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 811-09679
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Adelante Funds
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(Exact name of registrant as specified in charter)
555 12th Street, Suite 2100
Oakland, CA 94607
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(Address of principal executive offices)
Adelante Capital Management LLC
555 12th Street, Suite 2100
Oakland, CA 94607
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(Name and address of agent for service)
Registrant's telephone number, including area code: (510) 986-2100
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Date of fiscal year end: January 31
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Date of reporting period: January 31, 2006
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ITEM 1. REPORTS TO STOCKHOLDERS
The following is a copy of the report transmitted to shareholders pursuant to
Rule 30e-1 under the Investment Company Act of 1940, as amended (the "1940
Act"):
ADELANTE FUNDS:
ADELANTE U.S. REAL ESTATE SECURITIES FUND
ANNUAL REPORT
JANUARY 31, 2006
[LOGO]
ADELANTE CAPITAL MANAGEMENT
Shares of Adelante Funds are distributed by an independent third party, UMB
Distribution Services, LLC.
Dear Shareholder: January 31, 2006
We are delighted to present you with Adelante Funds' annual report for fiscal
year ended January 31, 2006. This marks our sixth anniversary in the mutual fund
arena and we continue to believe that mutual funds provide an efficient means
for investors to gain exposure to multiple asset classes. We would like to take
this opportunity to thank you for your investment in, and continued support of
Adelante Funds.
In 2005, real estate markets continued to show improved operating performance.
As a result, demand for real estate assets was strong in both the public and
private markets with over $267 billion in property sales occurring in 2005
according to the consulting firm of Real Capital Analytics. As a result of
strong investor demand for quality real estate, real estate values continued to
rise over the course of the year. 2005 also marked the sixth consecutive year
that Real Estate Investment Trusts ("REITs"), as measured by the Dow Jones
Wilshire REIT Index, outperformed the broader equity market, as measured by the
S&P 500(R) Index. Following a sharp sell-off in January 2005, REITs rebounded
through the balance of the year and posted positive performance as measured by
the various real estate securities indices.
Adelante U.S. Real Estate Securities Fund (the "Fund") also experienced its
sixth consecutive year of positive performance. For the fiscal year ended
January 31, 2006, the average annual returns since inception for Class Y shares,
the Dow Jones Wilshire REIT Index and the S&P 500(R) Index were 22.37%, 22.84%
and 0.06%, respectively. For a more detailed discussion of the Fund's
performance, please see the Management's Discussion of Fund Performance section
of this report.
While we presently believe that there are positive opportunities in the real
estate securities markets, it is worthwhile to note the potential risks involved
with investing in these securities, and consequently in the Fund. The principal
risks of investing in the Fund are risks generally associated with investing in
stocks and risks specific to investing in the real estate industry. Real estate
investing involves special risks, including interest rate fluctuation, credit
risk, liquidity risk and the impact of varied economic conditions on real estate
values and occupancy rates. Some real estate securities, including REITs, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects, including greater market
fluctuations.
As we diligently monitor our universe of companies, their markets and portfolio
activities, our experienced management team will continue to employ the same
disciplined and research-driven approach to our investment management process.
It has been our pleasure to serve you and we appreciate your loyalty to Adelante
Funds. As always, if you have any questions or issues or you would like to make
an additional purchase, you can call and talk to a shareholder services
representative at 1-877-563-5327.
Sincerely,
Michael A. Torres
Chairman and President
UMB Distribution Services, LLC, Distributor
Not authorized for use unless preceded or accompanied by a current Adelante
Funds Prospectus.
A message from your portfolio manager:
We are delighted to provide you with the annual report for the fiscal year ended
January 31, 2006. During that period, Class Y shares of Adelante U.S. Real
Estate Securities Fund (the "Fund") gained 33.51% while Class K shares gained
33.14% vs. a gain of 34.69% for the Dow Jones Wilshire REIT Index.i These
results are impressive relative to the S&P 500(R) Index,ii which gained 10.38%
over the same period. For the year ended December 31, 2005, Class Y shares
returned 13.66% vs. 14.00% for the Dow Jones Wilshire REIT Index. Since
inception (February 16, 2000) the cumulative total returns for Class Y shares,
the Dow Jones Wilshire REIT Index and the S&P 500(R) Index for the period ended
January 31, 2006, were 233.05%, 240.62% and 0.33%, respectively, and for the
period ended December 31, 2005 were 211.22%, 216.03% and -2.26%, respectively.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS K AND
CLASS Y SHARES WILL DIFFER DUE TO DIFFERENCES IN CLASS EXPENSES. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. TO OBTAIN
PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL
1-877-563-5327.
For the reporting period, REITs, as evidenced by the Dow Jones Wilshire REIT
Index, delivered a sixth year of outperformance relative to broader equity
benchmarks as shown above. Unlike 2004 when very few REITs produced negative
total returns, in 2005, 22 out of the 93 constituents of the Dow Jones Wilshire
REIT Index produced negative total returns, reflecting a greater recognition by
the market of those companies more favorably positioned to produce superior
performance in an improving market. We believe the strong performance in 2005
can be attributable to the continuing improvement in the underlying fundamentals
of the real estate market, coupled with the continuation of strong investor
demand for quality real estate assets. This has resulted in the continued rise
of asset values within the real estate market.
The Fund's return for the fiscal year was primarily driven by security
selection. The Fund's regional retail, office, industrial and apartment holdings
all contributed significantly to the Fund's performance. The three best
performing holdings were Kilroy Realty Corporation, an office owner/developer
with a concentration in Southern California, up 80.11%, SL Green Realty
Corporation, an office company with a strong New York presence, up 63.37% and
Corporate Office Properties Trust, an office company with a strong concentration
in the Mid-Atlantic States, up 62.91%.iii
With respect to sector performance, the industrial and regional retail sectors
contributed the most with total returns of 43.57% and 43.36%, respectively for
the year. The apartment and office sectors were close behind with returns of
40.24% and 39.08%, respectively. The strong performance in 2005 across these
four sectors is a sign of the continuing real estate recovery that is being
driven by steady economic growth, modest job creation and improved demand/supply
fundamentals for most property sectors. The recovery in the apartment sector
appears to be broader based, while the office recovery is a bit more uneven with
the supply-constrained coastal markets showing the greatest strength. Regional
retail's strong performance was a continuation of prior years, while the strong
performance in the industrial sector reflects the improving economy. The Fund's
weakest performing sector in 2005 was industrial-mixed, where the Fund's
holdings were concentrated in two companies with a mix of both office and
industrial properties in areas that have experienced a more moderate pace of
recovery. The industrial-mixed sector still managed to return a competitive
23.74%.
The Fund continued to avoid the non-core sectors of the commercial real estate
market due to their high potential for volatility. Non-core real estate sectors
include factory outlet, hotel, manufactured housing and storage. Within the Dow
Jones Wilshire REIT Index, these sectors comprise approximately 12.6% of the
market. The decision to avoid non-core sectors held the Fund's performance down
this fiscal year as factory outlets returned 40.09%, hotels returned 26.23% and
storage returned 43.43%. While the Fund did miss out on these attractive
returns, it did not take on the added potential risk associated with these
volatile sectors. We believe this approach helped the Fund in seeking to control
risk while still providing competitive returns.
