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, 2007
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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, 2007
[LOGO]
ADELANTE CAPITAL MANAGEMENT
Shares of Adelante Funds are distributed by an independent third party,
UMB Distribution Services, LLC.
Dear Shareholder: January 31, 2007
We are delighted to present you with Adelante Funds' annual report for the
fiscal year ended January 31, 2007. This marks our seventh 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 2006, real estate markets continued to show improved operating performance.
As a result, demand for real estate assets continued to be strong in both the
public and private markets with property sales of approximately $310 billion
occurring in 2006 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. 2006 marked the seventh
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. With the exception of the second quarter,
REITs performed well throughout the year driven by the improving operating
performance, better than consensus growth, and a strong level of merger and
acquisition activity.
Adelante U.S. Real Estate Securities Fund (the "Fund") also experienced its
seventh consecutive year of positive performance. For the fiscal year ended
January 31, 2007, the average annual returns since inception (February 16, 2000)
for Class Y shares, the Dow Jones Wilshire REIT Index and the S&P 500(R) Index
were 24.60%, 24.84% and 2.01%, 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, 2007. During this period, Class Y shares of Adelante U.S. Real
Estate Securities Fund (the "Fund") gained 38.76% while Class K shares gained
38.43% versus a gain of 37.49% for the Dow Jones Wilshire REIT Index.i These
results are impressive relative to the S&P 500(R) Index,ii which gained 14.51%
over the same period. For the year ended December 31, 2006, Class Y shares
returned 36.01% versus 36.12% 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, 2007, were 362.13%, 368.31% and 14.89%, respectively, and for the
period ended December 31, 2006 were 323.29%, 330.20% and 13.18%, respectively.
The Fund's gross expense ratio for Class Y shares is 2.05% and for Class K
shares is 2.55% as reported in the Fund's Prospectus dated May 31, 2006. 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 seventh year of outperformance relative to broader equity
benchmarks as shown above. Similar to 2003 and 2004 when very few REITs produced
negative total returns, in 2006, only seven out of the 87 constituents of the
Dow Jones Wilshire REIT Index produced negative total returns, with three of the
seven laggards being small-cap hotel REITs. As was the case in 2005, we believe
the strong performance in 2006 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, and diversified holdings all
contributed significantly to the Fund's performance. The three best performing
holdings were all office companies, which was the best performing sector for the
year. Equity Office Properties Trust ("EOP"), the nation's largest publicly held
office owner and manager was up 80.58%, SL Green Realty Corporation, an office
company with a strong New York presence, up 78.34% and Boston Properties, Inc.,
an office company concentrated in the Northeast and San Francisco, up 73.74%.
With respect to sector performance, the office and diversified sectors
contributed the most with total returns of 56.33% and 44.58%, respectively for
the year. The regional retail and apartment sectors were close behind with
returns of 42.28% and 40.98%, respectively. The strong performance in 2006 of
the office sector was a result of a continuation of steady economic growth,
improving demand/supply fundamentals and rising rents, particularly in the
supply constrained coastal markets. Additionally, the office sector had a
significant amount of privatization activity throughout the year to further
validate valuations, including the $39 billion acquisition of EOP by The
Blackstone Group, which recently closed on February 9, 2007. The strong
performance of the diversified sector was driven by the performance of Vornado
Realty Trust, a company with a strong office presence in New York and the
Washington D.C. area, as well as retail holdings in select markets. The
performance of the apartment sector was driven by favorable operating
fundamentals across most markets, most significantly in markets where the
difference between the cost of home ownership and renting has
become more pronounced. Regional retail's strong performance was a continuation
of prior years, however, there seemed to be a bigger gap between the operating
performance of stronger portfolios and weaker ones located in more secondary
markets. The Fundweakest performing sector in 2006 was the net leased sector,
where the Fund's holdings were concentrated in two companies that recently
merged in January of 2007. The net leased sector still managed to return 18.90%.
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 15.2% of the
market. While the Fund did not benefit from the 47.81% turned in by the storage
sector, it did prove beneficial to avoid the manufactured housing, factory
outlet and hotel sectors, which each had returns below that provided by the
Fund. We believe that over time, the approach of avoiding the more volatile
sectors will help the Fund to control risk while still seeking to provide
competitive returns.
