow Group PLC ............................ 41,683 235,157
British Land Co. PLC ............................ 84,540 532,336
Derwent London PLC .............................. 16,720 257,533
Helical Bar PLC ................................. 59,020 320,357
Land Securities Group PLC ....................... 9,100 70,766
St Modwen Properties PLC ........................ 119,577 358,938
---------
1,775,087
UNITED STATES 35.4%
Alexandria Real Estate Equities, Inc. (REIT) .... 15,180 543,292
American Campus Communities, Inc. (REIT) ........ 13,731 304,554
AvalonBay Communities, Inc. (REIT) .............. 5,471 306,048
BioMed Realty Trust, Inc. (REIT) ................ 23,000 235,290
Boston Properties, Inc. (REIT) .................. 8,760 417,852
Corporate Office Properties Trust (REIT) ........ 4,392 128,817
Digital Realty Trust, Inc. (REIT) ............... 14,014 502,402
Douglas Emmett, Inc. (REIT) ..................... 25,303 227,474
Duke Realty Corp (REIT) ......................... 24,395 213,944
Essex Property Trust, Inc. (REIT) ............... 3,881 241,515
Federal Realty Investment Trust (REIT) .......... 7,520 387,430
Government Properties Income Trust (REIT)(d) .... 6,738 138,331
HCP, Inc. (REIT) ................................ 20,243 428,949
Health Care REIT, Inc. (REIT) ................... 9,977 340,216
OMEGA Healthcare Investors, Inc. (REIT) ......... 17,261 267,891
Public Storage (REIT) ........................... 9,920 649,562
Regency Centers Corp. (REIT) .................... 10,088 352,172
Simon Property Group, Inc. (REIT) ............... 19,397 997,588
Tanger Factory Outlet Centers, Inc. (REIT) ...... 9,066 294,010
The Macerich Co. (REIT) ......................... 329 5,794
Ventas, Inc. (REIT) ............................. 7,432 221,919
Vornado Realty Trust (REIT) ..................... 19,874 894,926
---------
8,099,976
% OF
NET ASSETS
----------
TOTAL INVESTMENT PORTFOLIO (Cost $25,043,685)(e) 99.4 22,715,384
OTHER ASSETS AND LIABILITIES, NET 0.6 128,740
----- ----------
NET ASSETS 100.0 22,844,124
(a) As a percentage of net assets.
(b) Illiquid security.
(c) Security acquired in a transaction exempt from registration under Rule 144A
of the Securities Act of 1933 ("Rule 144A Security").
(d) Non-income producing security.
(e) The cost for federal income tax purpose was $25,043,685. At June 30, 2009,
net unrealized depreciation for all securities based on tax cost was
$2,328,301. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of tax cost of $1,528,258 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax costs over value of $3,856,559.
REIT: U.S. Real Estate Investment Trust. Many of the foreign companies have
adopted REIT-like corporate structures in their respective countries. The
character and features of REIT-like corporate structures in foreign
countries may differ from U.S. REITs. Therefore, only U.S. companies are
designated as "REIT" where applicable.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CNL GLOBAL REAL ESTATE FUND - 11
Statement of Assets and Liabilities (Unaudited) as of June 30, 2009
CNL GLOBAL REAL ESTATE FUND
ASSETS
Investments in securities, at value (cost $25,043,685) ................... $ 22,715,384
Foreign currency, at value (cost $43,903) ................................ 43,883
Receivable for investments sold .......................................... 216,995
Dividends receivable ..................................................... 70,994
Receivable for Fund shares sold .......................................... 46,543
Prepaid insurance ........................................................ 27,248
Due from Adviser ......................................................... 20,324
Foreign taxes recoverable ................................................ 3,418
------------
Total assets ............................................................. 23,144,789
------------
LIABILITIES
Distributions payable .................................................... 104,808
Due to custodian ......................................................... 67,993
Accrued transfer agent fees .............................................. 27,860
Accrued auditing and tax services fees ................................... 23,579
Accrued reports to shareholders fee ...................................... 12,341
Accrued administration fees .............................................. 11,470
Accrued trustees fees .................................................... 10,417
Accrued custodian and accounting fees .................................... 9,571
Payable for Fund shares redeemed ......................................... 7,958
Accrued distribution fee (12b-1) - Class A ............................... 445
Accrued legal fees ....................................................... 10,010
Other accrued expenses and payables ...................................... 14,213
------------
Total liabilities ........................................................ 300,665
------------
NET ASSETS, AT VALUE ..................................................... $ 22,844,124
============
NET ASSETS
Net assets consist of:
Distributions in excess of net investment income ......................... (28,928)
Net unrealized appreciation (depreciation) on:
Investments ........................................................... (2,328,301)
Foreign currency related transactions ................................. (987)
Accumulated net realized gain (loss) ..................................... (16,233,263)
Paid-in capital .......................................................... 41,435,603
------------
NET ASSETS, AT VALUE ..................................................... $ 22,844,124
============
NET ASSET VALUE:
CLASS A
Net Asset Value and redemption price per share ($2,207,450 / 445,647
shares of capital stock outstanding, $0.001 par value, unlimited
number of shares authorized) .......................................... $ 4.95
------------
Maximum offering price per share ($4.95 / 0.9425) ........................ $ 5.25
------------
INSTITUTIONAL CLASS
Net Asset Value offering and redemption price per share ($20,636,674 /
4,161,576 shares of capital stock outstanding, $0.001 par value,
unlimited number of shares authorized) ................................ $ 4.96
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12 - CNL GLOBAL REAL ESTATE FUND
Statement of Operations (Unaudited) for the six months ended June 30, 2009
CNL GLOBAL REAL ESTATE FUND
INVESTMENT INCOME:
Dividends (net of $47,987 taxes withheld) ................................ $ 564,800
------------
Total Income ............................................................. 564,800
