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TOTAL RETURN FUND L.L.C.

PRIVATE PLACEMENT MEMORANDUM


A Delaware Limited Liability Company

PRIVATE PLACEMENT MEMORANDUM

February 2006

Number of Private Placement Memorandum _37___________

Name of Prospective Member _Brad Jones______________

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TABLE OF CONTENTS

I. PRINCIPAL TERMS OF THE OFFERING..................................................................1

II. MANAGEMENT ...............................................................................................................7 THE MANAGER.................................................................................................................7 PORTFOLIO COMMITTEE...............................................................................................7 CONFLICTS OF INTEREST..............................................................................................8 PRIOR PERFORMANCE ...................................................................................................8 BROKERS .........................................................................................................................10 CUSTODIAN ....................................................................................................................10 AUDITORS .......................................................................................................................11 LEGAL COUNSEL...........................................................................................................11

III. INVESTMENT POLICY ................................................................................................12 INVESTMENT OBJECTIVE............................................................................................12 PRINCIPAL INVESTMENT STRATEGY ......................................................................12 INVESTMENT PROCESS................................................................................................12 INVESTMENT CATEGORIES ........................................................................................12 INVESTMENT-RELATED ACTIVITIES .......................................................................14 INVESTMENT RESTRICTIONS.....................................................................................14

IV. THE OFFERING.............................................................................................................16 MEMBER REQUIREMENTS ..........................................................................................16 ADMISSION OF NEW MEMBERS.................................................................................16

V. SUMMARY OF THE OPERATING AGREEMENT..................................................17 THE MANAGER...............................................................................................................17 ASSET MANAGEMENT FEE .........................................................................................17 EXPENSES........................................................................................................................17 ALLOCATIONS................................................................................................................17 DISTRIBUTIONS .............................................................................................................18 REDEMPTIONS................................................................................................................18 SEGREGATED ACCOUNTS...........................................................................................18 PAYMENT OF REDEMPTION PRICE...........................................................................18 VALUATION....................................................................................................................19 INDEMNIFICATION........................................................................................................19 RESTRICTION ON TRANSFER .....................................................................................20 AMENDMENTS TO THE PARTNERSHIP AGREEMENT...........................................20 REPORTS..........................................................................................................................20

VI. TAX CONSIDERATIONS..............................................................................................21 TAX-EXEMPT MEMBERS .............................................................................................21 SUMMARY: LAWS SUBJECT TO CHANGE ..............................................................21

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VII. REGULATORY MATTERS ..........................................................................................22 ERISA CONSIDERATIONS ............................................................................................22 1940 ACT CONSIDERATIONS.......................................................................................22 1933 ACT AND “BLUE SKY” CONSIDERATIONS .....................................................23

VIII. SPECIAL CONSIDERATIONS.....................................................................................24

IX. PRIVACY POLICY.........................................................................................................26

X. ADDITIONAL INFORMATION...................................................................................27

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THE SHARES OF TOTAL RETURN FUND L.L.C. (THE “FUND”) OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER RELEVANT SECURITIES LAWS, AND SINCE THEY WILL BE OFFERED ONLY TO A LIMITED NUMBER OF QUALIFIED INVESTORS, IT IS ANTICIPATED THAT THEY WILL BE EXEMPT FROM THE REGISTRATION PROVISIONS OF SUCH ACT. THE FUND WILL NOT BE REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND MEMBERS WILL NOT BE ENTITLED TO THE BENEFITS OF THAT ACT.

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SHARES OF THE FUND MAY NOT BE TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND ANY OTHER RELEVANT SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION, AND TRANSFERS ARE FURTHER RESTRICTED UNDER THE TERMS OF THE LIMITED LIABILITY COMPANY AGREEMENT OF THE FUND. HOWEVER, SHARES OF THE FUND MAY BE REDEEMED IN ACCORDANCE WITH THE PROCEDURES SET FORTH THEREIN.