Over the course of the year, the Fund's perpetual preferred positions were
decreased. At period end, 3.8% of the Fund was invested across two holdings with
an average yield of 7.15%. This is down from 9.02% of the Fund in six 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
4.46% for the fiscal year.
Looking forward into 2007, 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 2007 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
* 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.
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.
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, 2007
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, 2006 to January 31, 2007.
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 8/1/06- value value 8/1/06-
8/1/06 1/31/07 1/31/07(1) 8/1/06 1/31/07 1/31/07(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,057.40 $7.15 $1,000.00 $1,058.40 $5.55
Hypothetical
(5% return before expenses) 1,000.00 1,018.66 6.40 1,000.00 1,020.09 4.96
(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
Adelante U.S. Dow Jones
Real Estate Wilshire
Securities Fund, Class K S&P 500 REIT Index
- --------------------------------------------------------------------------------------------------------------------------------
02/16/00 10,000.00 10,000.00 10,000.00
04/30/00 11,200.00 10,382.90 11,085.51
07/31/00 12,857.73 10,257.66 12,590.54
10/31/00 12,228.97 10,275.98 12,044.32
01/31/01 13,133.08 9,849.60 13,160.88
04/30/01 13,218.75 9,035.99 13,310.83
07/31/01 14,045.28 8,787.79 14,152.26
10/31/01 13,701.65 7,716.89 13,572.91
01/31/02 14,578.96 8,259.35 14,701.73
04/30/02 15,790.51 7,895.17 16,082.78
07/31/02 15,726.24 6,711.30 15,824.88
10/31/02 14,607.96 6,551.21 14,395.48
01/31/03 15,057.92 6,358.21 14,844.10
04/30/03 16,294.29 6,844.65 16,079.14
07/31/03 18,255.33 7,425.73 18,279.19
10/31/03 19,209.23 7,913.85 19,363.02
01/31/04 21,263.11 8,556.39 21,655.54
04/30/04 19,684.97 8,410.29 19,921.42
07/31/04 21,838.22 8,403.82 22,186.87
10/31/04 24,735.07 8,659.51 25,231.02
01/31/05 24,494.04 9,089.38 25,293.90
04/30/05 26,382.85 8,943.43 27,244.25
07/31/05 30,831.58 9,584.77 31,886.48
10/31/05 29,167.42 9,414.60 30,169.53
01/31/06 32,611.74 10,032.90 34,062.06
04/30/06 33,808.36 10,322.09 35,195.44
07/31/06 35,904.23 10,100.52 37,442.13
10/31/06 40,170.48 10,952.97 41,956.65
01/31/07 45,145.72 11,489.02 46,830.61
Adelante U.S. Dow Jones
Real Estate Wilshire
Securities Fund, Class Y S&P 500 REIT Index
- --------------------------------------------------------------------------------------------------------------------------------
02/16/00 10,000.00 10,000.00 10,000.00
04/30/00 11,210.00 10,382.90 11,085.51
07/31/00 12,863.52 10,257.66 12,590.54
10/31/00 12,256.80 10,275.98 12,044.32
01/31/01 13,166.06 9,849.60 13,160.88
04/30/01 13,259.17 9,035.99 13,310.83
07/31/01 14,107.03 8,787.79 14,152.26
10/31/01 13,774.16 7,716.89 13,572.91
01/31/02 14,665.88 8,259.35 14,701.73
04/30/02 15,924.98 7,895.17 16,082.78
07/31/02 15,871.80 6,711.30 15,824.88
10/31/02 14,734.81 6,551.21 14,395.48
01/31/03 15,206.84 6,358.21 14,844.10
04/30/03 16,480.55 6,844.65 16,079.14
07/31/03 18,484.90 7,425.73 18,279.19
10/31/03 19,468.61 7,913.85 19,363.02
01/31/04 21,575.63 8,556.39 21,655.54
04/30/04 20,000.88 8,410.29 19,921.42
07/31/04 22,190.66 8,403.82 22,186.87
10/31/04 25,158.35 8,659.51 25,231.02
01/31/05 24,945.65 9,089.38 25,293.90
04/30/05 26,874.91 8,943.43 27,244.25
07/31/05 31,429.59 9,584.77 31,886.48
10/31/05 29,772.64 9,414.60 30,169.53
01/31/06 33,305.22 10,032.90 34,062.06
04/30/06 34,539.38 10,322.09 35,195.44
07/31/06 36,724.28 10,100.52 37,442.13
10/31/06 41,097.93 10,952.97 41,956.65
01/31/07 46,213.47 11,489.02 46,830.61
Adelante U.S. Real Estate Securities Fund