------------
EXPENSES:
Management fee ........................................................... 108,591
Transfer agent fee ....................................................... 82,908
Administration fees ...................................................... 69,053
Custodian and accounting fees ............................................ 55,098
Trustees fees and expenses ............................................... 35,610
Legal fees ............................................................... 27,632
Auditing and tax services ................................................ 27,347
Compliance services expense .............................................. 25,707
Insurance ................................................................ 13,537
Registration fees ........................................................ 9,584
Reports to shareholders .................................................. 6,642
Distribution fee (12b-1) - Class A ....................................... 1,854
Other .................................................................... 1,932
------------
Total expenses, before expense waiver/reimbursement ...................... 465,495
------------
Expense waiver/reimbursement ............................................. (295,323)
------------
Total expenses, after expense waiver/reimbursement ....................... 170,172
------------
NET INVESTMENT INCOME (LOSS) ............................................. 394,628
============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS:
Net realized gain (loss) from:
Investments ........................................................... (11,225,746)
Foreign currency related transactions ................................. (47,934)
------------
(11,273,680)
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................... 11,009,059
Foreign currency related transactions ................................. (3,162)
------------
11,005,897
------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS .................................. (267,783)
============
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 126,845
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CNL GLOBAL REAL ESTATE FUND - 13
Statement of Changes in Net Assets
CNL GLOBAL REAL ESTATE FUND
SIX MONTHS
ENDED
JUNE 30, YEAR
2009 ENDED
(UNAUDITED) DECEMBER 31, 2008
------------ -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .................................................... $ 394,628 $ 380,422
Net realized gain (loss) on investment transactions and foreign currency
related transactions ......................................................... (11,273,680) (4,935,637)
Net unrealized appreciation (depreciation) during the period on investment
transactions and foreign currency related transactions ....................... 11,005,897 (12,725,302)
------------ ------------
Net increase (decrease) in net assets resulting from operations .................... 126,845 (17,280,517)
------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ......................................................................... (21,483) (19,496)
Class C ......................................................................... -- (176)(a)
Institutional Class ............................................................. (247,717) (450,171)
------------ ------------
Decrease in net assets from distributions to shareholders .......................... (269,200) (469,843)
------------ ------------
Fund share transactions:
Proceeds from shares sold ....................................................... 1,988,801 45,937,265
Reinvestment of distributions ................................................... 97,743 322,570
Cost of shares redeemed ......................................................... (7,232,313) (4,991,773)
Redemption fees ................................................................. 11,214 11,916
------------ ------------
Net increase (decrease) in net assets from Fund share transactions ................. (5,134,555) 41,279,978
------------ ------------
INCREASE (DECREASE) IN NET ASSETS ..................................................... (5,276,910) 23,529,618
============ ============
Net assets at beginning of period .................................................. 28,121,034 4,591,416
------------ ------------
NET ASSETS AT END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS NET INVESTMENT INCOME
OF $28,928 AND $154,356, RESPECTIVELY) .......................................... $ 22,844,124 $ 28,121,034
============ ============
----------
(a) On December 30, 2008, Class C shares were reclassified into Class A Shares.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14 - CNL GLOBAL REAL ESTATE FUND
FINANCIAL HIGHLIGHTS
CNL GLOBAL REAL ESTATE FUND
CLASS A
----------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2009 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2008 2007(a)
---------------- ------------ ------------
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ..................................... $ 4.61 $ 8.64 $ 10.00
Income (loss) from investment operations:
Net investment income (loss)(b) .................................... 0.07 0.10 0.07
Net realized and unrealized gain (loss) on investment
transactions .................................................... 0.32 (4.06) (1.35)
------ ------- -------
Total from investment operations ...................................... 0.39 (3.96) (1.28)
Less distributions from:
Net investment income ................................................. (0.05) (0.07) (0.08)
------ ------- -------
Total distributions to shareholders ................................... (0.05) (0.07) (0.08)
------ ------- -------
Redemption fees .......................................................... 0.00(c) 0.00(c) --
------ ------- -------
NET ASSET VALUE, END OF PERIOD ........................................... $ 4.95 $ 4.61 $ 8.64
Total Return (%)(d) ................................................... 8.68(e) (45.91) (12.77)(e)
------ ------- -------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) ...................................... $2,207 $ 1,241 $ 61
Ratio of expenses before expense waiver/reimbursement (%) ............. 4.53(f) 4.99 29.19(f)
Ratio of expenses after expense waiver/reimbursement (%) .............. 1.80(f) 1.80 1.80(f)
Ratio of net investment income (loss) (%)(g)........................... 3.40(f) 1.69 4.30(f)
Portfolio turnover rate (%) ........................................... 41(e) 25 6(e)
----------
(a) For the period from October 26, 2007 (commencement of operations) to
December 31, 2007.