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THIS PRIVATE PLACEMENT MEMORANDUM (INCLUDING THE EXHIBITS HERETO) SUPERSEDE IN THEIR ENTIRETY THE EXECUTIVE SUMMARY OF THE OFFERING AND ANY OTHER OFFERING MATERIALS PREVIOUSLY MADE AVAILABLE TO PROSPECTIVE MEMBERS. IN CONSIDERING WHETHER TO INVEST IN THE FUND, PROSPECTIVE MEMBERS SHOULD NOT RELY ON ANY DOCUMENTS PREVIOUSLY SUBMITTED TO THEM.

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DISTRIBUTION OF THIS PRIVATE PLACEMENT MEMORANDUM TO ANY PERSON OTHER THAN THE PERSON TO WHOM THIS MEMORANDUM WAS ORIGINALLY DELIVERED AND THOSE PERSONS RETAINED TO ADVISE SUCH PERSON WITH RESPECT TO THE FUND IS UNAUTHORIZED. ANY REPRODUCTION OF THIS MEMORANDUM IN WHOLE OR IN PART OR THE DIVULGENCE OF ANY OF ITS CONTENTS, WITHOUT THE PRIOR CONSENT OF ADELANTE CAPITAL MANAGEMENT LLC, IS PROHIBITED. BY ACCEPTING THESE OFFERING MATERIALS THE RECIPIENT AGREES TO RETURN THE SAME TO ADELANTE CAPITAL MANAGEMENT LLC PROMPTLY UPON DELIVERY OF UPDATED OFFERING MATERIALS, UPON REACHING A DECISION NOT TO SUBSCRIBE OR IF SUCH SUBSCRIPTION IS NOT ACCEPTED BY THE FUND.

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THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE, AND MAY NOT BE USED FOR THE PURPOSES OF AN OFFER OR SOLICITATION TO ANYONE IN ANY JURISDICTION OUTSIDE OF THE UNITED STATES UNLESS ACCOMPANIED BY A SUPPLEMENT FOR SUCH JURISDICTION (THE “NON-U.S. MEMBER SUPPLEMENT”). PROSPECTIVE NON-U.S. MEMBERS SHOULD INFORM THEMSELVES AS TO (A) THE LEGAL REQUIREMENTS WITHIN THEIR OWN JURISDICTIONS FOR PURCHASING OR HOLDING SHARES OF THE FUND, (B) ANY FOREIGN EXCHANGE RESTRICTIONS WHICH THEY MIGHT ENCOUNTER, AND (C) THE INCOME AND OTHER TAX CONSEQUENCES WHICH MAY APPLY IN THEIR OWN JURISDICTIONS RELEVANT TO THE PURCHASE, HOLDING OR DISPOSITION OF SHARES OF THE FUND.

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I. PRINCIPAL TERMS OF THE OFFERING

Below is a summary of the principal terms contained in the Limited Liability Company Agreement (the “Operating Agreement”) of Total Return Fund L.L.C. (the “Fund”) attached as Exhibit A and the Subscription Agreement attached as Exhibit B (the “Subscription Agreement”) as well as other detailed information contained within this Private Placement Memorandum (collectively, the “Memorandum”). The descriptions contained in this summary are qualified in their entirety by reference to the Operating Agreement, the Subscription Agreement and such other documents described in this Memorandum. Capitalized terms used but not defined herein shall have the meanings set forth in the Operating Agreement. Before investing in the Fund, a prospective Member should review this Memorandum (including the Operating Agreement and the Subscription Agreement) and the other documents or materials described in this Memorandum, all of which are available upon request.

INVESTMENT OBJECTIVE

The Fund is a Delaware limited liability company. The objective of the Fund is to seek a combination of income and long-term capital appreciation by investing in securities of companies principally engaged in the real estate industry. The Fund seeks to outperform the Dow Jones Wilshire REIT Index. The Fund may also invest in private securities in the real estate industry. There can be no assurances that the Fund will achieve its objective.

PRINCIPAL INVESTMENT STRATEGY

Adelante Capital Management LLC’s (“Adelante” or the “Manager”) investment style can be characterized as “fundamental quantitative.” Its approach employs both bottom-up fundamentals and top-down quantitative screens to identify potential portfolio companies. Adelante utilizes the considerable real estate securities experience of its investment professionals to seek securities for investment that are priced below what the Manager believes is their intrinsic value. See “III. Investment Policy—Investment Process.”

