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LEND LEASE U.S. REAL ESTATE SECURITIES FUND
SEMI-ANNUAL REPORT
JULY 31, 2000
(LOGO)
LEND LEASE
REAL ESTATE INVESTMENTS
Shares of Lend Lease U.S. Real Estate Securities Fund are distributed by an
independent third party, Sunstone Distribution Services, LLC.
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<PAGE>
Dear Shareholder: July 31, 2000
I would like to take this opportunity to thank you for your investment in the
Lend Lease U.S. Real Estate Securities Fund ("Fund"). The launch of this Fund
marked the entrance into the retail investor market of Lend Lease Real Estate
Investments, the leading US institutional real estate asset manager. We are very
excited to make our experience and expertise available to you through Lend Lease
Funds.
We could not be more pleased with the performance of the REIT market in general
throughout the first two quarters of 2000. At Lend Lease, we firmly believed
through 1999 and into the early part of 2000 that the REIT market was
undervalued and that many good buying opportunities existed. Our convictions
have been borne out as evidenced by market performance year-to-date. By our
calculations, the twenty largest publicly traded real estate companies have
enjoyed increases in their net asset value (the NAV for real estate companies is
different from that of a mutual fund. A REIT NAV is a measure of the value of
the underlying properties held by a particular company) through the first seven
months of 2000 and stock price performance has been strong. Additionally,
Lipper Analytics reports their Real Estate Index has delivered a 20.79% return
year-to-date through July 31st.<F1>
More importantly, we are very proud of the performance of our Fund since its
inception on February 16, 2000. Since inception, the Fund has delivered a total
return of 28.58%* as compared to the Wilshire REIT Index<F2> over the same
period of 26.45%. We are very fortunate to have timed the launch of this Fund
at one of the low points in the REIT market. As shareholders we have benefited
from this foresight with the competitive gains to date.
While we still strongly believe that growth opportunities abound in the REIT
market, we believe it is constructive to review future expectations and the
potential risks on the horizon. First, while real estate securities are no
longer cheap on a relative basis, they remain compelling. The compelling case
is driven by comparatively safe dividend yields (6.5% - 7.5%) and modest
earnings growth (8% - 10% per annum). Second, a significant driver of the
Fund's success to date has been solid real estate market fundamentals, which
leads to rising net asset values and stock price performance in the REIT market.
We do not expect as great a contribution from rising underlying net asset values
looking out over the next 18-24 months. Finally, efforts to slow the economy
may temper demand for real estate, which is not all bad, but may lead to slowing
earnings growth over the future quarters.
We continue to constantly monitor the companies held by the Fund as well as the
general markets with a goal of avoiding negative surprises, and we will continue
to manage the Fund with the same disciplined approach we have employed to date.
Thank you again for being part of Lend Lease Funds. As always, if you have any
questions or issues you can call and talk to a shareholder services
representative at 1-877-LND-LEAS (1-877-563-5327).
Sincerely,
Susan Lloyd-Hurwitz
President and Chairman
Sunstone Distribution Services, LLC, Distributor
* Past performance is no guarantee of future results. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
-----------------------
<F1> The Lipper Real Estate Index is an unmanaged index comprised of the largest
30 funds within the Lipper Real Estate Funds Investment Objective (largest share
class only on multi-class funds) based on total net assets at the latest year-
end.
<F2> The Wilshire REIT Index is an unmanaged market capitalization weighted
index of publicly traded real estate securities, such as REIT's and other real
estate companies.
