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, 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, (17 CFR 270.30e-1)
ADELANTE FUNDS:
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SEMI-ANNUAL REPORT
JULY 31, 2007
[LOGO]
ADELANTE CAPITAL MANAGEMENT
Shares of Adelante Funds are distributed by an independent third
party, UMB Distribution Services, LLC.
To Our Shareholders
We are pleased to present Adelante Funds' 2007 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,
2007.
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, 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 February 1, 2007 to July 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 2/1/07- value value 2/1/07-
2/1/07 7/31/07 7/31/07(1) 2/1/07 7/31/07 7/31/07(1)
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $802.90 $5.59 $1,000.00 $803.70 $4.34
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,
multiplied by 181/365 (to reflect the one-half year period).
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 2007 (UNAUDITED)
Number
of Shares Value
- ------------------ ---------------
COMMON STOCKS 97.5%
APARTMENTS 22.5%
11,670 Archstone-Smith Trust $ 669,975
19,100 AvalonBay Communities, Inc. 2,062,226
25,110 BRE Properties, Inc. 1,268,808
7,280 Camden Property Trust 400,109
37,470 Equity Residential 1,491,681
8,460 Essex Property Trust, Inc. 910,127
7,200 Post Properties, Inc. 317,088
10,100 United Dominion Realty Trust, Inc. 233,209
---------------
7,353,223
---------------
DIVERSIFIED/SPECIALTY 11.5%
2,950 Alexander's, Inc. 1,044,595
2,400 Forest City Enterprises, Inc. Class A 130,584
24,160 Vornado Realty Trust 2,585,845
---------------
3,761,024
---------------
INDUSTRIAL 7.9%
15,570 AMB Property Corporation 829,570
30,880 ProLogis 1,757,072
---------------
2,586,642
---------------
INDUSTRIAL MIXED 0.3%
2,990 Liberty Property Trust 112,155
---------------
OFFICE 24.8%
6,410 Alexandria Real Estate Equities, Inc. 552,093
9,700 BioMed Realty Trust, Inc. 211,848
14,200 Boston Properties, Inc. 1,341,758
8,341 Brandywine Realty Trust 201,185
38,800 Brookfield Properties Corporation 876,880
12,600 Corporate Office Properties Trust 474,894
44,600 Douglas Emmett, Inc. 1,028,476
4,700 Highwoods Properties, Inc. 152,891
14,090 Kilroy Realty Corporation 907,819
5,290 Mack-Cali Realty Corporation 204,194
20,800 Maguire Properties, Inc. 595,088
12,340 SL Green Realty Corporation 1,498,322
---------------
8,045,448
---------------
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2007 (UNAUDITED)
Number
of Shares Value
- ------------------ ---------------
RETAIL - LOCAL 8.9%
24,500 Acadia Realty Trust $ 564,235
6,800 Developers Diversified Realty Corporation 326,400
12,640 Federal Realty Investment Trust 949,770
4,540 Kimco Realty Corporation 169,478
11,030 Regency Centers Corporation 715,516
4,000 Saul Centers, Inc. 173,480
---------------
2,898,879
---------------
RETAIL - REGIONAL 21.6%
46,310 General Growth Properties, Inc. 2,221,954
20,490 The Macerich Company 1,498,844
25,890 Simon Property Group, Inc. 2,240,261
22,600 Taubman Centers, Inc. 1,086,834
---------------
7,047,893
---------------
TOTAL COMMON STOCKS (COST $25,685,889) 31,805,264
---------------
PREFERRED STOCKS
DIVERSIFIED/SPECIALTY 1.4%
20,000 Vornado Realty Trust, Series I 455,000
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TOTAL PREFERRED STOCKS (COST $467,000) 455,000
---------------
ADELANTE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2007 (UNAUDITED)
Principal
Amount Value
- ------------------ ---------------
SHORT-TERM INVESTMENT 0.6%
$ 184,184 UMB Bank Money Market Fiduciary $ 184,184
---------------
TOTAL SHORT-TERM INVESTMENT (COST $184,184) 184,184
---------------
TOTAL INVESTMENTS (COST $26,337,073) 99.5% 32,444,448
OTHER ASSETS LESS LIABILITIES 0.5% 166,457
---------------
NET ASSETS 100.0% $ 32,610,905
===============
See notes to financial statements.