(b) Per share numbers have been calculated using the average shares method.
(c) Amount is less than $0.005 per share.
(d) Does not reflect sales charges, which would reduce return.
(e) Not annualized.
(f) Annualized.
(g) Differences between classes are impacted by the timing of subscriptions and
the timing of dividend income earned by the Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CNL GLOBAL REAL ESTATE FUND - 15
FINANCIAL HIGHLIGHTS
CNL GLOBAL REAL ESTATE FUND
INSTITUTIONAL CLASS
----------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2009 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2008 2007(a)
---------------- ------------ ------------
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ......................................... $ 4.62 $ 8.64 $ 10.00
Income (loss) from investment operations:
Net investment income (loss)(b) ........................................ 0.08 0.13 0.04
Net realized and unrealized gain (loss) on investment transactions ..... 0.32 (4.06) (1.31)
------- ------- -------
Total from investment operations .......................................... 0.40 (3.93) (1.27)
Less distributions from:
Net investment income ..................................................... (0.06) (0.09) (0.09)
------- ------- -------
Total distributions to shareholders ....................................... (0.06) (0.09) (0.09)
------- ------- -------
Redemption fees .............................................................. 0.00(c) 0.00(c) --
------- ------- -------
NET ASSET VALUE, END OF PERIOD ............................................... $ 4.96 $ 4.62 $ 8.64
------- ------- -------
Total Return (%) .......................................................... 8.79(d) (45.66) (12.73)(d)
------- ------- -------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) .......................................... $20,637 $26,880 $ 4,517
Ratio of expenses before expense waiver/reimbursement (%) ................. 4.27(e) 5.49 28.94(e)
Ratio of expenses after expense waiver/reimbursement (%) .................. 1.55(e) 1.55 1.55(e)
Ratio of net investment income (loss) (%)(f) .............................. 3.65(e) 2.09 2.45(e)
Portfolio turnover rate (%) ............................................... 41(d) 25 6(d)
(a) For the period from October 26, 2007 (commencement of operations) to
December 31, 2007.
(b) Per share numbers have been calculated using the average shares method.
(c) Amount is less than $0.005 per share.
(d) Not annualized.
(e) Annualized.
(f) Differences between classes are impacted by the timing of subscriptions and
the timing of dividend income earned by the Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16 - CNL GLOBAL REAL ESTATE FUND
Notes to Financial Statements (Unaudited) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
1. ORGANIZATION
CNL Global Real Estate Fund (the "Fund") is a diversified series of The CNL
Funds (the "Trust") which is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
organized as a Delaware statutory trust. The Fund commenced operations on
October 26, 2007.
The Fund seeks to achieve a high total return through a combination of current
income and capital appreciation. The Fund invests at least 80% of its net assets
(plus borrowings for investment purposes, if any) in equity and equity-related
securities issued by real estate and real estate-related companies.
The Fund offers two classes of shares which provide investors with different
purchase options. Class A shares are offered to investors subject to an initial
sales charge of 5.75% (on investments greater than $50,000, the sales charge is
reduced). Sales charges may be reduced or waived for certain eligible investors.
Institutional Class shares are offered to a limited group of investors, are not
subject to initial or contingent deferred sales charges and have lower ongoing
expenses than Class A shares. Class C shares were offered to investors without
an initial sales charge and were subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge of 1.00% payable upon certain
redemptions within one year of purchase. On December 17, 2008, the Board of
Trustees of the Fund approved the reclassification of the Class C shares into
the Class A shares. This conversion was completed on December 30, 2008 and
shares of Class C were not available after this date.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amount and
disclosures. Actual results could differ from these estimates and those
differences could be material.
PORTFOLIO VALUATION
Generally, the Fund's investments are valued at market value. Securities traded
on a principal domestic or foreign securities exchange or the National
Association of Securities Dealers' Automated Quotation System ("NASDAQ") are
valued at the last quoted sales price, the NASDAQ official close price or, in
the absence of closing sales prices on that day, securities are valued at the
mean between the closing bid and asked prices. Securities traded on more than
one exchange are valued using the primary exchange where the security is
principally traded.
Securities for which market prices are unavailable, or securities for which CNL
Fund Advisors Company ("the Adviser") determines that prices do not reflect
market value, will be valued at fair value pursuant to valuation policies and
procedures approved by the Board of Trustees. Circumstances in which market
prices may be unavailable include, but are not limited to, when exchange trading
in a security is suspended, the exchange on which the security is traded is
subject to an unscheduled close or disruption or material events occur after the
close of the exchange on which the security is principally traded. In these
circumstances, the Adviser's Pricing Committee determines fair value in a manner
that it believes fairly reflects the market value of the security on the
valuation date based on consideration of any information or factors it deems
appropriate. These may include recent transactions in comparable securities,
information relating to the specific security and developments in the markets.