Over the course of the year, the Fund's perpetual preferred positions were
increased. At period end, 9.02% of the Fund was invested across six holdings
with an average yield of 6.30%. This is up from 4.6% of the Fund in four
holdings as of the prior fiscal year-end. While the Fund did benefit from the
enhanced yield and relatively lower volatility of its preferred holdings, they
did hold back the total return of the Fund. As a whole, the preferred positions
returned 1.85% for the fiscal year.
Looking forward into 2006, we believe the operating performance of REITs will
continue to improve, although the level of improvement may vary depending upon
the property sector and geographic make-up of the portfolio owned. Finally, we
believe that investor demand for REITs will continue into 2006 as improved
property performance and earnings growth confirms the continuation of the real
estate recovery and strong investor demand continues to push up the value of
their underlying real estate assets. We also like to remind investors to
consider the risks inherent in investing in REITs such as risks associated with
the real estate industry, liquidity, interest rates and small market
capitalization.
As always, we vigilantly analyze and monitor each REIT's premium/discount to its
underlying net asset value and strive to manage the Fund to produce an
attractive risk adjusted return for its investors. By doing so, we hope to
provide investors the opportunity to add the diversification benefits that real
estate brings to a multi-asset class portfolio.
Michael A. Torres
Chief Executive Officer, Adelante Capital Management LLC
(i) The Dow Jones Wilshire REIT Index is an unmanaged market capitalization
weighted index of U.S. publicly traded real estate investment trusts (REITs)
representing a variety of property types.
(ii) The S&P 500(R) Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The S&P 500(R) Index is
heavily weighted toward stocks with large market capitalization and represents
approximately two-thirds of the total market value of all domestic common
stocks.
(iii) The Portfolio composition will change due to ongoing management of the
Fund. References to specific securities should not be construed as a
recommendation by the Fund, its Adviser or distributor.
The Adelante U.S. Real Estate Securities Fund is distributed by UMB Distribution
Services, LLC.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
EXPENSE EXAMPLE (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 2006
As a shareholder of the Adelante U.S. Real Estate Securities Fund (the "Fund"),
you incur ongoing costs, including management fees and other Fund expenses. If
you invest through a financial intermediary, you may also incur additional costs
such as a transaction fee charged on the purchase or sale of the Fund or an
asset-based management fee. 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 invested at the beginning of the
period and held for the entire period from August 1, 2005 to January 31, 2006.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratios 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 costs 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 the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any costs that may be associated with
investing in the Fund through a financial intermediary. Therefore, the second
line of the table is useful in comparing the ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if any costs associated with investing through a financial
intermediary were included, your costs would have been higher.
Class K Class Y
- ----------------------------------------------------------------------------------------------------------------
Expenses Expenses
Beginning Ending paid during Beginning Ending paid during
account account period account account period
value value 8/1/05- value value 8/1/05-
8/1/05 1/31/06 1/31/06(1) 8/1/05 1/31/06 1/31/06(1)
- -----------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,057.70 $6.47 $1,000.00 $1,059.70 $5.02
Hypothetical
(5% return before expenses 1,000.00 1,018.71 6.34 1,000.00 1,020.12 4.93
(1) Expenses are equal to the Funds' annualized expense ratios (1.25% for
Class K and 0.97% for Class Y), multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period).
ADELANTE U.S. REAL ESTATE SECURITIES FUND
Growth of a $10,000 Investment
[CHART]
Adelante U.S. Real
Estate Securities Fund Dow Jones Wilshire
Class K S&P,500 REIT Index
02/16/00 10,000.00 10,000.00 10,000.00
02/29/00 10,020.00 9,751.07 9,956.80
03/31/00 10,500.00 10,705.02 10,351.59
04/30/00 11,200.00 10,382.90 11,085.51
05/31/00 11,380.00 10,169.85 11,227.30
06/30/00 11,777.76 10,420.53 11,508.09
07/31/00 12,857.73 10,257.66 12,590.54
08/31/00 12,338.12 10,894.76 12,118.90
09/30/00 12,898.06 10,319.63 12,583.78
10/31/00 12,228.97 10,275.98 12,044.32
11/30/00 12,517.19 9,465.82 12,293.51
12/31/00 13,331.91 9,512.11 13,165.62
01/31/01 13,133.08 9,849.60 13,160.88
02/28/01 12,955.18 8,951.51 12,943.59
03/31/01 12,985.73 8,384.43 13,028.89
04/30/01 13,218.75 9,035.99 13,310.83
05/31/01 13,483.55 9,096.53 13,634.95
06/30/01 14,302.01 8,875.12 14,442.55
07/31/01 14,045.28 8,787.79 14,152.26
08/31/01 14,612.22 8,237.67 14,715.23
09/30/01 14,287.46 7,572.48 14,073.94
10/31/01 13,701.65 7,716.89 13,572.91
11/30/01 14,406.80 8,308.85 14,392.17
12/31/01 14,782.23 8,381.63 14,760.03
01/31/02 14,578.96 8,259.35 14,701.73
02/28/02 14,838.69 8,100.11 15,023.55
03/31/02 15,767.74 8,404.75 15,995.13
04/30/02 15,790.51 7,895.17 16,082.78
05/31/02 16,097.90 7,836.98 16,297.81
06/30/02 16,576.93 7,278.68 16,730.68
07/31/02 15,726.24 6,711.30 15,824.88
08/31/02 15,933.16 6,755.40 15,838.64