SECTOR BREAKDOWN (UNAUDITED)
JULY 31, 2007
Office 25%
Apartments 22%
Retail - Regional 21%
Diversified/Specialty 13%
Retail - Local 9%
Industrial 8%
Short-Term Investment 1%
Industrial-mixed 1%
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2007 (UNAUDITED)
ASSETS:
Investments, at value (cost $26,758,318) $ 32,444,448
Interest and dividends receivable 416
Receivable for capital stock sold 4,438
Receivable for investments sold 221,187
Due from advisor 9,495
Prepaid expenses 47,395
---------------
Total assets 32,727,379
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LIABILITIES:
Payable for capital stock purchased 22,480
Distribution fee payable 2,809
Other accrued expenses 91,185
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Total liabilities 116,474
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NET ASSETS $ 32,610,905
===============
NET ASSETS CONSIST OF:
Paid-in-capital $ 20,739,727
Distribution in excess of net investment income (30,805)
Accumulated undistributed net realized gain on investments 6,001,409
Net unrealized appreciation on investments 5,900,574
---------------
NET ASSETS $ 32,610,905
===============
SHARES OUTSTANDING, $0.0001 PAR VALUE,
(UNLIMITED SHARES AUTHORIZED)
CLASS K 529,238
CLASS Y 1,515,790
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
CLASS K $ 16.08
===============
CLASS Y $ 15.90
===============
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2007 (UNAUDITED)
INVESTMENT INCOME:
Dividends $ 302,361
Interest 17,939
---------------
Total investment income 320,300
---------------
EXPENSES:
Investment advisory fees (see note 5) 155,287
Professional fees 80,352
Administration and accounting fees 39,094
Shareholder servicing fees 37,444
Trustees' fees and expenses 28,733
Reports to shareholders 17,547
Distribution fees (see note 5) 14,252
Custody fees 13,828
Insurance expense 13,413
Federal and state registration fees 10,086
Other expenses 1,749
---------------
Total expenses before waiver and reimbursement of expenses 411,785
Less: Waiver and reimbursement of expenses (207,534)
---------------
Net expenses 204,251
---------------
NET INVESTMENT INCOME 116,049
---------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 625,432
Change in unrealized depreciation on investments (10,972,692)
---------------
Net depreciation on investments (8,347,260)
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (8,231,211)
===============
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JULY 31, 2007 YEAR ENDED
(UNAUDITED) JANUARY 31, 2007
------------------ -------------------
OPERATIONS:
Net investment income $ 116,049 $ 859,535
Net realized gain on investments 2,625,432 10,383,901
Change in unrealized appreciation/depreciation on investments (10,972,692) 1,051,626
--------------- ---------------
Net increase/(decrease) in net assets resulting from operations (8,231,211) 12,295,062
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class K shares 3,108,136 4,230,441
Class Y shares 6,044,150 6,666,950
Shares issued to shareholders in reinvestment of distributions
Class K shares 29,195 2,781,402
Class Y shares 109,365 6,121,641
Payments for shares redeemed
Class K shares (4,766,460) (11,576,430)
Class Y shares (3,616,822) (8,314,034)
--------------- ---------------
Net increase (decrease) from capital share transactions 907,564 (90,030)
--------------- ---------------
DISTRIBUTIONS PAID FROM:
Net investment income
Class K shares (29,415) (50,907)
Class Y shares (117,439) (181,512)
Net realized gains
Class K shares -- (2,760,744)
Class Y shares -- (6,349,051)
--------------- ---------------
Total distributions (146,854) (9,342,214)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (7,470,501) 2,862,818
NET ASSETS:
Beginning of year 40,081,406 37,218,588
--------------- ---------------
End of period $ 32,610,905 $ 40,081,406
=============== ===============
Distributions in Excess of Net Investment Income $ (30,805) $ --
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, 2007 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JANUARY 31, 2007 JANUARY 31, 2006 JANUARY 31, 2005 JANUARY 31, 2004 JANUARY 31, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR/PERIOD $ 20.08 $ 19.07 $ 17.92 $ 17.23 $ 12.76 $ 12.91
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.25(2) 0.46(2) 0.57 0.65(1) 0.61(1) 0.59(1)
Net realized and
unrealized gain/(loss)
on investments (4.20)(2) 6.29(2) 5.05 2.09(1) 4.55(1) (0.14)(1)
---------------- ---------------- ---------------- ---------------- --------------- ----------------
Total from
investment operations (3.95) 6.75 5.62 2.74 5.16 0.45
---------------- ---------------- ---------------- ---------------- --------------- ----------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net
investment income (0.05) (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 (0.05) (5.74) (4.47) (2.05) (0.69) (0.60)
---------------- ---------------- ---------------- ---------------- --------------- ----------------
NET ASSET VALUE,
END OF YEAR/PERIOD $ 16.08 $ 20.08 $ 19.07 $ 17.92 $ 17.23 $ 12.76
================ ================ ================ ================ =============== ================
TOTAL RETURN (19.71)% 38.43% 33.14% 15.19% 41.21% 3.29%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end
of year/period $ 8,507,520 $ 12,525,326 $ 15,947,297 $ 18,350,017 $ 28,984,996 $ 18,727,963
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 2.46%(3) 2.72% 2.55% 2.10% 2.23% 2.75%
Ratio of net investment
income to average
net assets 1.89%(3) 2.16% 3.05% 3.38%(1) 4.01%(1) 4.50%(1)
Ratio of net investment
income before waivers
to average net assets 0.67%(3) 0.69% 1.75% 2.54%(1) 3.04%(1) 3.00%(1)
Portfolio turnover rate 25%(4) 45% 31% 32% 15% 30%
(1) As restated.