Average Annual Total Returns
Periods Ended January 31, 2007
One Year Five Year Since Inception (2/16/00)
- ------------------------------------------------------------------------------------------------------------------------------------
Adelante U.S. Real Estate Securities Fund - Class K 38.43% 25.37% 24.18%
Adelante U.S. Real Estate Securities Fund - Class Y 38.76% 25.80% 24.60%
S&P 500(R) Index 14.51% 6.85% 2.01%
Dow Jones Wilshire REIT Index 37.49% 26.06% 24.84%
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, 2007
Number
of Shares Value
- ------------------- --------------------
Common Stocks 94.7%
Apartments 22.2%
17,570 Archstone-Smith Trust $ 1,110,600
12,800 AvalonBay Communities, Inc. 1,899,008
17,010 BRE Properties, Inc. 1,180,664
7,580 Camden Property Trust 594,272
45,370 Equity Residential 2,553,424
7,260 Essex Property Trust, Inc. 1,047,908
4,500 Post Properties, Inc. 218,250
9,100 United Dominion Realty Trust, Inc. 298,389
---------------
8,902,515
---------------
Diversified/Specialty 11.7%
3,000 Alexander's, Inc. 1,298,580
2,090 Colonial Properties Trust 102,723
4,000 Crescent Real Estate Equities Company 80,240
7,400 Forest City Enterprises, Inc., Class A 447,330
22,460 Vornado Realty Trust 2,747,981
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4,676,854
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Industrial 4.3%
9,370 AMB Property Corporation 570,164
17,680 ProLogis 1,149,200
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1,719,364
---------------
Industrial Mixed 0.7%
2,580 Duke Realty Corporation 113,830
2,990 Liberty Property Trust 154,703
---------------
268,533
---------------
Office 27.5%
3,310 Alexandria Real Estate Equities, Inc. 358,671
6,100 BioMed Realty Trust, Inc. 181,963
18,600 Boston Properties, Inc. 2,345,274
21,200 Brookfield Properties Corporation 986,648
15,400 Corporate Office Properties Trust 820,512
49,200 Douglas Emmett, Inc. 1,346,112
37,309 Equity Office Properties Trust 2,072,515
10,090 Kilroy Realty Corporation 876,216
2,790 Mack-Cali Realty Corporation 155,236
12,000 Maguire Properties, Inc. 521,400
9,440 SL Green Realty Corporation 1,383,715
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11,048,262
---------------
Adelante U.S. Real Estate Securities Fund
Schedule of Investments (continued)
January 31, 2007
Number
of Shares Value
- ------------------- --------------------
Retail - Local 6.3%
21,000 Acadia Realty Trust $ 539,490
9,640 Federal Realty Investment Trust 900,569
4,040 Kimco Realty Corporation 200,384
8,130 Regency Centers Corporation 708,123
3,500 Weingarten Realty Investors 173,285
---------------
2,521,851
---------------
Retail - Regional 22.0%
3,240 CBL & Associates Properties, Inc. 152,053
44,310 General Growth Properties, Inc. 2,725,951
16,790 The Macerich Company 1,603,949
26,490 Simon Property Group, Inc. 3,030,191
22,400 Taubman Centers, Inc. 1,305,248
---------------
8,817,392
---------------
Total common stocks (cost $21,051,942) 37,954,771
---------------
Diversified/Specialty 2.2%
35,800 Vornado Realty Trust, Series I 887,840
---------------
Office 1.6%
25,100 SL Green Realty Corporation, Series D 650,090
---------------
Total preferred stocks (cost $1,484,690) 1,537,930
---------------
Adelante U.S. Real Estate Securities Fund
Schedule of Investments (continued)
January 31, 2007
Principal
Amount Value
- ------------------- --------------------
$ 481,998 Short-Term Investment 1.2%
UMB Bank Money Market Fiduciary $ 481,998
---------------
Total short-term investment (cost $481,998) 481,998
---------------
Total investments (cost $23,018,630) 99.7% 39,974,699
Other assets less liabilities 0.3% 106,707
---------------
NET ASSETS 100.0% $ 40,081,406
===============
See notes to the financial statements.