09/30/02 15,351.13 6,021.22 15,212.23
10/31/02 14,607.96 6,551.21 14,395.48
11/30/02 15,258.23 6,936.81 15,083.59
12/31/02 15,482.75 6,529.27 15,289.33
01/31/03 15,057.92 6,358.21 14,844.10
02/28/03 15,411.95 6,262.83 15,114.56
03/31/03 15,782.49 6,323.58 15,482.45
04/30/03 16,294.29 6,844.65 16,079.14
05/31/03 17,056.04 7,205.36 16,989.22
06/30/03 17,438.10 7,297.30 17,356.02
07/31/03 18,255.33 7,425.73 18,279.19
08/31/03 18,411.56 7,570.53 18,431.45
09/30/03 18,954.40 7,490.14 19,079.87
10/31/03 19,209.23 7,913.85 19,363.02
11/30/03 20,022.26 7,983.49 20,216.15
12/31/03 20,510.33 8,402.16 20,822.23
01/31/04 21,263.11 8,556.39 21,655.54
02/29/04 21,658.02 8,675.30 22,015.02
03/31/04 22,897.58 8,544.43 23,338.12
04/30/04 19,684.97 8,410.29 19,921.42
05/31/04 21,099.02 8,525.99 21,443.42
06/30/04 21,650.93 8,691.51 22,073.85
07/31/04 21,838.22 8,403.82 22,186.87
08/31/04 23,486.39 8,437.83 24,018.17
09/30/04 23,353.22 8,529.21 23,904.33
10/31/04 24,735.07 8,659.51 25,231.02
11/30/04 25,727.49 9,009.89 26,360.36
12/31/04 26,899.71 9,316.49 27,728.46
01/31/05 24,494.04 9,089.38 25,293.90
02/28/05 25,300.49 9,280.67 26,083.74
03/31/05 24,808.36 9,116.35 25,726.39
04/30/05 26,382.85 8,943.43 27,244.25
05/31/05 27,341.23 9,228.02 28,140.59
06/30/05 28,717.57 9,241.12 29,620.78
07/31/05 30,831.58 9,584.77 31,886.48
08/31/05 29,609.85 9,497.33 30,695.52
09/30/05 29,814.67 9,574.21 30,832.11
10/31/05 29,167.42 9,414.60 30,169.53
11/30/05 30,461.92 9,770.68 31,568.82
12/31/05 30,474.11 9,774.04 31,603.33
01/31/06 32,612 10,033 34,062
[CHART]
Adelante U.S. Real
Estate Securities Fund Dow Jones Wilshire
Class Y S&P,500 REIT Index
02/16/00 10,000.00 10,000.00 10,000.00
02/29/00 10,020.00 9,751.07 9,956.80
03/31/00 10,500.00 10,705.02 10,351.59
04/30/00 11,210.00 10,382.90 11,085.51
05/31/00 11,380.00 10,169.85 11,227.30
06/30/00 11,782.21 10,420.53 11,508.09
07/31/00 12,863.52 10,257.66 12,590.54
08/31/00 12,353.47 10,894.76 12,118.90
09/30/00 12,917.10 10,319.63 12,583.78
10/31/00 12,256.80 10,275.98 12,044.32
11/30/00 12,545.68 9,465.82 12,293.51
12/31/00 13,357.18 9,512.11 13,165.62
01/31/01 13,166.06 9,849.60 13,160.88
02/28/01 12,985.56 8,951.51 12,943.59
03/31/01 13,011.84 8,384.43 13,028.89
04/30/01 13,259.17 9,035.99 13,310.83
05/31/01 13,528.01 9,096.53 13,634.95
06/30/01 14,356.81 8,875.12 14,442.55
07/31/01 14,107.03 8,787.79 14,152.26
08/31/01 14,693.47 8,237.67 14,715.23
09/30/01 14,357.71 7,572.48 14,073.94
10/31/01 13,774.16 7,716.89 13,572.91
11/30/01 14,489.84 8,308.85 14,392.17
12/31/01 14,872.44 8,381.63 14,760.03
01/31/02 14,665.88 8,259.35 14,701.73
02/28/02 14,941.30 8,100.11 15,023.55
03/31/02 15,890.26 8,404.75 15,995.13
04/30/02 15,924.98 7,895.17 16,082.78
05/31/02 16,237.46 7,836.98 16,297.81
06/30/02 16,713.31 7,278.68 16,730.68
07/31/02 15,871.80 6,711.30 15,824.88
08/31/02 16,082.18 6,755.40 15,838.64
09/30/02 15,490.44 6,021.22 15,212.23
10/31/02 14,734.81 6,551.21 14,395.48
11/30/02 15,395.99 6,936.81 15,083.59
12/31/02 15,627.92 6,529.27 15,289.33
01/31/03 15,206.84 6,358.21 14,844.10
02/28/03 15,567.76 6,262.83 15,114.56
03/31/03 15,946.57 6,323.58 15,482.45
04/30/03 16,480.55 6,844.65 16,079.14
05/31/03 17,257.25 7,205.36 16,989.22
06/30/03 17,651.36 7,297.30 17,356.02
07/31/03 18,484.90 7,425.73 18,279.19
08/31/03 18,644.25 7,570.53 18,431.45
09/30/03 19,208.53 7,490.14 19,079.87
10/31/03 19,468.61 7,913.85 19,363.02
11/30/03 20,310.76 7,983.49 20,216.15
12/31/03 20,806.88 8,402.16 20,822.23
01/31/04 21,575.63 8,556.39 21,655.54
02/29/04 22,004.12 8,675.30 22,015.02
03/31/04 23,245.64 8,544.43 23,338.12
04/30/04 20,000.88 8,410.29 19,921.42
05/31/04 21,433.14 8,525.99 21,443.42
06/30/04 22,011.91 8,691.51 22,073.85
07/31/04 22,190.66 8,403.82 22,186.87
08/31/04 23,888.80 8,437.83 24,018.17
09/30/04 23,757.09 8,529.21 23,904.33
10/31/04 25,158.35 8,659.51 25,231.02
11/30/04 26,186.80 9,009.89 26,360.36
12/31/04 27,382.79 9,316.49 27,728.46
01/31/05 24,945.65 9,089.38 25,293.90
02/28/05 25,758.03 9,280.67 26,083.74
03/31/05 25,274.21 9,116.35 25,726.39
04/30/05 26,874.91 8,943.43 27,244.25
05/31/05 27,857.80 9,228.02 28,140.59
06/30/05 29,274.18 9,241.12 29,620.78
07/31/05 31,429.59 9,584.77 31,886.48
08/31/05 30,218.05 9,497.33 30,695.52
09/30/05 30,423.25 9,574.21 30,832.11
10/31/05 29,772.64 9,414.60 30,169.53
11/30/05 31,116.29 9,770.68 31,568.82
12/31/05 31,122.42 9,774.04 31,603.33
01/31/06 33,305 10,033 34,062
ADELANTE U.S. REAL ESTATE SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2006
One Year Five Year Since Inception (2/16/00)
- ------------------------------------------------------------------------------------------------------------------------------
Adelante U.S. Real Estate Securities Fund - Class K 33.14% 19.95% 21.94%
Adelante U.S. Real Estate Securities Fund - Class Y 33.51% 20.40% 22.37%
S&P 500(R) Index 10.38% 0.37% 0.06%
Dow Jones Wilshire REIT Index 34.69% 20.99% 22.84%
The line graphs shown above for the Fund assumes an initial investment of
$10,000 made after the close of business on 2/15/00 (the Fund's inception date).
Returns shown include the reinvestment of all dividends and distributions. Past
performance, particularly for periods of less than one year, is not predictive
of future results. Investment return and principal value will fluctuate, so that
your shares, when redeemed, may be worth more or less than the original cost.
The S&P 500(R) Index is an unmanaged index of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The Index is heavily
weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
The Dow Jones Wilshire REIT Index is an unmanaged index of approximately 100
selected securities which measures U.S. publicly traded Real Estate Investment
Trusts.