In particular, portfolio securities primarily traded on foreign markets are
generally valued at the preceding closing values of such securities on their
respective exchanges. Alternatively, the value of non-North American securities
may be adjusted to reflect the estimated fair value of such securities as of the
close of trading on the New York Stock Exchange ("NYSE") using a pricing service
and/or procedures approved by the Board of Trustees if after the close of the
foreign markets, but prior to the close of trading on the NYSE on the day the
securities are being valued, developments occur that are expected to materially
affect the value of such non-North American securities.
CNL GLOBAL REAL ESTATE FUND - 17
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
The Fund's use of fair value pricing may cause the net asset value of Fund
shares to differ from the net asset value that would be calculated using market
quotations. Fair value pricing involves subjective judgments and it is possible
that the fair value determined for a security may be materially different than
the value that could be realized upon the sale of that security.
Short-term debt securities, which have a maturity date of 60 days or less, are
valued at amortized cost, which approximates value.
The Fund adopted Statement of Financial Accounting Standards No. 157 ("FAS
157"). FAS 157 establishes a single definition of fair value, creates a
three-tier hierarchy as a framework for measuring fair value based on inputs
used to value the Fund's investments, and requires disclosure about fair value.
The hierarchy of inputs is summarized below.
- Level 1 - quoted prices in active markets for identical assets
- Level 2 - significant other observable inputs (including quoted prices
for similar investments, interest rates, prepayment speeds, credit
risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Effective June 15, 2009, the Fund adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards Staff Position No. 157-4
"Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly" ("FSP 157-4"). FSP 157-4 provides additional guidance for estimating
fair value in accordance with FAS 157, when the volume and level of activity for
the asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly.
The following is a summary of the fair value measurements used for the June 30,
2009 values:
QUOTED PRICES SIGNIFICANT
IN ACTIVE OTHER SIGNIFICANT
MARKET FOR OBSERVABLE UNOBSERVABLE
IDENTICAL ASSETS INPUTS INPUTS
TOTAL (LEVEL 1) (LEVEL 2) (LEVEL 3)
----------- ---------------- ----------- ------------
Common stock - Canada $ 961,773 $ 961,773 $ -- $--
Common stock - United States 8,099,976 8,099,976 -- --
Common stock - other countries 13,653,635 -- 13,653,635 --
----------- ---------- ----------- ---
TOTAL INVESTMENTS $22,715,384 $9,061,749 $13,653,635 $--
=========== ========== =========== ===
The Fund's assets consisting of all North American exchange-traded common stocks
and rights were classified under Level 1 for this reporting period ending June
30, 2009. Level 2 Fund assets include 30 non-North American publicly traded
stocks that represent an aggregate fair value of $13,653,635. Had the Fund used
the observable closing prices from the primary exchange instead of using fair
value procedures, then the value of these 30 securities would be $13,700,565.
At June 30, 2009, there were no other securities fair valued pursuant to the
Fund's fair value procedures.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on trade date. Realized gains and losses on
investments sold are recorded on the basis of identified cost. Interest income
is recorded on the accrual basis. Discounts are accreted and premiums are
amortized over the life of the respective securities. Dividend income (net of
foreign withholding taxes, if any) is recorded on the ex-dividend date except
for certain dividends on foreign securities, which are recorded as soon as the
Fund is informed after the ex-dividend date. The Fund records distributions
received in excess of income from underlying investments as a reduction of cost
of investments
18 - CNL GLOBAL REAL ESTATE FUND
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
and/or realized gain. Such amounts are based on estimates if actual amounts are
not available and actual amounts of income, realized gain and return of capital
may differ from the estimated amounts. The Fund adjusts the estimated amounts of
the components of distributions (and consequently its net investment income) as
an increase to unrealized appreciation/ (depreciation) and realized gain/(loss)
on investments as necessary once the issuers provide information about the
actual composition of the distributions.
FOREIGN CURRENCY TRANSLATION
The books and records of the Fund are maintained in U.S. dollars as follows: (1)
the foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts (forward contracts) are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/(loss) on foreign
currency related transactions. Pursuant to U.S. federal income tax regulations,
certain foreign exchange gains/(losses) included in realized and unrealized
gain/(loss) are included in or are a reduction of ordinary income for federal
income tax purposes. The Fund does not isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates from the
changes in the market prices of the securities; such changes are included with
the net realized and unrealized gain/(loss) on investments.
FORWARD FOREIGN CURRENCY CONTRACTS
Forward contracts are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are recorded as unrealized
foreign currency gain or loss. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery. The Fund
held no forward foreign currency contracts at June 30, 2009.
FEDERAL INCOME TAXES
It is the policy of the Fund to qualify as a regulated investment company, if
such qualification is in the best interest of the shareholders, by complying
with the requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies, and by distributing substantially all of its
taxable earnings to its shareholders. Accordingly, no provision for federal
income or excise tax is necessary. The Fund has adopted the provisions of
Financial Accounting Standards Board (FASB) Interpretation 48, Accounting for
Uncertainty in Income Taxes--an interpretation of FASB Statement 109 (FIN 48).