Sector Breakdown (Unaudited)
January 31, 2007
PIE CHART
Office 30%
Apartments 22%
Retail - Regional 22%
Diversified/Specialty 14%
Retail - Local 6%
Industrial 4%
Short-Term Investment 1%
Industrial Mixed 1%
-------------------------------
100.0%
Adelante U.S. Real Estate Securities Fund
Statement of Assets and Liabilities
January 31, 2007
ASSETS:
Investments, at value (cost $23,018,630) $ 39,974,699
Interest and dividends receivable 22,109
Receivable for capital stock sold 96,723
Receivable for investments sold 115,101
Due from advisor 19,339
Prepaid expenses 33,467
------------------------
Total assets 40,261,438
------------------------
LIABILITIES:
Payable for capital stock purchased 90,293
Distribution fee payable 5,278
Other accrued expenses 84,461
------------------------
Total liabilities 180,032
------------------------
NET ASSETS $ 40,081,406
========================
NET ASSETS CONSIST OF:
Paid-in-capital $ 19,832,163
Undistributed net investment income 0
Accumulated undistributed net realized gain on investments 3,293,174
Net unrealized appreciation on investments 16,956,069
------------------------
NET ASSETS $ 40,081,406
========================
SHARES OUTSTANDING, $0.0001 par value,
(Unlimited shares authorized)
Class K 623,841
Class Y 1,386,895
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Class K
(based on net assets $12,525,326 and shares outstanding 623,841) $ 20.08
========================
Class Y
(based on net assets $27,556,080 and shares outstanding 1,386,895) $ 19.87
========================
See notes to financial statements.
Adelante U.S. Real Estate Securities Fund
Statement of Operations
Year Ended January 31, 2007
INVESTMENT INCOME:
Dividends $ 1,218,352
Interest 22,328
------------------------
Total investment income 1,240,680
------------------------
EXPENSES:
Investment advisory fees (see note 5) 288,116
Professional fees 176,100
Shareholder servicing fees 78,004
Administration and accounting fees 74,948
Trustees' fees and expenses 46,973
Federal and state registration fees 42,651
Reports to shareholders 35,862
Insurance expense 29,036
Distribution fees (see note 5) 28,397
Custody fees 13,709
Other expenses 3,806
------------------------
Total expenses before waiver and reimbursement of expenses 817,602
Less: Waiver and reimbursement of expenses (436,457)
------------------------
Net expenses 381,145
------------------------
NET INVESTMENT INCOME 859,535
------------------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 10,383,901
Change in unrealized appreciation on investments 1,051,626
------------------------
Net gain on investments 11,435,527
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 12,295,062
========================
See notes to financial statements.