(2) Calculated based on average shares outstanding during the year.
(3) Annualized.
(4) Not annualized for periods less than a year.
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, 2007 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) JANUARY 31, 2007 JANUARY 31, 2006 JANUARY 31, 2005 JANUARY 31, 2004 JANUARY 31, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR/PERIOD $ 19.87 $ 18.92 $ 17.81 $ 17.12 $ 12.64 $ 12.78
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.28(2) 0.51(2) 0.65 0.67(1) 0.64(1) 0.61(1)
Net realized and
unrealized gain/(loss)
on investments (4.17)(2) 6.23(2) 4.99 2.12(1) 4.55(1) (0.11)(1)
---------------- ---------------- ---------------- ---------------- --------------- ----------------
Total from
investment operations (3.89) 6.74 5.64 2.79 5.19 0.50
---------------- ---------------- ---------------- ---------------- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net
investment income (0.08) (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 (0.08) (5.79) (4.53) (2.10) (0.71) (0.64)
---------------- ---------------- ---------------- ---------------- --------------- ----------------
NET ASSET VALUE,
END OF YEAR/PERIOD $ 15.90 $ 19.87 $ 18.92 $ 17.81 $ 17.12 $ 12.64
================ ================ ================ ================ =============== ================
TOTAL RETURN (19.63)% 38.76% 3.51% 15.62% 41.88% 3.69%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end
of year/period $ 24,103,385 $ 27,556,080 $ 21,271,291 $ 15,580,015 $ 17,093,188 $ 6,418,537
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 1.98%(3) 2.07% 2.05% 1.88% 2.06% 2.90%
Ratio of net
investment income to
average net assets 2.18%(3) 2.50% 3.32% 3.68%(1) 4.27%(1) 4.87%(1)
Ratio of net investment
income before waivers
to average net assets 1.17%(3) 1.40% 2.24% 2.78%(1) 3.19%(1) 2.94%(1)
Portfolio turnover rate 25%(4) 45% 31% 32% 15% 30%
(1) As restated.
(2) Calculated based on average shares outstanding during the year.
(3) Annualized.
(4) Not annualized for periods less than a year.
See notes to financial statements.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 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 July 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.
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.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2007
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 - Effective July 31, 2007, the Fund
adopted Financial Accounting Standards Board ("FASB") Interpretation
No. 48 ("FIN 48") "Accounting for Uncertainty in Income Taxes," a
clarification of FASB Statement No. 109, "Accounting for Income Taxes."
FIN 48 establishes financial accounting and disclosure requirements for
recognition and measurement of tax positions taken or expected to be
taken on an income tax return. The adoption of FIN 48 had no impact on
the Fund's net assets or results of operations.
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.
In addition, in February 2007, FASB issued "Statement of Financial
Accounting Standard No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities" ("FAS 159"), which is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15,
2007, provided the entity also elects to apply the provisions of FAS
157. FAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not
currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities.
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)
JULY 31, 2007
3. CAPITAL TRANSACTIONS
Transactions of the Fund were as follows:
SIX MONTHS ENDED YEAR ENDED
JULY 31, 2007 JANUARY 31, 2007
-------------------------------- -----------------------------
CLASS K SHARES: SHARES DOLLARS SHARES DOLLARS
Shares sold 158,458 $ 3,108,136 205,944 $ 4,230,441
Shares issued to holders in
reinvestment of dividends
and capital gains 1,588 29,195 151,776 2,781,402
Shares redeemed (254,649) (4,766,460) (570,249) (11,576,430)
------------- ------------- ------------- -------------
Net increase(decrease) (94,603) $ (1,629,129) (212,529) $ (4,564,587)
------------- ------------- ------------- -------------
SIX MONTHS ENDED YEAR ENDED
JULY 31, 2007 JANUARY 31, 2007
-------------------------------- -----------------------------
CLASS Y SHARES: SHARES DOLLARS SHARES DOLLARS
Shares sold 321,197 $ 6,044,149 323,305 $ 6,666,950
Shares issued to holders in
reinvestment of dividends
and capital gains 6,069 109,364 337,158 6,121,641
Shares redeemed (198,371) (3,616,823) (397,992) (8,314,034)
------------- ------------- ------------- -------------
Net increase(decrease) 128,895 $ 2,536,690 262,471 $ 4,474,557
------------- ------------- ------------- -------------
Net increase(decrease) from
capital share transactions 34,292 $ 907,561 49,942 $ (90,030)
============= ============= ============= =============
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the Fund, excluding short-term
investments, for the period ended July 31, 2007 were $10,897,091 and
$9,492,258, respectively. There were no purchases or sales of U.S.