FIN 48 clarifies the accounting for income taxes by prescribing the minimum
recognition threshold a tax position must meet before being recognized in the
financial statements. An assessment of the Fund's tax positions has been made
and it has been determined that there is no impact to the Fund's financial
statements. The Fund's federal tax return for the years ended December 31, 2007,
and December 31, 2008, remain subject to examination by the Internal Revenue
Service.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and capital gain distributions are
determined in accordance with U.S. federal income tax regulations, which may
differ from GAAP. Dividends from net investment income, if any, are declared and
paid quarterly. Net realized capital gains, unless offset by any available
capital loss carryforward, are distributed to shareholders annually. Dividends
and distributions to shareholders are recorded on the ex-dividend date and are
automatically reinvested in full and fractional shares of the Fund based on the
net asset value per share at the close of business on the ex-dividend date,
unless the shareholder has elected to have the dividends and distributions paid
in cash.
REAL ESTATE INVESTMENT TRUSTS
At year end, the Fund recharacterizes distributions received from a Real Estate
Investment Trust ("REIT") investment based on information provided by the REIT
into the following categories: ordinary income, long-term and short-term capital
gains, and return of capital. If information is not available timely from a
REIT, the recharacterization will be based on other available information.
Distributions received from REITs in excess of income are recorded as either a
reduction of cost of investments or
CNL GLOBAL REAL ESTATE FUND - 19
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
realized gains. The Fund distinguishes between dividends on a tax basis and a
financial reporting basis and only distributions in excess of tax basis earnings
and profits are reported in the financial statements as a tax return of capital.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements which are transactions in which
the Fund purchases a security and simultaneously agrees to resell that security
to the seller at an agreed upon price on an agreed upon future date, normally,
one to seven days later. If the Fund enters into a repurchase agreement, it will
maintain possession of the purchased securities and any underlying collateral.
Repurchase agreements must be continuously collateralized and the collateral
must have market value at least equal to the repurchase price of the securities,
plus accrued interest.
CLASS ALLOCATION
Investment income, realized and unrealized gains and losses, and certain
Fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares, except
that each class bears distribution and shareholder servicing expenses unique to
that class. Differences in class-level expenses may result in payment of
different per share dividends by share class. All shares of the Fund have equal
rights with respect to voting subject to class-specific arrangements.
REDEMPTION FEES
The Fund imposes a redemption fee of 1.00% of the total redemption amount on the
Fund shares redeemed within 75 days of buying them. This fee is assessed and
retained by the Fund for the benefit of the remaining shareholders. The
redemption fee is accounted for as an addition to paid-in-capital.
OTHER
In the normal course of business, the Fund may enter into contracts with service
providers that contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Fund that have not yet been made. However, the Fund
expects the risk of loss to be remote.
3. MANAGEMENT FEES AND OTHER EXPENSES
Under the Investment Management Agreement with the Adviser, the Adviser directs
the investments of the Fund in accordance with its investment objective,
policies and restrictions. The Fund pays a monthly investment management fee,
computed and accrued daily and payable monthly, at an annual rate of 1.00% of
the Fund's average daily net assets. For the six months ended June 30, 2009, the
Adviser waived $108,591 of its investment management fee and reimbursed other
operating expenses of $186,732 pursuant to an expense limitation agreement with
the Fund. CB Richard Ellis Global Real Estate Securities, LLC ("CB Richard Ellis
GRES") is the sub-adviser for the Fund. The Adviser compensates CB Richard Ellis
GRES out of the management fee it receives from the Fund.
EXPENSE LIMITATIONS
For the period from October 26, 2007, (commencement of operations) through April
30, 2010, the Adviser has contractually agreed to waive all or a portion of its
management fee and reimburse or pay certain operating expenses of the Fund to
the extent necessary to maintain the annual expenses of each class as follows:
CONTRACTUAL
CLASS EXPENSE LIMIT
----- -------------
Class A 1.80%
Institutional Class 1.55%
The Adviser may recapture all or a portion of any waived investment management
fees and expenses it has borne, if any, to the extent a class's expenses fall
below the maximum ratio within three years after the end of the fiscal year in
which the waiver was
20 - CNL GLOBAL REAL ESTATE FUND
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
made. The Fund's Board of Trustees shall determine quarterly, in advance,
whether any reimbursement may be paid to the Adviser in such quarter. The
amounts subject to possible reimbursement under the expense limitation
agreements at December 31, 2007 through 2009 were as follows:
Expenses Subject to Possible Recapture through December 31, 2010 $228,405
Expenses Subject to Possible Recapture through December 31, 2011 $717,556
Expenses Subject to Possible Recapture through December 31, 2012 $295,323
DISTRIBUTOR
The Trust has adopted a Rule 12b-1 plan for Class A shares under which the Fund
is authorized to pay to Foreside Fund Services, LLC (the "Distributor") or any
other approved entity (collectively, "payees") as compensation for the
distribution services and/or shareholder services provided by such payees, an
aggregate fee equal to 0.25% of the average daily net assets of Class A shares
of the Fund. The payees may pay any or all amounts received under the Rule 12b-1
plan to other persons for any distribution or service activity conducted on
behalf of the Fund. The plan is a core component of the ongoing distribution and
shareholder servicing as related to Class A shares.