Adelante U.S. Real Estate Securities Fund
Statements of Changes in Net Assets
Year Ended Year Ended
January 31, 2007 January 31, 2006
OPERATIONS:
Net investment income $ 859,535 $ 1,115,786
Net realized gain on investments 10,383,901 4,512,286
Change in unrealized appreciation on investments 1,051,626 4,471,695
--------------- ---------------
Net increase in net assets resulting from operations 12,295,062 10,099,767
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class K shares 4,230,441 4,764,475
Class Y shares 6,666,950 7,394,791
Shares issued to shareholders in reinvestment of distributions
Class K shares 2,781,402 3,151,868
Class Y shares 6,121,641 3,706,050
Payments for shares redeemed
Class K shares (11,576,430) (11,799,501)
Class Y shares (8,314,034) (6,841,278)
--------------- ---------------
Net increase (decrease) from capital share transactions (90,030) 376,405
--------------- ---------------
DISTRIBUTIONS PAID FROM:
Net investment income
Class K shares (50,907) (196,860)
Class Y shares (181,512) (289,495)
Net realized gains
Class K shares (2,760,744) (2,974,010)
Class Y shares (6,349,051) (3,727,251)
--------------- ---------------
Total distributions (9,342,214) (7,187,616)
--------------- ---------------
TOTAL INCREASE IN NET ASSETS 2,862,818 3,288,556
NET ASSETS:
Beginning of year 37,218,588 33,930,032
--------------- ---------------
End of year $ 40,081,406 $ 37,218,588
=============== ===============
Distribution in excess of Net Investment Income $ 0 $ (156,604)
--------------- ---------------
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, 2007 January 31, 2006 January 31, 2005 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ---------------- ----------------
Net Asset Value, Beginning of Year $ 19.07 $ 17.92 $ 17.23 $ 12.76 $ 12.91
Income from Investment Operations:
Net investment income 0.46(2) 0.57 0.65(1) 0.61(1) 0.59(1)
Net realized and unrealized
gain/(loss) on investments 6.29(2) 5.05 2.09(1) 4.55(1) (0.14)(1)
---------------- ---------------- ---------------- ---------------- ----------------
Total from investment operations 6.75 5.62 2.74 5.16 0.45
---------------- ---------------- ---------------- ---------------- ----------------
Distributions to Shareholders:
Dividends from net investment income (0.11) (0.26) (0.52) (0.58) (0.55)
Distributions from capital gains (5.63) (4.21) (1.53) (0.11) (0.05)
---------------- ---------------- ---------------- ---------------- ----------------
Total distributions (5.74) (4.47) (2.05) (0.69) (0.60)
---------------- ---------------- ---------------- ---------------- ----------------
Net Asset Value, End of Year $ 20.08 $ 19.07 $ 17.92 $ 17.23 $ 12.76
================ ================ ================ ================ ================
Total Return 38.43% 33.14% 15.19% 41.21% 3.29%
Supplemental Data and Ratios:
Net assets, end of year $ 12,525,326 $ 15,947,297 $ 18,350,017 $ 28,984,996 $ 18,727,963
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 2.72% 2.55% 2.10% 2.23% 2.75%
Ratio of net investment income to
average net assets 2.16% 3.05% 3.38%(1) 4.01%(1) 4.50%(1)
Ratio of net investment income before
waivers to average net assets 0.69% 1.75% 2.54%(1) 3.04%(1) 3.00%(1)
Portfolio turnover rate 45% 31% 32% 15% 30%
(1) As restated.
(2) Calculated based on average shares outstanding during the year.
See notes to financial statements.
Adelante U.S. Real Estate Securities Fund
Financial Highlights
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, 2007 January 31, 2006 January 31, 2005 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ---------------- ----------------
Net Asset Value, Beginning of Year $ 18.92 $ 17.81 $ 17.12 $ 12.64 $ 12.78
Income from Investment Operations:
Net investment income 0.51(2) 0.65 0.67(1) 0.64(1) 0.61(1)
Net realized and unrealized
gain/(loss) on investments 6.23(2) 4.99 2.12(1) 4.55(1) (0.11)(1)
---------------- ---------------- ---------------- ---------------- ----------------
Total from investment operations 6.74 5.64 2.79 5.19 0.50
---------------- ---------------- ---------------- ---------------- ----------------
Distributions to Shareholders:
Dividends from net investment income (0.16) (0.32) (0.57) (0.60) (0.59)
Distributions from capital gains (5.63) (4.21) (1.53) (0.11) (0.05)
---------------- ---------------- ---------------- ---------------- ----------------
Total distributions (5.79) (4.53) (2.10) (0.71) (0.64)
Net Asset Value, End of Year $ 19.87 $ 18.92 $ 17.81 $ 17.12 $ 12.64
================ ================ ================ ================ ================
Total Return 38.76% 33.51% 15.62% 41.88% 3.69%
Supplemental Data and Ratios:
Net assets, end of year $ 27,556,080 $ 21,271,291 $ 15,580,015 $ 17,093,188 $ 6,418,537
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 2.07% 2.05% 1.88% 2.06% 2.90%
Ratio of net investment income to
average net assets 2.50% 3.32% 3.68%(1) 4.27%(1) 4.87%(1)
Ratio of net investment income before
waivers to average net assets 1.40% 2.24% 2.78%(1) 3.19%(1) 2.94%(1)
Portfolio turnover rate 45% 31% 32% 15% 30%
(1) As restated.
