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
Oakland, CA 94607
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(Address of principal executive offices)
Adelante Capital Management LLC
555 12th Street
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: July 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, (17 CFR 270.30e-1)
ADELANTE FUNDS:
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SEMI-ANNUAL REPORT
JULY 31, 2006
[LOGO]
ADELANTE
Capital Management
Shares of Adelante Funds are distributed by an independent third party,
UMB Distribution Services, LLC.
To Our Shareholders July 31, 2006
We are pleased to present Adelante Funds' 2006 Semi-Annual Report.
In the following pages, you will find detailed financial information for
Adelante U.S. Real Estate Securities Fund for the six months ended July 31,
2006.
In the event you have questions regarding this report, or Adelante Funds in
general, please call a shareholder services representative at 1-877-563-5327.
Thank you for your continued support of Adelante Funds. We look forward to
serving you in the months and years ahead.
Sincerely,
Adelante Funds
UMB Distribution Services, LLC, Distributor
ADELANTE U.S. REAL ESTATE SECURITIES FUND
EXPENSE EXAMPLE (UNAUDITED)
FOR THE SIX MONTHS ENDED JULY 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 February 1, 2006 to July 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 2/1/06- value value 2/1/06-
2/1/06 7/31/06 7/31/06(1) 2/1/06 7/31/06 7/31/06(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,101.00 $6.51 $1,000.00 $1,102.70 $5.06
Hypothetical
(5% return before expenses) 1,000.00 1,018.80 6.26 1,000.00 1,020.19 4.86
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,
and multiplied by 0.4959 (to reflect the one-half year period).
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 2006 (UNAUDITED)
Number
of Shares Value
--------------- ------------------
COMMON STOCKS 92.6%
APARTMENTS 25.7%
25,270 Archstone-Smith Trust $ 1,325,917
15,100 AvalonBay Communities, Inc. 1,765,492
13,810 BRE Properties, Inc. 809,818
15,480 Camden Property Trust 1,183,446
42,770 Equity Residential 1,989,233
7,760 Essex Property Trust, Inc. 908,618
12,500 Post Properties, Inc. 600,125
23,800 United Dominion Realty Trust, Inc. 662,830
-----------
9,245,479
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DIVERSIFIED/SPECIALTY 7.9%
3,290 Colonial Properties Trust 157,690
6,300 Crescent Real Estate Equities Company 122,976
23,510 Vornado Realty Trust 2,457,971
2,840 Washington Real Estate Investment Trust 105,307
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2,843,944
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INDUSTRIAL 8.9%
22,270 AMB Property Corporation 1,167,616
36,780 ProLogis 2,035,773
-----------
3,203,389
-----------
INDUSTRIAL MIXED 1.4%
3,380 Duke Realty Corporation 125,939
7,790 Liberty Property Trust 364,962
-----------
490,901
-----------
OFFICE 17.9%
3,910 Alexandria Real Estate Equities, Inc. 369,182
6,100 BioMed Realty Trust, Inc. 181,841
18,500 Boston Properties, Inc. 1,816,700
4,489 Brandywine Realty Trust 142,032
8,400 Cogdell Spencer, Inc. 155,820
22,200 Corporate Office Properties Trust 999,000
31,009 Equity Office Properties Trust 1,175,551
8,390 Kilroy Realty Corporation 619,937
5,190 Mack-Cali Realty Corporation 250,729
6,240 SL Green Realty Corporation 713,232
-----------
6,424,024
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ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2006 (UNAUDITED)
Number
of Shares Value
--------------- ------------------
RETAIL - LOCAL 11.3%
26,800 Acadia Realty Trust $ 638,912
17,500 Cedar Shopping Centers, Inc. 265,300
4,890 Developers Diversified Realty Corporation 258,094
9,240 Federal Realty Investment Trust 670,362
6,540 Kimco Realty Corporation 256,630
14,510 Pan Pacific Retail Properties, Inc. 1,002,641
10,130 Regency Centers Corporation 649,536
7,900 Weingarten Realty Investors 315,684