THE MANAGER Adelante is the Manager of the Fund with responsibility for investment management and administration. Adelante is a real estate investment management company founded in 1993. Adelante is a research driven investment management firm managing assets principally on behalf of institutional investors and high net worth individuals. As of December 31, 2005, assets under management of Adelante were approximately $3.7 billion.

SHARES Interest in the Fund shall be divided into an indefinite number of Shares, including fractions thereof, of a single class. The Net Asset Value per Share shall be determined by the Manager in accordance with certain valuation procedures set forth in the Operating Agreement at the close of business on the last Business Day of each month, the close of business on the Business Day prior to any

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purchase of Shares, the close of business on the any Business Day on which a redemption is effected and such other dates determined by the Manager (each a “Valuation Date”).

SALE OF SHARES The Fund may sell Shares to new or existing Members at the discretion of the Manager, subject to the terms of the Operating Agreement. The consideration paid for Shares may, at the discretion of the Manager, be in cash and/or Securities. The Manager may reduce the number of Shares issued or to be issued to any Member by a number of Shares or fractions thereof equal in value to actual expenses incurred or estimated expenses expected to be incurred in connection with investing the cash purchases of Shares in portfolio Securities.

REDEMPTION OF SHARES

A Member may, at such times as determined by the Manager but, subject to certain exceptions, no less frequently than as of the close of business on the last Business Day of each month (the “Redemption Date”), require the Fund to redeem all or any part of its Shares upon five (5) Business Days’ prior written notice. The redemption price shall be equal to the Net Asset Value per Share as of the Redemption Date.

The Manager may require a Member to have its Shares redeemed by the Fund immediately following notice thereof to such Member if continued ownership of Shares by such Member would cause the Fund (i) to be ineligible for certain exemptions under the Investment Company Act of 1940, as amended (the “1940 Act”), or (ii) would cause the Fund not to be treated as a partnership for federal income tax purposes. The redemption price shall be equal to the Net Asset Value per Share as of the next Redemption Date.

Payment of the redemption price shall be made within ten (10) Business Days of the relevant Redemption Date, unless the Manager reasonably determines that payment upon a later date is necessary to prevent such redemption from having a material adverse impact on the Fund or its Members, and shall be payable in cash or, if the Manager reasonably determines that making such payment wholly in cash is unwise or undesirable to the Fund, in kind or partially in cash and partially in kind. The Manager may reduce the amount to be distributed to any such redeeming Member by the amount of actual expenses incurred or estimated expenses expected to be incurred in connection with liquidating portfolio Securities to fund such redemptions of Shares which are to be paid in cash.

See “V. Summary of the Operating Agreement—Redemptions,” and “V. Summary of the Operating Agreement —Payment of Redemption Price.”

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SEGREGATED ACCOUNTS

The Manager may allocate investments made by a Member in the Fund to a segregated account established by the Manager pending their investment in securities which the Manager considers suitable for the Fund, for the purpose of making redemptions, or for such other purposes as the Manager shall deem appropriate. The Manager shall maintain and administer segregated accounts in accordance with the provisions of the Operating Agreement (except the Manager may deviate from the Investment Policies in the course of liquidating a segregated account).

MANAGEMENT FEE

The Manager is entitled to a management fee (the “Management Fee”) payable by the Fund equal to 0.8% (on an annual basis and with appropriate pro ration of such fee based on the number of days in the relevant period) of the Net Asset Value of the Fund. The Management Fee shall be calculated and accrued monthly and paid quarterly in arrears, and may be waived or rebated in whole or in part with respect to one or more investors

EXPENSES The Fund will incur and pay out of its property, either on a current basis or subject to amortization over such period as the Manager may reasonably determine to be appropriate, any and all expenses relating to the ongoing operations of the Fund and other charges that, in the opinion of the Manager, are necessary or incidental to, or in support of, the carrying out of any of the purposes of the Operating Agreement.

ALLOCATIONS As a general rule, Net Profits and Net Losses of the Fund will be allocated to the Members in proportion to their relative Capital Account balances on each Valuation Date.