For the six months ended June 30, 2009, the Fund has been advised that the
Distributor received $0 in sales commissions from the sale of Class A shares.
ADMINISTRATOR
State Street Bank and Trust Company ("State Street") serves as administrator for
the Trust pursuant to an administration agreement (the "Administration
Agreement") with the Trust. Under the Administration Agreement, State Street is
responsible for (i) the general administrative duties associated with the
day-to-day operations of the Trust; (ii) conducting relations with the
independent registered certified public accounting firm, legal counsel and other
service providers; (iii) providing regulatory reporting; and (iv) providing the
office facilities and sufficient personnel required by it to perform such
administrative services.
TRANSFER AGENT
Boston Financial Data Services, Inc., an affiliate of State Street, acts as the
transfer agent and dividend disbursing agent of the Fund. As transfer agent and
dividend disbursing agent, the transfer agent maintains an account for each
shareholder of record of the Fund and is responsible for processing purchase and
redemption requests and paying distributions to shareholders of record.
CUSTODIAN
State Street serves as custodian of the assets of the Trust pursuant to a
custodian agreement (the "Custody Contract") with the Trust. Under the Custody
Contract, State Street holds and transfers portfolio securities on account of
the Fund, provides fund accounting and keeps all necessary records and
documents, and performs other duties, all as directed by authorized persons.
Portfolio securities purchased in the United States are maintained in the
custody of State Street or other domestic banks or depositories. Portfolio
securities purchased outside of the United States are maintained in the custody
of foreign banks and trust companies who are members of State Street's Global
Custody Network and foreign depositories (collectively "foreign subcustodians").
With respect to foreign subcustodians, there can be no assurance that the Fund,
and the value of its shares, will not be adversely affected by acts of foreign
governments, financial or operational difficulties of the foreign subcustodians,
difficulties and costs of obtaining jurisdiction over, or enforcing judgments
against, the foreign subcustodians or application of foreign law to the Fund's
foreign subcustodial arrangements.
CNL GLOBAL REAL ESTATE FUND - 21
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
TRUSTEES AND OFFICERS
Each trustee of the Trust who is not an "interested person" of the Trust, as
that term is defined in the 1940 Act (an "Independent Trustee"), is paid an
annual retainer fee of $2,000 for service to the Trust. In addition, the Audit
Committee chair, the Governance Committee chair and the Independent Trustee
Committee chair will each receive $2,000 per annum for fulfilling these roles.
In addition, each Independent Trustee will be paid a fee of $1,500 for each
regular Board meeting attended whether the regular or special Board meetings are
attended in person or by telephone. In addition, each Independent Trustee will
be paid a fee of $1,000 for each committee meeting, including Audit Committee,
Governance Committee and Independent Trustee Committee meetings. Trustees are
also reimbursed for all reasonable out-of-pocket expenses incurred in connection
with his duties as a Trustee, including travel and related expenses incurred in
attending Board meetings. No officer of the Trust is compensated by the Trust.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the six
months ended June 30, 2009 totaled $8,767,730 and $12,086,945, respectively.
5. INCOME TAX INFORMATION
The tax character of dividends and distributions paid for the years ended
December 31, 2008 and 2007 were as follows:
FOR THE PERIOD
FOR THE YEAR OCTOBER 26,
ENDED 2007* THROUGH
DECEMBER 31, 2008 DECEMBER 31, 2007
----------------- -----------------
Ordinary income $469,843 $45,561
Long-term capital gains -- --
Tax return of capital -- --
-------- -------
Total dividends and distributions $469,843 $45,561
======== =======
* COMMENCEMENT OF OPERATIONS.
As of December 31, 2008, the tax-basis components of accumulated earnings were
as follows:
Undistributed ordinary income $ 15,999
Other temporary differences $ (34,216)
Undistributed long-term capital gains $ --
Net unrealized depreciation on investments and currency $(14,309,752)
As of December 31, 2008, the Fund had a net capital loss carryforward of
$1,169,804, which will expire on December 31, 2016. This carryforward may be
used to offset future capital gains to the extent provided by regulations.
As of December 31, 2008, the Fund had temporary book/tax differences primarily
attributable to wash sales on portfolio securities, post-October realized losses
and mark-to-market on passive foreign investment companies and permanent
book/tax differences primarily attributable to non-deductible expenses and
foreign currency losses. To reflect reclassifications arising from the permanent
differences, paid-in capital was credited $7,775, accumulated net realized loss
was credited $31,317 and distributions in excess of net investment income was
charged $39,092.
The tax character of current year distributions will be determined at the end of
the current fiscal year.