(2) Calculated based on average shares outstanding during the year.
See notes to financial statements.
Adelante U.S. Real Estate Securities Fund
Notes to Financial Statements
January 31, 2007
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, 2007, the
Fund's Class K and Class Y shares are outstanding. Adelante Capital
Management LLC (the "Adviser") is the Fund's investment adviser.
2. 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.
Adelante U.S. Real Estate Securities Fund
Notes to Financial Statements (continued)
January 31, 2007
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.
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.
New Accounting Pronouncement - In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an Interpretation of FASB Statement No.
109" (the "Interpretation"). The Interpretation establishes for all
entities, including pass-through entities such as the Funds, a minimum
threshold for financial statement recognition of the benefit of
positions taken in filing tax returns (including whether an entity is
taxable in a particular jurisdiction), and requires certain expanded
tax disclosures. The Interpretation is to be implemented no later than
July 31, 2007, and is to be applied to all open tax years as of the
date of effectiveness. Management has recently begun to evaluate the
application of the Interpretation to the Funds, and is not in a
position at this time to estimate the significance of its impact, if
any, on the Funds' financial statements.
In September 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements." The Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles ("GAAP"), and expands disclosures about fair value
measurements. The Statement establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed,
based on market data obtained from sources independent of the reporting
entity (observable inputs) and (2) the reporting entity's own
assumptions about market participant assumptions developed based on the
best information available in the circumstances (unobservable inputs).
The Statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and is to be applied
prospectively as of the beginning of the fiscal year in which this
Statement is initially applied. Management has recently begun to
evaluate the application of the Statement to the Fund, and is not in a
position at this time to evaluate the significance of its impact, if
any, on the Funds' financial statements.
Adelante U.S. Real Estate Securities Fund
Notes to Financial Statements (continued)
January 31, 2007
3. Capital Transactions
Transactions of the Fund were as follows:
Year Ended Year Ended
January 31, 2007 January 31, 2006
Class K Shares: Shares Dollars Shares Dollars
Shares sold 205,944 $ 4,230,441 238,576 $ 4,764,475
Shares issued to holders in
reinvestment of dividends
and capital gains 151,776 2,781,402 175,630 3,151,868
Shares redeemed (570,249) (11,576,430) (601,727) (11,799,501)
------------- ------------- ------------- -------------
Net increase(decrease) (212,529) $ (4,564,587) (187,521) $ (3,883,158)
------------- ------------- ------------- -------------
Year Ended Year Ended
January 31, 2007 January 31, 2006
Class Y Shares: Shares Dollars Shares Dollars
Shares sold 323,305 $ 6,666,950 378,752 $ 7,394,791
Shares issued to holders in
reinvestment of dividends
and capital gains 337,158 6,121,641 207,965 3,706,050
Shares redeemed (397,992) (8,314,034) (337,323) (6,841,278)
------------- ------------- ------------- -------------
Net increase(decrease) 262,471 $ 4,474,557 249,394 $ 4,259,563
------------- ------------- ------------- -------------
Net increase(decrease) from
capital share transactions 49,942 $ (90,030) (61,873) $ (376,405)
============= ============= ============= =============
4. Investment Transactions
Purchases and sales of securities for the Fund, excluding short-term
investments, for the year ended January 31, 2007 were $15,936,012 and
$23,310,207, respectively. There were no purchases or sales of U.S.
Government securities for the year ended January 31, 2007.
Adelante U.S. Real Estate Securities Fund
Notes to Financial Statements (continued)
January 31, 2007
5. 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, 2008, subject to later
reimbursement by the Fund in certain circumstances. The expense
limitation has been renewed through August 25, 2008. 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 year ended January 31, 2007, the Adviser
waived investment advisory fees for the Fund of $288,116. 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
twelve months ended January 31, 2007, the Adviser did not recoup any
expenses. At January 31, 2007, the following amounts are subject to
recoupment through January 31, 2010, January 31, 2009, and January 31,
2008, respectively.