It is not possible to invest in the indices defined above.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 2000 (UNAUDITED)
Number
of Shares Value
--------- ---------
COMMON STOCKS 99.2%
APARTMENTS 30.4%
430 Apartment Investment & Management Co. $20,801
1,290 Archstone Communities Trust 33,459
1,950 AvalonBay Communities, Inc. 91,894
460 BRE Properties, Inc. 14,921
700 Camden Property Trust 21,875
250 Charles E. Smith Residential Realty, Inc. 11,047
1,810 Equity Residential Properties Trust 90,274
520 Essex Property Trust, Inc. 25,610
850 Gables Residential Trust 23,109
700 Home Properties of New York, Inc. 21,481
230 Mid-America Apartment Communities, Inc. 5,448
600 Post Properties, Inc. 27,825
440 Summit Properties, Inc. 10,505
1,170 United Dominion Realty Trust, Inc. 13,455
----------
411,704
----------
DIVERSIFIED/SPECIALTY 6.7%
240 Colonial Properties Trust 6,645
320 Cousins Properties, Inc. 13,960
350 Glenborough Realty Trust, Inc. 6,956
170 Pacific Gulf Properties, Inc. 4,335
1,420 Vornado Realty Trust 55,558
210 Washington Real Estate Investment Trust 4,148
----------
91,602
----------
INDUSTRIAL 11.4%
1,610 AMB Property Corp. 38,439
340 Cabot Industrial Trust 6,970
270 CenterPoint Properties Corp. 11,475
1,140 Duke-Weeks Realty Corp. 27,930
250 Koger Equity, Inc. 4,234
1,070 Liberty Property Trust 30,762
1,460 ProLogis Industrial Trust 34,036
----------
153,846
----------
RETAIL - LOCAL 5.0%
750 Developers Diversified Realty Corp. 11,812
600 Federal Realty Investment Trust 12,825
470 Kimco Realty Corp. 19,387
580 Regency Realty Corp. 13,920
230 Weingarten Realty Investors 9,516
----------
67,460
----------
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000 (UNAUDITED)
Number
of Shares Value
--------- ---------
RETAIL - REGIONAL 13.7%
330 CBL & Associates Properties, Inc. 8,250
890 General Growth Properties, Inc. 30,149
540 The Macerich Company 12,926
220 Pan Pacific Retail Properties, Inc. 4,606
880 The Rouse Company 22,935
2,250 Simon Property Group, Inc. 58,781
850 Taubman Centers, Inc. 9,563
760 Urban Shopping Centers, Inc. 25,175
880 Westfield America, Inc. 13,365
----------
185,750
----------
OFFICE 32.0%
240 Alexandria Real Estate Equities, Inc. 8,595
1,380 Arden Realty Trust, Inc. 36,570
1,140 Boston Properties, Inc. 47,310
740 Brandywine Realty Trust 16,234
570 CarrAmerica Realty Corp. 17,029
790 Cresent Real Estate Equities, Co. 17,429
4,261 Equity Office Properties Trust 129,952
700 Highwoods Properties, Inc. 18,900
480 Kilroy Realty Corp. 12,720
650 Mack-Cali Realty Corp. 17,022
820 Prentiss Property Trust 20,603
660 Reckson Associates Realty Corp. 17,325
1,160 SL Green Realty Corp. 34,438
750 Spieker Properties, Inc. 38,766
----------
432,893
----------
TOTAL COMMON STOCKS (COST $1,091,964) 1,343,255
----------
Principal
Amount
---------
$15,415 SHORT-TERM INVESTMENTS 1.1%
Wilmington Tax Exempt Money Market Fund 15,415
----------
TOTAL SHORT-TERM INVESTMENTS (COST $15,415) 15,415
----------
TOTAL INVESTMENTS (COST $1,107,379) 100.3% 1,358,670
LIABILITIES LESS OTHER ASSETS (0.3%) (4,655)
----------
NET ASSETS 100.0% $1,354,015
==========
See notes to financial statements.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2000 (UNAUDITED)
ASSETS:
Investments, at value (cost $1,107,379) $1,358,670
Interest and dividends receivable 2,132
Prepaid expenses and other assets 53,511
----------
Total Assets 1,414,313
----------
LIABILITIES:
Payable to Advisor 20,204
Accrued investment advisory fee 4,221
Accrued distribution fees 665
Other Accrued expenses 35,208
----------
Total Liabilities 60,298
----------
NET ASSETS $1,354,015
==========
NET ASSETS CONSIST OF:
Paid-in-capital $1,080,823
Undistributed net investment income 3,542
Accumulated undistributed net realized gain on investments 18,359
Net unrealized appreciation on investments 251,291
----------
NET ASSETS $1,354,015
==========
SHARES OUTSTANDING, $0.0001 PAR VALUE,
(UNLIMITED SHARES AUTHORIZED)
CLASS K 54,710
CLASS Y 52,630
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
CLASS K $12.62
CLASS Y $12.61
See notes to financial statements.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF OPERATIONS
PERIOD ENDED JULY 31, 2000 (UNAUDITED)<F1>
INVESTMENT INCOME:
Interest $751
Dividends 35,010
--------
Total Investment Income 35,761
--------
EXPENSES:
Professional fees 28,417