22 - CNL GLOBAL REAL ESTATE FUND
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
6. CAPITAL STOCK
The following table summarized shares and dollar activity in the Fund:
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2009 DECEMBER 31, 2008
------------------------ -----------------------
SHARES DOLLARS SHARES DOLLARS
---------- ----------- --------- -----------
CLASS A
Shares sold 211,983 $ 879,195 498,298 $ 3,199,670
Issued as reinvestment of dividends 4,807 21,350 3,569 19,300
Shares redeemed (40,344) (174,560) (243,580) (1,222,503)
Shares reclassified(a) -- -- 3,841 17,516
Redemption fees(b) -- 770 -- 419
---------- ----------- --------- -----------
Net increase 176,446 $ 726,755 262,128 $ 2,014,402
========== =========== ========= ===========
CLASS C
Shares sold -- $ -- 3,846 $ 26,511
Issued as reinvestment of dividends -- -- 22 118
Shares redeemed -- -- (1,528) (7,247)
Shares reclassified(a) -- -- (3,852) (17,516)
Redemption fees(b) -- -- -- 8
---------- ----------- --------- -----------
Net increase (decrease) -- $ -- (1,512) $ 1,874
========== =========== ========= ===========
INSTITUTIONAL CLASS
Shares sold 280,907 $ 1,109,606 6,080,792 $42,711,084
Issued as reinvestment of dividends 17,578 76,393 55,049 303,152
Shares redeemed (1,961,039) (7,057,753) (834,702) (3,762,023)
Redemption fees(b) -- 10,444 -- 11,489
---------- ----------- --------- -----------
Net increase (decrease) (1,662,554) $(5,861,310) 5,301,139 $39,263,702
========== =========== ========= ===========
----------
(a) On December 30, 2008, the Fund's outstanding Class C shares were
reclassified into Class A shares.
(b) The Fund may charge a 1.00% redemption fee on shares sold within 75 days of
the time of purchase.
7. KEY RISKS
REAL ESTATE CONCENTRATION
The Fund concentrates its investments in real estate securities, including
REITs. A fund with a concentrated investment portfolio is vulnerable to the
risks of the industry in which it invests and is subject to greater risks and
market fluctuations than funds investing in a broader range of industries. Real
estate securities are susceptible to the risks associated with direct ownership
of real estate, such as declines in property values; increases in property
taxes, operating expenses, interest rates or competition; zoning changes; and
losses from casualty and condemnation.
FOREIGN SECURITIES
The Fund may directly purchase securities of foreign issuers. Investing in
securities of foreign issuers involves special risks not typically associated
with investing in securities of U.S. issuers. The risks include possible
revaluation of currencies, the ability to repatriate funds, less complete
financial information about companies and possible future adverse political and
economic developments. Moreover, securities of many foreign issuers and their
markets may be less liquid and their prices more volatile than those of
securities of comparable U.S. issuers.
CNL GLOBAL REAL ESTATE FUND - 23
Notes to Financial Statements (Unaudited) (continued) June 30, 2009
CNL GLOBAL REAL ESTATE FUND
8. CONCENTRATION OF OWNERSHIP
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund. At June 30, 2009,
one shareholder held 23% of Class A shares and one shareholder held 7% of the
Institutional Class shares.
9. SUBSEQUENT EVENTS
In accordance with the provisions set forth in FASB Statement of Financial
Accounting Standards No. 165 "Subsequent Events", adopted by the Fund as of June
30, 2009, management has evaluated the possibility of subsequent events existing
in the Fund's financial statements through August 20, 2009. Management has
determined that there are no material events that would require disclosure in
the Fund's financial statement through this date.
24 - CNL GLOBAL REAL ESTATE FUND
Tax Information (Unaudited)
Please contact a tax advisor if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-888-890-8934.
Other Information
PROXY VOTING RECORD
The Fund files with the Securities and Exchange Commission its proxy voting
record on Form N-PX for each 12-month period ending June 30. Form N-PX must be
filed by the Fund each year by August 31. The most recent Form N-PX is available
without charge, upon request, by calling 1-866-745-3797 or on the Securities and
Exchange Commission's website at www.sec.gov. A description of the policies and
procedures that the Fund uses to determine how to vote proxies relating to
portfolio securities is available without charge, (i) by calling 1-866-745-3797;
(ii) on the Fund's website at www.thecnlfunds.com; and (iii) on the Securities
and Exchange Commission's website at www.sec.gov.
CNL GLOBAL REAL ESTATE FUND - 25
Approval of Investment Advisory and Sub-Advisory Agreements June 30, 2009
(Unaudited)
The Board of Trustees of the Trust (the "Board") is required under the
Investment Company Act of 1940 to approve, on behalf of the CNL Global Real
Estate Fund (the "Fund"), the investment advisory agreement (the "Advisory
Agreement") with CNL Fund Advisors Company ("CNL Advisors") and the sub-advisory
agreement (the "Sub-Advisory Agreement") with CB Richard Ellis Global Real
Estate Securities, LLC ("CB Richard Ellis GRES").
During a meeting held in May 2009, the Board as a whole and the "independent"
Trustees, voting separately ("Independent Trustees"), approved the renewal of
each of the Advisory Agreement and the Sub-Advisory Agreement for an additional
one year term. In doing so, the Board determined that the Advisory Agreement and
the Sub-Advisory Agreement are in the best interests of Fund shareholders and
that the compensation paid to CNL Advisors and CB Richard Ellis GRES under these
agreements is fair and reasonable.
The Independent Trustees met separately with their legal counsel during their
evaluation of the Advisory Agreement and the Sub-Advisory Agreement. The
following discussion more fully describes the factors considered by the Board
and the Independent Trustees in approving the Advisory Agreement and the
Sub-Advisory Agreement.