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4,057,159
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RETAIL - REGIONAL 17.8%
3,240 CBL & Associates Properties, Inc. 126,878
29,810 General Growth Properties, Inc. 1,360,528
17,490 The Macerich Company 1,272,397
26,490 Simon Property Group, Inc. 2,265,690
32,800 Taubman Centers, Inc. 1,361,200
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6,386,693
-----------
TRIPLE-NET LEASE 1.7%
22,200 Lexington Corporate Properties Trust 442,224
10,200 Newkirk Realty Trust, Inc. 161,976
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604,200
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TOTAL COMMON STOCKS (COST $18,604,985) 33,255,789
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PREFERRED STOCKS 5.2%
25,100 SL Green Realty Corporation, Series D 640,678
14,400 Taubman Centers, Inc., Series G 373,464
35,800 Vornado Realty Trust, Series I 849,892
-----------
1,864,034
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TOTAL PREFERRED STOCKS (COST $1,853,330) 1,864,034
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ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2006 (UNAUDITED)
Principal
Amount Value
--------------- ------------------
$ 1,803,146 SHORT-TERM INVESTMENT 5.0%
UMB Bank Money Market Fiduciary $ 1,803,146
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TOTAL SHORT-TERM INVESTMENT (COST $1,803,146) 1,803,146
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TOTAL INVESTMENTS (COST $22,261,461) 102.8% 36,922,969
LIABILITIES LESS OTHER ASSETS (2.8%) (1,004,461)
-----------
NET ASSETS 100.0% $35,918,508
===========
See notes to the financial statements.
SECTOR BREAKDOWN (UNAUDITED)
JULY 31, 2006
[CHART]
APARTMENTS.................25%
RETAIL - REGIONAL..........17%
RETAIL - LOCAL.............11%
PREFERRED STOCKS............5%
INDUSTRIAL..................9%
DIVERSIFIED/SECIALTY........8%
SHORT-TERM INVESTMENT.......5%
INDUSTRIAL MIXED............1%
TRIPLE-NET LEASE............2%
OFFICE.....................17%
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2006 (UNAUDITED)
ASSETS:
Investments, at value (cost $22,261,461) $ 36,922,969
Interest and dividends receivable 83,913
Receivable for capital stock sold 34,836
Due from adviser 11,626
Prepaid expenses and other assets 40,412
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Total assets 37,093,756
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LIABILITIES:
Payable for investments purchased 1,133,996
Payable for capital stock redeemed 8,169
Distribution fee payable 3,288
Other accrued expenses 29,795
----------------------------
Total liabilities 1,175,248
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NET ASSETS $ 35,918,508
============================
NET ASSETS CONSIST OF:
Paid-in-capital $ 15,309,448
Distribution in excess of net investment income (126,407)
Accumulated undistributed net realized gain on investments 6,073,959
Net unrealized appreciation on investments 14,661,508
----------------------------
NET ASSETS $ 35,918,508
============================
SHARES OUTSTANDING, $0.0001 PAR VALUE,
(UNLIMITED SHARES AUTHORIZED)
CLASS K 483,380
CLASS Y 1,244,775
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
CLASS K $ 20.91
============================
CLASS Y $ 20.73
============================
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2006 (UNAUDITED)
INVESTMENT INCOME:
Dividends $ 571,520
Interest 10,970
----------------------------
Total investment income 582,490
----------------------------
EXPENSES:
Investment advisory fees (see note 6) 136,263
Professional fees 76,320
Shareholder servicing fees 41,609
Administration and accounting fees 36,428
Trustees' fees and expenses 22,501
Insurance expense 20,537
Reports to shareholders 17,053
Federal and state registration fees 15,145
Distribution fees (see note 6) 14,211
Custody fees 6,152
Other expenses 2,215