Administration and accounting fees 23,527
Federal and state registration 18,828
Reports to shareholders 13,902
Shareholder servicing fees 12,503
Investment advisory fees 4,221
Trustees' fees and expenses 3,784
Custody fees 1,545
Distribution fees 665
Miscellaneous costs 22,789
--------
Total expenses before waiver and reimbursement of expenses 130,181
Less: Waiver and reimbursement of expenses (124,319)
--------
Net Expenses 5,862
--------
NET INVESTMENT INCOME 29,899
--------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 15,639
Change in unrealized appreciation on investments 251,291
--------
Net Gain on Investments 266,930
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $296,829
========
<F1> Commenced operations on February 16, 2000
See notes to financial statements.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED JULY 31, 2000 (UNAUDITED)<F1>
OPERATIONS:
Net investment income $29,899
Net realized gain on investments 15,639
Change in unrealized appreciation on investments 251,291
-----------
Net increase in net assets resulting from operations 296,829
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 957,193
Shares issued to shareholders in reinvestment of dividends 23,630
-----------
980,823
-----------
Redemption of shares -
-----------
Net increase from capital share transactions 980,823
-----------
DIVIDENDS PAID FROM:
Net investment income (23,637)
-----------
(23,637)
-----------
TOTAL INCREASE IN NET ASSETS 1,254,015
NET ASSETS:
Beginning of period 100,000
-----------
End of period (includes undistributed net
investment income of $3,542) $1,354,015
===========
<F1> Commenced operations on February 16, 2000
See notes to financial statements.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
FINANCIAL HIGHLIGHTS
For a Fund Share Outstanding Throughout the Period.
CLASS K CLASS Y
---------- ----------
PERIOD ENDED JULY 31, 2000<F1>
(UNAUDITED) (UNAUDITED)
---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.28 0.29
Net realized and unrealized gain on investments 2.56 2.55
-------- --------
Total from Investment Operations 2.84 2.84
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (0.22) (0.23)
-------- --------
Total Distributions (0.22) (0.23)
-------- --------
NET ASSET VALUE, END OF PERIOD $12.62 $12.61
======== ========
TOTAL RETURN<F1> 28.58% 28.64%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $690,178 $663,837
Ratio of expenses to average net assets 1.25% 0.97%
Ratio of expenses before waivers
to average net assets 25.05% 24.23%
Ratio of net investment income
to average net assets 5.53% 5.79%
Ratio of net investment income before waivers
to average net assets (18.26)% (17.47)%
Portfolio turnover rate<F2> 13% 13%
<F1> Commenced operations on February 16, 2000
<F2> Not annualized
See notes to financial statements.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 (UNAUDITED)
1. ORGANIZATION
Lend Lease Funds (the "Trust") was organized on October 28, 1999 as a
Delaware business trust registered under the Investment Company Act of 1940
(the "1940 Act"), as amended, as an open-end management investment company.
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. Class K and
Class Y commenced operations on February 16, 2000. As of July 31, 2000,
Class K and Class Y shares are outstanding. Substantially all of the shares
issued by the Fund are held by an affiliate of the 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 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 - Equity securities for which market quotations are
readily available are valued at the most recent closing price. 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. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
FEDERAL INCOME TAXES - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and to make the requisite distributions of income to its
shareholders which will be sufficient to relieve it of all or substantially
all federal income tax liability.
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 on an accrual basis, accrues daily and includes amortization of
premium and accretion of discount on investments. 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.
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000 (UNAUDITED)
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains,
if any, are declared and paid at least annually.