Government securities for the six months ended July 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 May 31, 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
ADELANTE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2007
January 31, 2011. During the six months ended July 31, 2007, the
Adviser waived investment advisory fees for the Fund of $155,287. 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, 2007, the Adviser did not recoup any
expenses. At July 31, 2007, the following amounts are subject to
recoupment through July 31, 2008, July 31, 2009, and July 31, 2010,
respectively.
Expires Expires Expires
July 31, 2010 July 31, 2009 July 31, 2008
-----------------------------------------------------------
Class K $220,980 $199,504 $211,770
Class Y $423,011 $243,461 $178,671
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
January 31, 2007, the Fund incurred distribution expenses of $14,252.
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.
7. FEDERAL INCOME TAX INFORMATION
At July 31, 2007, gross unrealized appreciation and depreciation on
investments, based on cost for federal income tax purposes was as
follows:
Cost of investments $ 26,447,994
==============
Gross unrealized appreciation $ 8,186,172
Gross unrealized depreciation (2,189,718)
--------------
Net unrealized appreciation on investments $ 5,996,454
==============
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)
JANUARY 31, 2007
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 return
of capital adjustments from real estate investment trusts and 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
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, 2007, 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.
ADELANTE U.S. REAL ESTATE SECURITIES FUND
ADVISORY AGREEMENT APPROVAL DISCLOSURE
MARCH 2007
At their regular quarterly meeting held on March 22, 2007 at the offices of
Adelante Capital Management LLC, the Fund's investment adviser (the "Adviser"),
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
Company Act of 1940, as amended (the "Independent Trustees"), approved the
continuation of the Advisory Agreement between 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 and operations, Adviser personnel, compliance matters, investment
techniques, Fund and securities market performance, and brokerage practices such
as best execution and soft dollars. During an adjournment of the March 22, 2007
meeting, the Trustees met with Adviser personnel including those involved in
research, investment selection and trading for the Fund. The Independent
Trustees also met in executive session during the course of the March 22, 2007
meeting as part of their consideration of the Advisory Agreement's continuation.
At their March 22, 2007 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 and business plans. 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
performance, total expenses and advisory fee as compared to other similar funds.
The Trustees reviewed the Fund's performance information against (a) indexes of
securities markets performance such as the Dow Jones Wilshire REIT Index, (b)
performance measures and rankings for real estate mutual funds prepared by an
independent third party ranking service and (c) performance data for a group of
real estate mutual funds selected by the Adviser as representative of the Fund's
principal competitors. 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 total expense limitations for the Fund through May 31, 2008.
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 also considered information
relating to the advisory fees paid by other clients of the Adviser
ADELANTE U.S. REAL ESTATE SECURITIES FUND
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 the fees charged other Adviser clients with similarly managed portfolios.
The Trustees considered the costs of services to be provided to the Fund under
the Advisory Agreement, the profits and other direct and indirect benefits (such
as soft dollar benefits on the Fund's brokerage transactions) 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 reiterated 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.
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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, Wisconsin 53233
CUSTODIAN UMB BANK, N.A.
928 Grand Blvd.
Kansas City, MO 64106
INDEPENDENT AUDITORS DELOITTE & TOUCHE LLP
555 East Wells Street
Milwaukee, WI 53202
LEGAL COUNSEL GOODWIN PROCTER LLP
Exchange Place
Boston, MA 02109
DISTRIBUTOR UMB DISTRIBUTION SERVICES, LLC
803 West Michigan Street, Suite A
Milwaukee, Wisconsin 53233
DIVIDEND-DISBURSING UMB FUND SERVICES, INC.
AND TRANSFER AGENT c/o Adelante Funds
803 West Michigan Street, Suite A
Milwaukee, Wisconsin 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 0707
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
October 1, 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
October 1, 2007
/s/Mark A. Hoopes
- ------------------------------
Mark A. Hoopes
Principal Financial Officer
October 1, 2007