----------------------------
Total expenses before waiver and reimbursement of expenses 388,434
Less: Waiver and reimbursement of expenses (207,297)
----------------------------
Net expenses 181,137
----------------------------
NET INVESTMENT INCOME 401,353
----------------------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 4,479,599
Change in unrealized depreciation on investments (1,249,477)
----------------------------
Net gain on investments 3,230,122
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,631,475
============================
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JULY 31, 2006 YEAR ENDED
(UNAUDITED) JANUARY 31, 2006
------------------- -------------------
OPERATIONS:
Net investment income $ 401,353 $ 1,115,786
Net realized gain on investments 4,479,599 4,512,286
Change in unrealized depreciation on investments (1,249,477) 4,471,695
------------------- -------------------
Net increase in net assets resulting from operations 3,631,475 10,099,767
------------------- -------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class K shares 1,609,674 4,764,475
Class Y shares 3,849,967 7,394,791
Shares issued to shareholders in reinvestment of distributions
Class K shares 39,109 3,151,868
Class Y shares 127,447 3,706,050
Payments for shares redeemed
Class K shares (8,811,228) (11,799,501)
Class Y shares (1,571,085) (6,841,278)
------------------- -------------------
Net increase (decrease) from capital share transactions (4,756,116) 376,405
------------------- -------------------
DISTRIBUTIONS PAID FROM:
Net investment income
Class K shares (39,573) (196,860)
Class Y shares (135,866) (289,495)
Net realized gains
Class K shares -- (2,974,010)
Class Y shares -- (3,727,251)
------------------- -------------------
Total distributions (175,439) (7,187,616)
------------------- -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,300,080) 3,288,556
NET ASSETS:
Beginning of year 37,218,588 33,930,032
------------------- -------------------
End of period $ 35,918,508 $ 37,218,588
=================== ===================
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE YEAR/PERIOD.
CLASS K CLASS K CLASS K CLASS K CLASS K CLASS K
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JULY 31, 2006 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JANUARY 31, 2006 JANUARY 31, 2005 JANUARY 31, 2004 JANUARY 31, 2003 JANUARY 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR/PERIOD $ 19.07 $ 17.92 $ 17.23 $ 12.76 $ 12.91 $ 12.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.37 0.57 0.65(1) 0.61(1) 0.59(1) 0.65(1)
Net realized and
unrealized gain/(loss)
on investments 1.55 5.05 2.09(1) 4.55(1) (0.14)(1) 0.71(1)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 1.92 5.62 2.74 5.16 0.45 1.36
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net
investment income (0.08) (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 (0.08) (4.47) (2.05) (0.69) (0.60) (1.00)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
END OF YEAR/PERIOD $ 20.91 $ 19.07 $ 17.92 $ 17.23 $ 12.76 $ 12.91
=========== =========== =========== =========== =========== ===========
TOTAL RETURN 10.10%(2) 33.14% 15.19% 41.21% 3.29% 11.01%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of
year/period $ 10,108,230 $15,947,297 $18,350,017 $28,984,996 $18,727,963 $13,364,481
Ratio of expenses to
average net assets 1.25%(3) 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of expenses
before waivers to
average net assets 2.59%(3) 2.55% 2.10% 2.23% 2.75% 2.96%
Ratio of net
investment income to
average net assets 2.10%(3) 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 0.75%(3) 1.75% 2.54%(1) 3.04%(1) 3.00%(1) 3.34%(1)
Portfolio turnover rate 20%(2) 31% 32% 15% 30% 54%
(1) As restated. See Note 2 of Notes to Financial Statements.
(2) Not annualized for periods less than a year.
(3) Annualized.
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE YEAR/PERIOD.