Average annual total returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
JANUARY 31, 2006
Number
of Shares Value
- ------------ ---------------
COMMON STOCKS 86.7%
APARTMENTS 19.6%
21,670 Archstone-Smith Trust $ 1,015,456
15,900 AvalonBay Communities, Inc. 1,581,732
14,610 BRE Properties, Inc. 729,039
9,080 Camden Property Trust 591,108
6,000 Education Realty Trust, Inc. 78,180
39,270 Equity Residential 1,665,441
6,960 Essex Property Trust, Inc. 691,685
37,600 United Dominion Realty Trust, Inc. 955,416
---------------
7,308,057
---------------
DIVERSIFIED/SPECIALTY 7.3%
3,890 Colonial Properties Trust 179,796
8,200 Crescent Real Estate Equities Company 173,758
25,210 Vornado Realty Trust 2,227,051
3,940 Washington Real Estate Investment Trust 129,941
---------------
2,710,546
---------------
INDUSTRIAL 8.0%
21,370 AMB Property Corporation 1,115,514
36,480 ProLogis 1,868,506
---------------
2,984,020
---------------
INDUSTRIAL MIXED 1.3%
4,880 Duke Realty Corporation 177,046
6,890 Liberty Property Trust 311,841
---------------
488,887
---------------
OFFICE 20.6%
5,010 Alexandria Real Estate Equities, Inc. 442,132
7,100 American Financial Realty Trust 88,253
15,120 Arden Realty, Inc. 682,970
7,100 BioMed Realty Trust, Inc. 190,493
18,300 Boston Properties, Inc. 1,432,158
11,489 Brandywine Realty Trust 361,329
7,200 CarrAmerica Realty Corporation 264,960
12,900 Cogdell Spencer, Inc. 240,585
27,100 Corporate Office Properties Trust 1,097,279
42,309 Equity Office Properties Trust 1,346,272
5,390 Kilroy Realty Corporation 364,310
7,390 Mack-Cali Realty Corporation 330,481
2,500 Maguire Properties, Inc. 84,500
8,740 SL Green Realty Corporation 734,510
---------------
7,660,232
---------------
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JANUARY 31, 2006
Number
of Shares Value
- ------------ ---------------
RETAIL - LOCAL 11.7%
21,700 Acadia Realty Trust $ 462,861
18,200 Cedar Shopping Centers, Inc. 269,178
11,090 Developers Diversified Realty Corporation 546,293
7,040 Federal Realty Investment Trust 470,413
9,840 Kimco Realty Corporation 345,286
16,810 Pan Pacific Retail Properties, Inc. 1,163,252
8,030 Regency Centers Corporation 517,534
14,000 Weingarten Realty Investors 567,420
---------------
4,342,237
---------------
RETAIL - REGIONAL 16.8%
7,740 CBL & Associates Properties, Inc. 327,557
14,310 General Growth Properties, Inc. 738,396
16,590 The Macerich Company 1,203,936
33,490 Simon Property Group, Inc. 2,774,312
32,100 Taubman Centers, Inc. 1,205,355
---------------
6,249,556
---------------
TRIPLE-NET LEASE 1.4%
33,000 Newkirk Realty Trust, Inc. 517,770
---------------
TOTAL COMMON STOCKS (COST $16,352,774) 32,261,305
---------------
PREFERRED STOCKS 9.0%
12,400 Developers Diversified Realty
Corporation, Series G 320,044
15,500 Lexington Corporate Properties Trust, Series B 391,375
32,500 Mills Corporation, Series G 791,375
25,000 SL Green Realty Corporation, Series D 634,000
14,400 Taubman Centers, Inc., Series G 366,048
35,800 Vornado Realty Trust, Series I 853,830
---------------
3,356,672
---------------
TOTAL PREFERRED STOCKS (COST $3,360,760) 3,356,672
---------------
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JANUARY 31, 2006
Number
of Shares Value
- ------------ ---------------
2,166,509 SHORT-TERM INVESTMENT 5.8%
UMB Bank Money Market Fiduciary $ 2,166,509
---------------
TOTAL SHORT-TERM INVESTMENT (COST $2,166,509) 2,166,509
---------------
TOTAL INVESTMENTS (COST $21,880,043) 101.5% 37,784,486
LIABILITIES LESS OTHER ASSETS (1.5)% (565,898)
---------------
NET ASSETS 100.0% $ 37,218,588
===============
See notes to the financial statements.
SECTOR BREAKDOWN (UNAUDITED)
JANUARY 31, 2006
[CHART]
Office 20%
Apartments 19%
Retail - Regional 17%
Retail - Local 12%
Preferred Stocks 9%
Industrial 8%
Diversified/Specialty 7%
Short-Term Investment 6%
Industrial Mixed 1%
Triple-Net Lease 1%
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 2006
ASSETS:
Investments, at value (cost $21,880,043) $ 37,784,486
Interest and dividends receivable 51,212
Receivable for capital stock sold 35,951
Due from adviser 18,786
Prepaid expenses 29,966
-----------------------
Total assets 37,920,401
-----------------------
LIABILITIES:
Payable for investments purchased 630,795
Distribution fee payable 167
Other accrued expenses 70,851
-----------------------
Total liabilities 701,813
-----------------------
NET ASSETS $ 37,218,588
=======================
NET ASSETS CONSIST OF:
Paid-in-capital $ 20,065,566
Distributions in excess of net investment income (156,604)
Accumulated undistributed net realized gain on investments 1,405,183
Net unrealized appreciation on investments 15,904,443
-----------------------
NET ASSETS $ 37,218,588
=======================
SHARES OUTSTANDING, $0.0001 PAR VALUE
(UNLIMITED SHARES AUTHORIZED)
CLASS K 836,370
CLASS Y 1,124,424
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
CLASS K $ 19.07
=======================
CLASS Y $ 18.92
=======================
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 2006
INVESTMENT INCOME:
Dividends $ 1,484,016
Interest 14,543
-----------------------
Total investment income 1,498,559
-----------------------
EXPENSES:
Investment advisory fees (see note 6) 278,573
Professional fees 159,561
Shareholder servicing fees 83,837
Administration and accounting fees 67,520
Trustees' fees and expenses 45,085
Insurance expense 44,949
Distribution fees (see note 6) 40,180
Reports to shareholders 33,898
Federal and state registration fees 25,623
Custody fees 12,446
Other expenses 4,792
-----------------------
Total expenses before waiver and reimbursement of expenses 796,464
Less: Waiver and reimbursement of expenses (413,691)
-----------------------
Net expenses 382,773
-----------------------
NET INVESTMENT INCOME 1,115,786
-----------------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 4,512,286
Net change in unrealized appreciation on investments 4,471,695
-----------------------
Net gain on investments 8,983,981
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 10,099,767
=======================
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
YEAR ENDED JANUARY 31, 2005
JANUARY 31, 2006 (RESTATED - SEE NOTE 2)
---------------- -----------------------
OPERATIONS:
Net investment income $ 1,115,786 $ 1,560,408
Net realized gain on investments 4,512,286 5,908,577
Change in unrealized appreciation (depreciation)
on investments 4,471,695 (229,017)
--------------- ---------------
Net increase in net assets resulting from operations 10,099,767 7,239,968
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class K shares 4,764,475 6,727,380
Class Y shares 7,394,791 5,902,457
Shares issued to shareholders in reinvestment of distributions
Class K shares 3,151,868 2,445,915
Class Y shares 3,706,050 1,701,860
Payments for shares redeemed
Class K shares (11,799,501) (22,147,955)
Class Y shares (6,841,278) (9,712,484)
--------------- ---------------
Net increase (decrease) from capital share transactions 376,405 (15,082,827)
--------------- ---------------
DISTRIBUTIONS PAID FROM:
Net investment income
Class K shares (196,860) (729,340)
Class Y shares (289,495) (542,292)
Net realized gains
Class K shares (2,974,010) (1,728,187)
Class Y shares (3,727,251) (1,305,474)
--------------- ---------------
Total distributions (7,187,616) (4,305,293)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,288,556 (12,148,152)
NET ASSETS:
Beginning of year 33,930,032 46,078,184
--------------- ---------------
End of year $ 37,218,588 $ 33,930,032
=============== ===============
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE YEAR.