The trustees of the Trust (the "Trustees") reviewed with their counsel a
memorandum describing their fiduciary and regulatory duties in connection with
the renewal of the Advisory Agreement and the Sub-Advisory Agreement. They also
reviewed the extensive materials provided by CNL Advisors and CB Richard Ellis
GRES along with supporting information provided by the Fund's service providers.
It was noted that prior to the meeting, counsel had requested such materials
from management on behalf of the Independent Trustees. The Trustees also took
into account the quarterly updates given at Board meetings and other reports
provided throughout the period since the initial approval of the Advisory
Agreement and the Sub-Advisory Agreement.
The Trustees considered the nature, extent, and quality of services provided by
CNL Advisors, particularly in oversight of the sub-adviser and the various
service providers. The Trustees concluded that these oversight services had been
performed diligently and promptly since the initial phase of the Fund's
operations. The Trustees also considered the nature, extent and quality of
services provided by CB Richard Ellis GRES. The Independent Trustees reviewed
the investment performance of the Fund and CB Richard Ellis GRES. The Trustees
noted that while the market in global real estate securities and REITs had
suffered losses over the last year and a half, the Fund had performed relatively
well when compared against the performance of comparable global real estate
mutual funds and the Fund's Benchmark Index.
The Trustees noted that because of the severe securities market conditions and
the downturn in the real estate markets, the Fund's total assets had declined
below the value of the capital contributed to the Fund. The Trustees further
noted that CNL Advisors had continued to experience significant operating losses
in servicing the Fund and that neither CNL Advisors nor CB Richard Ellis GRES
had collected an investment advisory or sub-advisory fee from the Fund as a
result of CNL Advisors' expense limitation commitment with the Fund.
In view of the fact that the Fund had paid no investment advisory or
sub-advisory fee since inception and CNL Advisors' continued expense limitation
commitment, the Trustees did not consider the costs of the investment advisory
or sub-advisory services provided. The Trustees noted that, to date, no profits
had been realized by either CNL Advisors or CB Richard Ellis GRES or by any of
their affiliates from their relationship with the Fund. The Independent Trustees
concluded, however, that although CNL Advisors and CB Richard Ellis GRES had not
yet earned a profit from the Fund, they were satisfied that both entities had
provided appropriate services to the Fund.
In view of the Fund's small asset size, the Trustees did not consider as
currently relevant the extent to which economies of scale would be realized as
the Fund grows, and whether advisory fee levels reflect these economies of scale
for the benefit of Fund shareholders. The Board noted that the Advisory
Agreement's flat fee across all asset levels was appropriate given the Fund's
small size and the current expense subsidizes provided by CNL Advisors under its
expense limitation commitment with the Fund.
26 - CNL GLOBAL REAL ESTATE FUND
Approval of Investment Advisory and Sub-Advisory Agreements June 30, 2009
(Unaudited) (continued)
In view of the Fund's small size and expense limitation agreement with CNL
Advisors, the Independent Trustees did not believe that there were any other
significant benefits derived by CNL Advisors or CB Richard Ellis GRES (or any of
their affiliates) from the relationship with the Fund ( "fall out benefits").
The materials provided to the Trustees did not indicate any soft dollar
arrangements involving the Fund.
The Independent Trustees took into consideration the representation by the
Fund's portfolio managers at CB Richard Ellis GRES that they continued to
believe that the Fund had good long-term prospects and that CB Richard Ellis
GRES was committed to the Fund. The Independent Trustees also considered
statements from the Chairman of the Board that CNL Advisors continued to be
committed to the Fund and was committed to taking a strategic look at the Fund's
prospects and the potential for acquisitions to increase the Fund's size.
The Trustees did not identify any single factor discussed previously as
all-important or controlling in evaluating the Advisory Agreement and the
Sub-Advisory Agreement. The Trustees, including all of the Independent Trustees,
concluded that the terms of the Advisory Agreement and the Sub-Advisory
Agreement as presented to the Board were fair and reasonable, that CNL Advisors'
and CB Richard Ellis GRES' fees were reasonable in light of the services
provided to the Fund, and that the Advisory Agreement and Sub-Advisory Agreement
should be renewed.
CNL GLOBAL REAL ESTATE FUND - 27
THIS PAGE IS INTENTIONALLY LEFT BLANK.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
CNL GLOBAL REAL ESTATE FUND
INVESTMENT ADVISER
CNL Fund Advisors Company
450 South Orange Avenue
Orlando, FL 32801
SUB-ADVISER
CB Richard Ellis Global Real Estate Securities, LLC
250 West Pratt Street
Baltimore, MD 21201
ADMINISTRATOR & CUSTODIAN
State Street Bank and Trust Company
One Lincoln Street
Boston, MA 02111
DISTRIBUTOR
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, ME 04101
TRANSFER AGENT
Boston Financial Data Services, Inc.
30 Dan Road
Canton, MA 02021
LEGAL COUNSEL
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
4221 West Boy Scout Boulevard, Suite 200
Tampa, FL 33607
INVESTMENT COMPANY ACT FILE NO. 811-22017
(CNL(R) LOGO)
CNL FUND ADVISORS COMPANY