CLASS Y CLASS Y CLASS Y CLASS Y CLASS Y CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JULY 31, 2006 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JANUARY 31, 2006 JANUARY 31, 2005 JANUARY 31, 2004 JANUARY 31, 2003 JANUARY 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR/PERIOD $ 18.92 $ 17.81 $ 17.12 $ 12.64 $ 12.78 $ 12.40
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.24 0.65 0.67(1) 0.64(1) 0.61(1) 0.75(1)
Net realized and
unrealized gain/(loss)
on investments 1.69 4.99 2.12(1) 4.55(1) (0.11)(1) 0.64(1)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 1.93 5.64 2.79 5.19 0.50 1.39
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net
investment income (0.12) (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 (0.12) (4.53) (2.10) (0.71) (0.64) 1.01)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
END OF YEAR/PERIOD $ 20.73 $ 18.92 $ 17.81 $ 17.12 $ 12.64 $ 12.78
=========== =========== =========== =========== =========== ===========
TOTAL RETURN 10.27%(2) 33.51% 15.62% 41.88% 3.69% 11.39%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of
year/period $ 25,810,278 $21,271,291 $ 15,580,015 $17,093,188 $ 6,418,537 $ 3,520,190
Ratio of expenses to
average net assets 0.97%(3) 0.97% 0.97% 0.97% 0.97% 0.97%
Ratio of expenses
before waivers to
average net assets 2.12%(3) 2.05% 1.88% 2.06% 2.90% 3.85%
Ratio of net
investment income to
average net assets 2.49%(3) 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 1.33%(3) 2.24% 2.78%(1) 3.19%(1) 2.94%(1) 2.45%(1)
Portfolio turnover rate 20%(2) 31% 32% 15% 30% 54%
(1) As restated. See Note 2 of Notes to Financial Statements.
(2) Not annualized for periods less than a year.
(3) Annualized.
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2006 (UNAUDITED)
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 July 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 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
- ------------------------------------------------------------------------------------------------------------------------------------
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
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%
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
AS ORIGINALLY REPORTED RESTATED
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)
JULY 31, 2006 (UNAUDITED)
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.
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.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2006 (UNAUDITED)
INDEMNIFICATIONS - Under the Fund's organizational documents, their
officers and trustees are indemnified 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:
SIX MONTHS ENDED YEAR ENDED
JULY 31, 2006 JANUARY 31, 2006
CLASS K SHARES: SHARES DOLLARS SHARES DOLLARS
Shares sold 81,192 $ 1,609,674 238,576 $ 4,764,475
Shares issued to holders in
reinvestment of dividends
and capital gains 1,942 39,109 175,630 3,151,868
Shares redeemed (436,123) (8,811,228) (601,727) (11,799,501)
----------------- ------------------ ------------------ ------------------
Net increase(decrease) (352,989) $ (7,162,445) (187,521) $ (3,883,158)
----------------- ------------------ ------------------ ------------------
SIX MONTHS ENDED YEAR ENDED
JULY 31, 2006 JANUARY 31, 2006
CLASS Y SHARES: SHARES DOLLARS SHARES DOLLARS
Shares sold 194,719 $ 3,849,967 378,752 $ 7,394,791
Shares issued to holders in
reinvestment of dividends
and capital gains 6,379 127,447 207,965 3,706,050
Shares redeemed (80,748) (1,571,085) (337,323) (6,841,278)
----------------- ------------------ ------------------ ------------------
Net increase(decrease) 120,351 $ 2,406,329 (249,394) $ (4,259,563)
----------------- ------------------ ------------------ ------------------
Net increase(decrease) from
capital share transactions (232,639) $ (4,756,116) (61,873) $ (376,405)
================= ================== ================== ==================
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the Fund, excluding short-term
investments, for the six months ended July 31, 2006 were $7,918,397 and
$11,560,303, respectively. There were no purchases or sales of U.S.