Expires Expires Expires
January 31, 2010 January 31, 2009 January 31, 2008
- -----------------------------------------------------------------------------------------------------------------------------
Class K $166,751 $210,222 $231,228
Class Y $269,706 $203,469 $156,695
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, 2007, the Fund incurred distribution expenses of $28,397.
6. 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.
Adelante U.S. Real Estate Securities Fund
Notes to Financial Statements (continued)
January 31, 2007
7. Federal Income Tax Information
At January 31, 2007, gross unrealized appreciation and depreciation on
investments, based on cost for federal income tax purposes was as
follows:
Cost of investments $ 23,090,763
====================
Gross unrealized appreciation $ 16,885,326
Gross unrealized depreciation (1,390)
--------------------
Net unrealized appreciation on investments $ 16,883,936
====================
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.
The tax basis of components of distributable net earnings at
January 31, 2007 were as follows:
Undistributed ordinary income $ 0
Accumulated capital and other losses 3,365,307
Unrealized appreciation 16,883,936
--------------------
Total accumulated earnings $ 20,249,243
====================
The differences between book-basis and tax-basis unrealized
appreciation is attributable primarily to the tax deferral from losses
on wash sales.
The tax components of distributions paid during the fiscal years ending
January 31, 2007 and January 31, 2006 were as follows:
Year Ended Year Ended
January 31, 2007 January 31, 2006
Distributions paid from:
Ordinary income $ 213,542 $ 1,076,261
Net long-term capital gains 8,919,000 5,988,988
Unrecaptured section 1250 gain 209,672 122,367
---------------- ------------------
Total distributions paid $ 9,342,214 $ 7,187,616
================ ==================
Adelante U.S. Real Estate Securities Fund
Tax Designation (Unaudited)
The Fund hereby designates $9,128,672 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 $10,443 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
January 31, 2007. In the beginning of 2008, shareholders will receive Form
1099-DIV which will include their share of qualified dividends distributed
during the calendar year 2007.
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 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 at January 31, 2007, 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 audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at January 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/S/PRICEWATERHOUSECOOPERS LLP
San Francisco, California
March 23, 2007
Adelante U.S. Real Estate Securities Fund
Fund Trustee and Officer Information
Independent Trustees
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
William J. Klipp 555 12th Street, Suite 2100 Trustee Private investor (2000-present); 1 Director of
12/9/1955 Oakland, CA 94607 since 2000 President and Chief Operating Officer, Assetmark Funds
Charles Schwab Investment (8 portfolios)
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, Frontier Asset Management, 1 Prima Capital
5/2/1951 Oakland, CA 94607 since 2002 LLC, (2006-present); President, Holdings, Inc.
U.S. Fiduciary Services, (2004-2006);
President and Principal, Trivium
Consulting, LLC, consulting to
financial services 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, LLC Trustee President and Founder, Greenrock 1 None
7/3/1947 223 W. Jackson, Suite 850 since 2000 Research, LLC (1996-present).
Chicago, IL 60606
Interested Trustee* and Officer
- -----------------------------------------------------------------------------------------------------------------------------------
Michael A. Torres 555 12th Street, Chairman of the Board Chief Executive Officer, 1 Marketocracy, Inc.
6/21/1960 Suite 2100 and President since 2002, Adelante Capital Management
Oakland, CA 94607 Vice 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 Chief Compliance Officer, 1 None
3/31/1964 Suite 2100 2000, Treasurer Adelante Capital
Oakland, CA 94607 since 2003, Chief Management LLC, an investment
Compliance Officer advisory firm (2004-present);
since 2004 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 PricewaterhouseCoopers LLP
PUBLIC 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 0107
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, 2007 $40,000
Fiscal year ended January 31, 2006 $33,000
(b) Audit-Related Fees.
None.
(c) Tax Fees.
Fiscal year ended January 31, 2007 $8,850
Fiscal year ended January 31, 2006 $7,375
(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 2006, 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, 2007 $ 0
Fiscal year ended January 31, 2006 $ 85,853
(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 4, 2007
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 4, 2007
/s/Mark A. Hoopes
- ------------------------------
Mark A. Hoopes
Principal Financial Officer
April 4, 2007