CLASS K CLASS K CLASS K CLASS K CLASS K
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 2006 JANUARY 31, 2005 JANUARY 31, 2004 JANUARY 31, 2003 JANUARY 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 17.92 $ 17.23 $ 12.76 $ 12.91 $ 12.55
---------------- ---------------- ----------------- ---------------- ----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.57 0.65(1) 0.61(1) 0.59(1) 0.65(1)
Net realized and unrealized gain/(loss)
on investments 5.05 2.09(1) 4.55(1) (0.14)(1) 0.71(1)
---------------- ---------------- ----------------- ---------------- ----------------
Total from investment operations 5.62 2.74 5.16 0.45 1.36
---------------- ---------------- ----------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (0.26) (0.52) (0.58) (0.55) (0.66)
Distributions from capital gains (4.21) (1.53) (0.11) (0.05) (0.34)
---------------- ---------------- ----------------- ---------------- ----------------
Total distributions (4.47) (2.05) (0.69) (0.60) (1.00)
---------------- ---------------- ----------------- ---------------- ----------------
NET ASSET VALUE, END OF YEAR $ 19.07 $ 17.92 $ 17.23 $ 12.76 $ 12.91
================ ================ ================= ================ ================
TOTAL RETURN 33.14% 15.19% 41.21% 3.29% 11.01%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year $ 15,947,297 $ 18,350,017 $ 28,984,996 $ 18,727,963 $ 13,364,481
Ratio of expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of expenses before waivers to
average net assets 2.55% 2.10% 2.23% 2.75% 2.96%
Ratio of net investment income to
average net assets 3.05% 3.38%(1) 4.01%(1) 4.50%(1) 5.05%(1)
Ratio of net investment income before
waivers to average net assets 1.75% 2.54%(1) 3.04%(1) 3.00%(1) 3.34%(1)
Portfolio turnover rate 31% 32% 15% 30% 54%
(1) As restated. See Note 2 of Notes to Financial Statements.
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE YEAR.
CLASS Y CLASS Y CLASS Y CLASS Y CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 2006 JANUARY 31, 2005 JANUARY 31, 2004 JANUARY 31, 2003 JANUARY 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 17.81 $ 17.12 $ 12.64 $ 12.78 $ 12.40
---------------- ---------------- ----------------- ---------------- ----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.65 0.67(1) 0.64(1) 0.61(1) 0.75(1)
Net realized and unrealized gain/(loss)
on investments 4.99 2.12(1) 4.55(1) (0.11)(1) 0.64(1)
---------------- ---------------- ----------------- ---------------- ----------------
Total from investment operations 5.64 2.79 5.19 0.50 1.39
---------------- ---------------- ----------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (0.32) (0.57) (0.60) (0.59) (0.67)
Distributions from capital gains (4.21) (1.53) (0.11) (0.05) (0.34)
---------------- ---------------- ----------------- ---------------- ----------------
Total distributions (4.53) (2.10) (0.71) (0.64) (1.01)
---------------- ---------------- ----------------- ---------------- ----------------
NET ASSET VALUE, END OF YEAR $ 18.92 $ 17.81 $ 17.12 $ 12.64 $ 12.78
================ ================ ================= ================ ================
TOTAL RETURN 33.51% 15.62% 41.88% 3.69% 11.39%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year $ 21,271,291 $ 15,580,015 $ 17,093,188 $ 6,418,537 $ 3,520,190
Ratio of expenses to average net assets 0.97% 0.97% 0.97% 0.97% 0.97%
Ratio of expenses before waivers to
average net assets 2.05% 1.88% 2.06% 2.90% 3.85%
Ratio of net investment income to
average net assets 3.32% 3.68%(1) 4.27%(1) 4.87%(1) 5.32%(1)
Ratio of net investment income before
waivers to average net assets 2.24% 2.78%(1) 3.19%(1) 2.94%(1) 2.45%(1)
Portfolio turnover rate 31% 32% 15% 30% 54%
(1) As restated. See Note 2 of Notes to Financial Statements.
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2006
1. ORGANIZATION
Adelante Funds (the "Trust") was organized on October 28, 1999 as a
Delaware business trust and registered under the Investment Company Act
of 1940 (the "1940 Act"), as amended, as an open-end management
investment company. The Trust currently consists of one investment
portfolio: Adelante U.S. Real Estate Securities Fund (the "Fund"). The
Fund was formerly known as Lend Lease U.S. Real Estate Securities Fund.
The Fund is a non-diversified portfolio of the Trust and is authorized
to issue three classes of shares: Class A, Class K and Class Y. The
Fund's share classes differ in terms of sales charges, fees and
eligibility requirements. The Fund's Class K and Class Y shares
commenced operations on February 16, 2000. As of January 31, 2006, the
Fund's Class K and Class Y shares are outstanding. Adelante Capital
Management LLC (the "Adviser") is the Fund's investment adviser.
2. RESTATEMENT
In preparing the 2006 financial statements, management determined that
in prior years it had misclassified returns of capital on distributions
received from REIT securities held in the fund portfolio by recording
these returns of capital as income rather than as an adjustment to the
cost of the security. This misclassification had no impact on amounts
previously reported for net asset value, distributions paid, amounts of
income reported to shareholders, total return, portfolio turnover rate,
security valuation, or net change in net assets from operations. These
financial statements have been restated to reclassify amounts reported
for net investment income, net realized gain and change in unrealized
appreciation/(depreciation) on investments in the Statement of Changes
in Net Assets for the year ended December 31, 2005, and for the net
investment income per share, net realized and unrealized gain/(loss) on
investments per share, the ratio of net investment income to average
net assets, and the ratio of net investment income before waivers to
average net assets for the years ended January 31, 2005, 2004, 2003 and
2002 in the Financial Highlights.