Distributions to shareholders are determined in accordance with federal
income tax regulations and are recorded on the ex-dividend date. The
character of distributions made during the year from net investment income
or net realized gains may differ from the characterization for federal
income tax purposes due to differences in the recognition of income, expense
and gain items for financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts are made for such differences
that are permanent in nature. Accordingly, at July 31, 2000
reclassifications were recorded to decrease undistributed net investment
income by $2,720 and increase accumulated undistributed net realized gain on
investments by $2,720.
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 net assets.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended July 31, 2000 were
as follows:
CLASS K SHARES: SHARES
Shares sold 48,700
Shares issued to holders in
reinvestment of dividends 1,010
Shares redeemed -
--------
Net increase 49,710
--------
CLASS Y SHARES:
Shares sold 46,595
Shares issued to holders in
reinvestment of dividends 1,035
Shares redeemed -
--------
Net increase 47,630
--------
Net increase from capital
share transactions 97,340
========
<PAGE>
LEND LEASE U.S. REAL ESTATE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000 (UNAUDITED)
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments, for the
period ended July 31, 2000 were $1,208,065 and $131,740, respectively.
At July 31, 2000, accumulated net unrealized appreciation was $253,761 based
on the aggregate cost of investments for federal income tax purposes of
$1,104,909, which consisted of unrealized appreciation of $253,843 and
unrealized depreciation of $82.
5. INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an Investment Advisory Agreement with Lend Lease
Real Estate Investments, Inc. (the "Adviser"). The Adviser has entered into
a Sub-Advisory Agreement with Lend Lease Rosen Real Estate Securities LLC
(the "Sub-Adviser") which is responsible for the day to day management of
the Fund's investment program. 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 and Sub-Adviser. The Adviser and the Sub-Adviser
have contractually agreed to limit the annual operating expenses of Class K
and Class Y to 1.25% and 0.97%, respectively, through January 31, 2002,
subject to later reimbursement by the Fund in certain circumstances. After
January 31, 2002, the expense limitation may renew for annual periods under
certain conditions. During the period ended July 31, 2000, the Adviser and
Sub-Adviser waived investment advisory fees of $4,221 and reimbursed the
Fund $120,098 for other expenses.
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Trust has
adopted a distribution plan which permits the Fund to pay for certain
expenses associated with the distribution of its shares and for services
provided to shareholders. Under the Plan Class K shares may pay expenses
pursuant to the distribution plan equal to a maximum of 0.25% of the average
daily net assets of such class. During the period ended July 31, 2000 the
Fund incurred distribution expenses of $665.
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.
<PAGE>
TRUSTEES Susan J. Lloyd-Hurwitz
Hubbard R. Garber
William J. Klipp
Kevin Malone
Michael A. Torres
INVESTMENT ADVISER LEND LEASE REAL ESTATE INVESTMENTS, INC.
Monarch Tower
3424 Peachtree Road N.E.
Suite 800
Atlanta, GA 30326
INVESTMENT SUB-ADVISER LEND LEASE ROSEN REAL ESTATE SECURITIES, LLC
1995 University Avenue, Suite 550
Berkeley, CA 94704
ADMINISTRATOR AND SUNSTONE FINANCIAL GROUP, INC.
FUND ACCOUNTANT 803 West Michigan Avenue, Suite A
Milwaukee, Wisconsin 53233
CUSTODIAN WILMINGTON TRUST COMPANY
1100 North Market Street, 9th Floor
Wilmington, DE 19890
INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP
333 Market Street
San Francisco, CA 94105
LEGAL COUNSEL GOODWIN, PROCTER & HOAR LLP
Exchange Place
Boston, MA 02109
DISTRIBUTOR SUNSTONE DISTRIBUTION SERVICES, LLC
803 West Michigan Avenue, Suite A
Milwaukee, Wisconsin 53233
DIVIDEND-DISBURSING SUNSTONE FINANCIAL GROUP, INC.
AND TRANSFER AGENT c/o Lend Lease U.S. Real Estate Securities Fund
803 West Michigan Avenue, Suite A
Milwaukee, Wisconsin 53233
This report is submitted for the general information of shareholders of Lend
Lease U.S. Real Estate Securities Fund. It is not authorized for distribution
to prospective investors unless accompanied or preceded by an effective
Prospectus for the 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 412 0700
<PAGE>