Government securities for the year ended July 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
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2006 (UNAUDITED)
of the Fund to 1.25% and 0.97%, respectively, through January 31, 2007,
subject to later reimbursement by 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 Y shares total annual fund operating expense to
2.25% through January 31, 2011. During the six months ended July 31,
2006, the Adviser waived investment advisory fees for the Fund of
$207,297. 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 Fund's expenses,
including such recouped amounts, do not exceed the stated expense
limitations. During the six months ended July 31, 2006, the Adviser did
not recoup any expenses. At July 31, 2006, the following amounts are
subject to recoupment through July 31, 2007, July 31, 2008, and July
31, 2009, respectively.
Expires Expires Expires
July 31, 2009 July 31, 2008 July 31, 2007
------------- ------------- -------------
Class K $199,504 $211,770 $211,240
Class Y 243,461 178,671 135,342
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 period ended
July 31, 2006, the Fund incurred distribution expenses of $14,211.
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 July 31, 2006, gross unrealized appreciation and depreciation on
investments, based on cost for federal income tax purposes was as
follows:
Cost of investments $ 22,435,506
==================
Gross unrealized appreciation $ 14,513,666
Gross unrealized depreciation (26,203)
------------------
Net unrealized appreciation on investments $ 14,487,463
==================
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.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2006 (UNAUDITED)
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 is 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
================ ================
In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109. This
Interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return, and
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition.
This Interpretation is effective for fiscal years beginning after
December 15, 2006. At this time, management is evaluating the
implications of FIN 48 and its impact in the financial statements has
not yet been determined.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
APPROVAL OF THE ADVISORY AGREEMENT (UNAUDITED)
At their regular quarterly meeting held on March 17, 2006, the Board of
Trustees, including a majority of the Trustees that are not "interested persons"
of the Trust, as that term is defined in the Investment Act of 1940, as amended
(the "Independent Trustees"), approved the continuation of the Advisory
Agreement between Adelante Capital Management LLC (the "Adviser") and Adelante
U.S. Real Estate Securities Fund (the "Fund"). In preparation for their
consideration of the Advisory Agreement's continuation, the Trustees requested
and reviewed a variety of materials relating to the Adviser and the Fund,
including (1) information regarding the Adviser's financial condition; (2)
information about the Adviser's organization, operations, and personnel; (3) the
advisory fees, total expenses and performance of the Fund relative to other
similar mutual funds; and (4) the performance of the Fund relative to relevant
benchmarks. The Trustees also considered information they had received in the
period since their prior approval of the Advisory Agreement, at the Board's
regular quarterly meetings, and otherwise, addressing matters such as the
Adviser's financial condition, Adviser personnel, compliance matters, investment
techniques, Fund and securities market performance, and brokerage practices such
as best execution and soft dollars. Due to illness, one of the Independent
Trustees was unable to participate in the March 17, 2006 meeting; however, prior
to the March 17, 2006 meeting, all of the Independent Trustees conferred
informally regarding the matters to be discussed at the meeting such that the
remaining Independent Trustees felt comfortable in proceeding with consideration
of the Advisory Agreement's renewal in the absence of one of their number.
Immediately prior to the March 17, 2006 meeting, the Independent Trustees (this
and subsequent references to the Independent Trustees and to the Trustees mean
those present at the March 17, 2006 meeting) toured the Adviser's newly occupied
facilities and during an adjournment of the March 17, 2006 meeting, met with
Adviser personnel involved in research, investment selection and trading for the
Fund. The Independent Trustees also met in executive session during the course
of the Board's consideration of the Advisory Agreement's continuation.
At their March 17, 2006 meeting, the Trustees received a presentation regarding
the Adviser from Michael Torres, the Fund's portfolio manager and CEO of the
Adviser. Mr. Torres discussed among other matters, (i) the Fund's investment
performance, (ii) the Adviser's investment process, (iii) the Adviser's
personnel, (iv) the Adviser's brokerage practices with respect to the Fund and
(v) the Adviser's financial condition. The Trustees also received a presentation
from Mark Hoopes, the Fund's and Adviser's Chief Compliance Officer, addressing
compliance matters and other operational functions performed by the Adviser, and
supplementing the responses provided by the Adviser to the Trustees'
aforementioned request for information.