The amounts before and after the restatement are shown in the table
below:
AS ORIGINALLY REPORTED RESTATED
---------------------- ----------------------
STATEMENT OF CHANGES IN NET ASSETS -
YEAR ENDED JANUARY 31, 2005
Net investment income $1,884,877 $1,560,408
Net realized gain on investments 5,647,142 5,908,577
Change in unrealized appreciation on
investments (292,051) (229,017)
---------------------- ----------------------
Net increase in net assets from operations $7,239,968 $7,239,968
AS ORIGINALLY REPORTED RESTATED
---------------------- ----------------------
FINANCIAL HIGHLIGHTS
CLASS K SHARES
Net investment income per share: 2005 $ 0.92 $ 0.65
2004 $ 0.70 $ 0.61
2003 $ 0.64 $ 0.59
2002 $ 0.70 $ 0.65
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2006
AS ORIGINALLY REPORTED RESTATED
---------------------- ----------------------
Net realized and unrealized gain/(loss)
on investments per share: 2005 $ 1.82 $ 2.09
2004 $ 4.46 $ 4.55
2003 $ (0.19) $ (0.14)
2002 $ 0.66 $ 0.71
Ratio of net investment income
to average net assets: 2005 4.11% 3.38%
2004 4.75% 4.01%
2003 5.21% 4.50%
2002 5.54% 5.05%
Ratio of net investment income
before waivers to average
net assets: 2005 3.26% 2.54%
2004 3.77% 3.04%
2003 3.71% 3.00%
2002 3.83% 3.34%
AS ORIGINALLY REPORTED RESTATED
---------------------- ----------------------
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
Net investment income per share: 2005 $ 0.83 $ 0.67
2004 $ 0.70 $ 0.64
2003 $ 0.67 $ 0.61
2002 $ 0.74 $ 0.75
Net realized and unrealized gain/(loss)
on investments per share: 2005 $ 1.96 $ 2.12
2004 $ 4.49 $ 4.55
2003 $ (0.17) $ (0.11)
2002 $ 0.65 $ 0.64
Ratio of net investment income
to average net assets: 2005 4.41% 3.68%
2004 5.01% 4.27%
2003 5.58% 4.87%
2002 5.82% 5.32%
Ratio of net investment income
before waivers to average
net assets: 2005 3.50% 2.78%
2004 3.92% 3.19%
2003 3.65% 2.94%
2002 2.94% 2.45%
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2006
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The financial statements have been prepared in accordance
with accounting policies generally accepted in the United States of
America that require management to make certain estimates and
assumptions at the date of the financial statements. Actual results may
differ from such estimates.
INVESTMENT VALUATION - In connection with the determination of the
Fund's net asset value, securities that are traded on a recognized
stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded. If a closing
price is not reported, equity securities for which reliable bid
quotations are available are valued at the mean between bid and asked
prices. Short-term securities having a maturity of 60 days or less are
valued at amortized cost, which approximates market value. Any
securities for which there are no readily available market quotations
and other assets will be valued at their fair value as determined in
good faith by the Adviser pursuant to procedures established by and
under the supervision of the Board of Trustees. The fair value of a
security is the amount which a Fund might reasonably expect to receive
upon a current sale. Valuing securities at fair value involves greater
reliance on judgment than valuing securities that have readily
available market quotations. There can be no assurance that the Funds
could obtain the fair value assigned to a security if they were to sell
the security at approximately the time at which the Funds determine
their net asset value per share.
FEDERAL INCOME TAXES - It is the Fund's policy to meet the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all investment company net
taxable income and net capital gains each year to shareholders in a
manner which results in no tax cost to the Fund. Therefore, no federal
income tax or excise tax provision has been made.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions
are accounted for on a trade date basis. Realized gains and losses from
securities transactions are recorded on the identified cost basis.
Dividend income is recognized on the ex-dividend date and interest
income is recognized daily on an accrual basis. Return of capital
distributions from investments will decrease the cost of investment in
the investment security and thus may impact unrealized appreciation or
depreciation of the investment security.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income
are declared and paid quarterly. Distributions of net realized capital
gains, if any, are declared and paid at least annually.
Distributions to shareholders are determined in accordance with federal
income tax regulations and are recorded on the ex-dividend date. The
character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense and gain items for financial statement and tax
purposes. Where appropriate, reclassifications between net asset
accounts are made for such differences that are permanent in nature.
Accordingly, at January 31, 2006, reclassifications were recorded to
increase accumulated undistributed net realized gain on investments by
$478,284 and decrease undistributed net investment income by $478,284.
EXPENSES - Each class of shares is charged for those expenses directly
attributable to the class. Expenses that are not directly attributable
to a class of shares are typically allocated among the classes in
proportion to their relative shares outstanding.
INDEMNIFICATIONS - Under the Fund's organizational documents, their
officers and trustees are indemnified
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2006
against certain liability arising out of the performance of their
duties to the Fund. Additionally, in the normal course of business, the
Fund enters 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 occurred. However, the Fund
expects the risk of loss to be remote.
4. CAPITAL TRANSACTIONS
Transactions of the Fund were as follows:
YEAR ENDED YEAR ENDED
JANUARY 31, 2006 JANUARY 31, 2005
------------------------------- -------------------------------
CLASS K SHARES: SHARES DOLLARS SHARES DOLLARS
Shares sold 238,576 $ 4,764,475 364,900 $ 6,727,380
Shares issued to holders in
reinvestment of dividends
and capital gains 175,630 3,151,868 126,964 2,445,915
Shares redeemed (601,727) (11,799,501) (1,150,691) (22,147,955)
-------------- -------------- -------------- --------------
Net (decrease) (187,521) $ (3,883,158) (658,827) $ (12,974,660)
-------------- -------------- -------------- --------------
YEAR ENDED YEAR ENDED
JANUARY 31, 2006 JANUARY 31, 2005
------------------------------- -------------------------------
CLASS Y SHARES: SHARES DOLLARS SHARES DOLLARS
Shares sold 378,752 $ 7,394,791 329,854 $ 5,902,457
Shares issued to holders in
reinvestment of dividends
and capital gains 207,965 3,706,050 88,791 1,701,860
Shares redeemed (337,323) (6,841,278) (541,849) (9,712,484)
-------------- -------------- -------------- --------------
Net increase/(decrease) 249,394 $ 4,259,563 (123,204) $ (2,108,167)
-------------- -------------- -------------- --------------
Net decrease from
capital share transactions (61,873) $ (376,405) (782,031) $ (15,082,827)
============== ============== ============== ==============
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the Fund, excluding short-term
investments, for the year ended January 31, 2006 were $10,722,823 and
$17,443,966, respectively. There were no purchases or sales of U.S.
Government securities for the year ended January 31, 2006.
6. INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an Investment Advisory Agreement with the
Adviser. The Fund pays a fee based on the Fund's average daily net
assets at the annual rate of 0.80% for the services provided by the
Adviser. The Adviser has contractually agreed to limit the annual
operating expenses of Class K and Class Y shares of the Fund to 1.25%
and 0.97%, respectively, through January 31, 2007, subject to later
reimbursement by
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2006
the Fund in certain circumstances. The expense limitation has been
renewed through August 25, 2007. The Adviser has contractually agreed
that in the event that the foregoing Fund expense limitation is not
renewed, the Adviser will limit the Fund's Class K and Class Y shares
total annual fund operating expense to 2.25% through January 31, 2011.
During the year ended January 31, 2006, the Adviser waived investment
advisory fees for the Fund of $278,573. As of January 31, 2006, the
Adviser is required to make additional reimbursement to the Fund in the
amount of $18,786. The Adviser is entitled to recoup from the Fund
amounts waived or reimbursed for a period of up to three years from the
date such amounts were waived or reimbursed, provided the Fundexpenses,
including such recouped amounts, do not exceed the stated expense
limitations. During the twelve months ended January 31, 2006, the
Adviser did not recoup any expenses. At January 31, 2006, the following
amounts are subject to recoupment through January 31, 2007,
January 31, 2008, and January 31, 2009, respectively.
Expires Expires Expires
January 31, 2009 January 31, 2008 January 31, 2007
---------------- ---------------- ----------------
Class K $210,222 $231,228 $233,176
Class Y 203,469 156,695 130,809
Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted a plan of
distribution for the Class K shares of the Fund (the "Plan") which
permits the Fund to pay for certain expenses associated with the
distribution of its Class K shares and for services provided to its
Class K shareholders. Under the Plan, the Fund's Class K shares may pay
expenses pursuant to the distribution plan equal to a maximum of 0.25%
of the average daily net assets of such class. During the year ended
January 31, 2006, the Fund incurred distribution expenses of $40,180.
7. INVESTMENT RISKS
As an investor in real estate investment trusts and other public
companies in the real estate industry, the Fund is subject to certain
risks generally incidental to the development, ownership and management
of real property. These risks include the cyclical nature of real
estate markets; changes in general economic, business and credit
conditions, including interest rate levels and availability of
financing; applicable federal, state, and local regulations; changes in
availability and cost of insurance; increases in the costs of labor and
materials; material shortages; strikes; changes in market rental rates;
competition for tenants; the bankruptcy or insolvency of tenants; and
potential liability under environmental and other laws.
8. FEDERAL INCOME TAX INFORMATION
At January 31, 2006, gross unrealized appreciation and depreciation on
investments, based on cost for federal income tax purposes was as
follows:
Cost of investments $ 22,002,681
===================
Gross unrealized appreciation $ 15,846,454
Gross unrealized depreciation (64,649)
-------------------
Net unrealized appreciation on investments $ 15,781,805
===================
The difference between cost amounts for financial statement and federal
income tax purposes is due primarily to timing differences in
recognizing certain gains and losses in security transactions and
return of capital distributions from investments.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2006
The tax basis of components of distributable net earnings at January
31, 2006 were as follows:
Undistributed ordinary income $ 213,542
Accumulated capital and other losses 1,157,675
Unrealized appreciation 15,781,805
Total accumulated earnings $ 17,153,022
===================
The differences between book-basis and tax-basis unrealized
appreciation are attributable primarily to the tax deferral from return
of capital adjustments from real estate investment trusts and losses on
wash sales. The differences between book-basis and tax-basis
undistributed ordinary income are attributable primarily to the timing
difference in recognizing return of capital adjustments and to
differences in the character of distributable earnings.
The tax components of distributions paid during the fiscal years ending
January 31, 2006 and January 31, 2005 were as follows:
Year Ended Year Ended
January 31, 2006 January 31, 2005
---------------- -----------------
Distributions paid from:
Ordinary income $ 1,076,261 $ 1,903,042
Net long-term capital gains 5,988,988 2,267,646
Unrecaptured section 1250 gain 122,367 134,605
---------------- -----------------
Total distributions paid $ 7,187,616 $ 4,305,293
================ =================
ADELANTE U.S. REAL ESTATE SECURITIES FUND
TAX DESIGNATION (UNAUDITED)
The Fund hereby designates $6,111,355 as long-term capital gain distributions
for the purpose of the dividends paid deduction.
Under Section 854(b)(2) of the Internal Revenue Code (the "Code"), the Fund
designates up to a maximum of $48,590 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
January 31, 2006. In the beginning of 2007, shareholders will receive Form
1099-DIV which will include their share of qualified dividends distributed
during the calendar year 2006.
PROXY VOTING POLICIES AND PROCEDURES (UNAUDITED)
For a description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities, please call 1-877-563-5327
and request a Statement of Additional Information. One will be mailed to you
free of charge. The Statement of Additional Information is also available on the
website of the Securities and Exchange Commission at http://www.sec.gov.
Information on how the Fund voted proxies relating to portfolio securities
during the twelve month period ending June 30, 2005, will be available without
charge, upon request, by calling 1-877-563-5327 or by accessing the website of
the Securities and Exchange Commission.
DISCLOSURE OF PORTFOLIO HOLDINGS (UNAUDITED)
The Fund will file complete schedules of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Form N-Q will be available on the website of the Securities
and Exchange Commission at http://www.sec.gov.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders
of Adelante U.S. Real Estate Securities Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Adelante U.S. Real Estate
Securities Fund (the "Fund") at January 31, 2006, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at January 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
As discussed in Note 2, the financial statements have been restated for the
years ended prior to 2006.
/S/PRICEWATERHOUSECOOPERS LLP
San Francisco, California
March 30, 2006
ADELANTE U.S. REAL ESTATE SECURITIES FUND
FUND TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION NUMBER OF FUNDS THER DIRECTORSHIPS
CURRENT POSITION HELD DURING THE PAST OVERSEEN WITHIN HELD OUTSIDE
NAME/BIRTH DATE ADDRESS WITH THE FUND FIVE YEARS THE FUND COMPLEX THE FUND COMPLEX
William J. Klipp 555 12th Street, Suite 2100 Trustee Private investor 1 Director of
12/9/1955 Oakland, CA 94607 since 2000 (2000-present); Assetmark Funds
President and Chief
Operating Officer,
Charles Schwab Investment
Management, Inc., an
investment advisory
firm (1995-1999);
Executive Vice President,
Schwab Funds(R) and
Charles Schwab & Co.,
Inc., a financial
services company
(1995-1999).
- ------------------------------------------------------------------------------------------------------------------------------------
Scott MacKillop 555 12th Street, Suite 2100 Trustee President, U.S. 1 Prima Capital
5/2/1951 Oakland, CA 94607 since 2002 Fiduciary Services, Holdings, Inc.
managed account and
consulting service to
financial institutions
and advisors (2004-present);
President and Principal,
Trivium Consulting, LLC,
consultant to financial
service organizations
(2001-2004); President
(1999-2000); Executive
Vice President and Chief
Operating Officer (1997-1999);
Portfolio Management
Consultants, Inc., consulting
to financial advisors
and institutions; President,
ADAM Investment Services, Inc.,
consulting to financial
advisors and institutions
(1997-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin Malone Greenrock Research, Inc. Trustee President and Founder, 1 None
7/3/1947 231 West 22nd Street since 2000 Greenrock Research, Inc.,
Oak Brook, IL 60523 consultant to financial
service organizations
(1996-present).
INTERESTED TRUSTEE* AND OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
Michael A. Torres 555 12th Street, Chairman of the Board and Chief Executive Officer, 1 Marketocracy, Inc.
6/21/1960 Suite 2100 President since 2002, Vice Adelante Capital Management
Oakland, CA 94607 President 2000-2002 LLC, an investment
advisory firm
(2002-present); President
and Co-President, Lend
Lease Rosen Real Estate
Securities LLC (1998-2002);
President and Co-President,
ERE Rosen Real Estate
Securities, LLC, an investment
advisory firm (1997-1998);
Director, AMB Rosen Real
Estate Securities, LLC, an
investment advisory firm
(1995-1997).