The Adviser's presentation to the Trustees also addressed the Fund's advisory
fee, total expenses and performance as compared to other similar funds. The
Trustees reviewed the average total expense ratio information for the Fund
against benchmark average total expense ratio information for other real estate
mutual funds. The Trustees also reviewed the Fund's advisory fee rate against
benchmark advisory fee information for other real estate mutual funds. The
Trustees noted the Adviser's agreement to maintain existing expense limitations
through August 25, 2007. The Trustees reviewed the Fund performance information,
including performance measures and rankings provided by a third party entity,
against that for a group of real estate mutual funds selected by the Adviser as
representative of the Fund's principal competitors. The Trustees also reviewed
information relating to the fees paid by other clients of the Adviser whose
portfolios are managed similarly to the Fund and concluded that, given the
services other than portfolio management provided to the Fund under the Advisory
Agreement, the fee rate under the Advisory Agreement was appropriate in relation
to those charged the Adviser's other clients whose assets are managed using the
same general investment strategy as the Fund's.
The Trustees discussed (a) the nature, extent and quality of services provided
by the Adviser under the Advisory Agreement, (b) the Fund's performance, and (c)
the fee payable to the Adviser under the Advisory Agreement. In the course of
these deliberations, the Trustees reached the following conclusions, among
others: (A) the Adviser possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (B) the Adviser's personnel
are qualified to manage the Fund's assets in accordance with its investment
objectives and policies; (C) the
Adviser maintains appropriate compliance programs; (D) the Fund's performance is
reasonable in relation to the performance of funds with similar investment
objectives and the performance of relevant indices given market conditions and
the Fund's relative size, desired risk profile, and specific investment
strategy; and (E) the Fund's advisory expenses are reasonable in relation to
those of similar funds and to the services provided by the Adviser.
The Trustees considered the costs of services to be provided to the Fund under
the Advisory Agreement, or profits to be realized by the Adviser from its
relationship with the Fund, and determined that they were not material to their
deliberations given the extent to which the Adviser can be expected to waive its
fees and reimburse Fund expenses under its contractual agreement to limit Fund
expenses. In addition, the Trustees considered 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 investors, and
similarly determined them not to be material to their deliberations given the
Fund's current asset level and the asset levels reasonably foreseeable during
the period prior to the next review of the Advisory Agreement. The Trustees did
reiterate their intention to monitor these issues on an ongoing basis and
address them as appropriate when circumstances change.
Based on the above-mentioned factors and their related conclusions, with no
single factor or conclusion being determinative and with each Trustee not
necessarily attributing the same weight to each factor, the Trustees, including
the Independent Trustees, concluded that approval of the Advisory Agreement
would be in the interests of the Fund and its shareholders, and accordingly,
approved the Advisory Agreement's continuation in accordance with its terms.
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, 2006, 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 Web site of the
Securities and Exchange Commission at http://www.sec.gov.
This page intentionally left blank.
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 AUDITORS PRICEWATERHOUSECOOPERS LLP
333 Market Street
San Francisco, CA 94105
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 0706
ITEM 2. CODE OF ETHICS
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable for semi-annual reports.
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 report to shareholders filed under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
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 significant 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 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)(1) Code of Ethics: Not applicable for semi-annual reports
(2) Certifications for each principal executive and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940, as amended, (17 CFR 270.30a-2(a)) are filed herewith.
(b) Certifications required by Rule 30a-2(b) under the Investment Company
Act of 1940, as amended, (17 CFR 270.30a-2(b)) 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
September 27, 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
September 27, 2006
/s/Mark A. Hoopes
- ------------------------
Mark A. Hoopes
Principal Financial Officer
September 27, 2006