ADELANTE U.S. REAL ESTATE SECURITIES FUND
FUND TRUSTEE AND OFFICER INFORMATION (CONTINUED)
OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION NUMBER OF FUNDS OTHER DIRECTORSHIPS
CURRENT POSITION HELD DURING THE PAST OVERSEEN WITHIN HELD OUTSIDE
NAME/BIRTH DATE ADDRESS WITH THE FUND FIVE YEARS THE FUND COMPLEX THE FUND COMPLEX
Mark A. Hoopes 555 12th Street, Vice President since 2000, Chief Compliance Officer, 1 None
3/31/1964 Suite 2100 Treasurer since 2003, Adelante Capital
Oakland, CA 94607 Chief Compliance Officer Management LLC, an
since 2004 investment advisory firm
(2004-present); Principal
(2002-2004); Vice
President (2000-2001), Lend
Lease Real Estate Investments,
Inc.; Account Director, Mutual
Fund Services Division, SEI
Investments, Inc. (1994-2000).
Mark J. Nuti 555 12th Street, Suite 2100 Secretary Chief Operating Officer, Adelante 1 None
3/29/1958 Oakland, CA 94607 since 2003 Capital Management LLC,
an investment advisory firm
(2004-present); Chief
Operating Officer, Lend
Lease Rosen Real Estate
Securities LLC, an investment
advisory firm (2003-2004);
Director, Senior Vice President
and Chief Operating Officer,
Jurika & Voyles, L.P., an
investment advisory firm
(1999-2003).
* Mr. Torres is an "interested person" of the Trust within the meaning of the
1940 Act by virtue of his position with the Trust and with Adelante Capital
Management LLC, the Adviser for the Fund.
Each Trustee serves until the Trust is terminated except if the Trustee dies,
resigns, retires or is removed before then. The Trust's President, Treasurer,
and Secretary hold office until the next annual meeting of the Trustees and
until their respective successors are chosen and qualified or if before then,
until he or she dies, resigns, is removed or becomes disqualified. The Vice
President holds office at the pleasure of the Trustees. Additional information
about the Trustees is available in the Statement of Additional Information and
is available, without charge, upon request, by calling 1-877-563-5327.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
TRUSTEES William J. Klipp
Scott MacKillop
Kevin Malone
Michael A. Torres
INVESTMENT ADVISER ADELANTE CAPITAL MANAGEMENT LLC
555 12th Street, Suite 2100
Oakland, CA 94607
ADMINISTRATOR AND UMB FUND SERVICES, INC.
FUND ACCOUNTANT 803 West Michigan Street, Suite A
Milwaukee, WI 53233
CUSTODIAN UMB BANK, N.A.
928 Grand Boulevard
Kansas City, MO 64106
INDEPENDENT REGISTERED PUBLIC PRICEWATERHOUSECOOPERS LLP
ACCOUNTING FIRM Three Embarcadero Center
San Francisco, CA 94111
LEGAL COUNSEL GOODWIN PROCTER LLP
Exchange Place
Boston, MA 02109
DISTRIBUTOR UMB DISTRIBUTION SERVICES, LLC
803 West Michigan Street, Suite A
Milwaukee, WI 53233
DIVIDEND-DISBURSING UMB FUND SERVICES, INC.
AND TRANSFER AGENT c/o Adelante Funds
803 West Michigan Street, Suite A
Milwaukee, WI 53233
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF SHAREHOLDERS OF ADELANTE
FUNDS. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS FOR THE ADELANTE U.S. REAL
ESTATE SECURITIES FUND. THE PROSPECTUS PROVIDES MORE COMPLETE INFORMATION,
INCLUDING FEES AND EXPENSES, THE INVESTMENT OBJECTIVES, RISKS AND OPERATING
POLICIES OF THE FUND. READ THE PROSPECTUS CAREFULLY.
LE 410 0106
ITEM 2. CODE OF ETHICS
The Registrant has adopted a code of ethics (the "Code") that applies to its
principal executive officer, principal financial officer and principal
accounting officer. A copy of the Code is available free of charge upon request
by calling 1-877-563-5327.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Having reviewed and discussed the background and qualification of each member of
its audit committee, the Board of Trustees has determined that no member of the
audit committee satisfies the definition of audit committee financial expert in
Form N-CSR. Based on this evaluation, the Board has nevertheless concluded that
its audit committee members' experience and expertise will enable them to
effectively perform their oversight duties with respect to the Trust's financial
statements and the Trust's independent auditors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the Registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
are listed below.
(a) Audit Fees.
Fiscal year ended January 31, 2006 $33,000
Fiscal year ended January 31, 2005 $31,737
(b) Audit-Related Fees.
None.
(c) Tax Fees.
Fiscal year ended January 31, 2006 $7,375
Fiscal year ended January 31, 2005 $6,705
(d) All Other Fees.
None.
(e)
(1) The audit committee of the Registrant's board of directors
considered whether the provision of non-audit services that was rendered to the
Registrant's investment adviser and was not required to be pre-approved by the
audit committee is compatible with maintaining the independence of the
Registrant's principal accountant. The audit committee receives quarterly
reports on the amount and nature of such services and discusses such services
and their effect on the principal accountant's independence with the
Registrant's principal accountant in connection with the committee's
deliberations regarding the engagement of the principal accountant.
(2) During fiscal year 2005, all of the non-audit services provided by
the Registrant's principal accountant were pre-approved by the audit committee.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the Registrant's accountant for
services rendered to the Registrant, and rendered to the Registrant's investment
adviser, and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the Registrant:
Fiscal year ended January 31, 2006 $ 85,853
Fiscal year ended January 31, 2005 $ 35,720
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
The schedule of investments in securities of unaffiliated issuers is included as
part of the reports to shareholders filed under Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The Registrant's principal executive officer and principal financial
officer concluded that the Registrant's disclosure controls and procedures
(as defined in Rule 30a-3(c) under the 1940 Act) provide reasonable
assurances that information required to be disclosed by the Registrant on
Form N-CSR is recorded, processed, summarized and reported within the
required time periods and that information required to be disclosed by the
Registrant in the reports that it files or submits on Form N-CSR is
accumulated and communicated to the Registrant's management, including its
principal executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure, based on their
evaluation of the disclosure controls and procedures as of a date within 90
days of the filing date of this report.
(b) There was no change in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred
during the second fiscal quarter of the period covered by this report that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a) Code of Ethics.
(1) The Code of Ethics for the principal executive and principal financial
officer is available free of charge upon request by
calling 1-877-563-5327.
(2) Certifications, as required by Rule 30a-2(a) under the Investment
Company Act of 1940, for the principal executive officer and
principal financial officer are filed herewith.
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.
Adelante Funds
- --------------
/s/Michael A. Torres
- ------------------------------
Michael A. Torres
Principal Executive Officer
April 13, 2006
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.
/s/Michael A. Torres
- ------------------------------
Michael A. Torres
Principal Executive Officer
April 13, 2006
/s/Mark A. Hoopes
- ------------------------------
Mark A. Hoopes
Principal Financial Officer
April 13, 2006