Generally, tax allocations will be made in a manner designed to cause such allocations to match, as closely as possible, the economic allocations; however, the Fund intends to comply with certain tax regulations, which may from time to time cause a disparity between the economic and tax consequences to certain Members.

DISTRIBUTIONS Although the Manager retains the right to distribute any income from the Fund’s investments and any proceeds from any gains realized on the sale of its underlying investments, the Manager intends to follow a policy of retaining and reinvesting within the Fund, all of the net income and capital gains realized by the Fund, thereby increasing the net assets of the Fund.

INDEMNIFICATION Except and to the extent as otherwise provided by applicable law, the Fund shall indemnify the Manager and its affiliates against any and all liabilities, costs, expenses and other disbursements of any kind and nature whatsoever incurred by such Person in any way

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related to or arising out of the Operating Agreement, the administration of Fund property or the action or inaction of such Person, provided such Person shall not have been finally adjudicated to have committed an act or omission involving his, her or its own bad faith, willful misconduct, gross negligence or reckless disregard of its duties under the Operating Agreement. As to any matter disposed of by a compromise payment, no indemnification shall be provided unless there has been obtained an opinion to the effect that the Person subject to indemnification appears to have acted in good faith and that such indemnification would not protect such Person against any liability to the Fund or the Members to which he, she or it would otherwise be subject by reason of gross negligence, willful malfeasance or fraud in the conduct of his, her or its office or actions not taken in good faith by such Person. Such indemnified parties shall have a lien on Fund property for any indemnity due hereunder; provided, however, that the Manager shall have a first priority lien, regardless of when such indemnification obligation arises. Such lien shall continue notwithstanding the distribution of such property.

The Fund shall also indemnify any Member or former Member if such Person is sued solely by reason of being or having been a Member and not because of such Member’s acts or omissions or for some other reason. Any Member entitled to such indemnification shall have a claim against Fund property notwithstanding its distribution.

Except and to the extent as otherwise provided by applicable law, the Fund may advance amounts for legal expenses and other costs to certain indemnifiable parties if, in the case of an advance to the Manager or any officer, employee or agent, such Person agrees in writing to repay funds so advanced if it is subsequently determined that such Person is not entitled to indemnification.

RESTRICTION ON TRANSFER

No Member may sell, assign or transfer any Shares without the prior written consent of the Manager, which it may withhold in its sole discretion. In addition, Shares will not be registered under applicable federal or state securities laws and, therefore, will be subject to restrictions on transfer under such laws.

AMENDMENT OF OPERATING AGREEMENT

The Operating Agreement may be amended, subject to certain exclusions, by the Manager upon thirty (30) days’ prior written notice to the Members; provided, however, that no such notice shall be required if the Manager determines such amendment is necessary or appropriate to prevent the LLC from being treated as a publicly traded partnership taxed as a corporation under Section 7704 of the Code.

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REPORTS Each Member will receive annual audited financial statements of the Fund within one hundred twenty (120) days of after the end of each Fiscal Year of the Fund and certain tax information within ninety (90) days after the end of each Fiscal Year of the Fund. In addition, the Manager currently provides the Members with a monthly report indicating their Share ownership and the value of their Shares. See “V. Summary of the Operating Agreement—Reports” and “IV. Tax Considerations.”

TERM The Fund shall continue in existence until either (i) the Manager resigns or otherwise ceases to be the Manager of the Fund, in each case without waiving dissolution, or (ii) the Fund is dissolved by decree of judicial dissolution.

TAX CONSIDERATIONS

The Fund will be taxed as a partnership for U.S. federal income tax purposes. Each Member will receive on an annual basis a Schedule K-1 that reports such Member’s allocable share of the taxable income or loss from the Fund. The taxable income or loss attributable to a Member’s interest in the Fund will generally be of the same character as the income or loss on the investments held in the Fund and may include ordinary income, capital gains and return of capital. Non-U.S. Members may be subject to U.S. withholding and taxes on certain Fund distributions and income.

Although the Fund generally does not expect to generate unrelated business taxable income (“UBTI”), it is possible that the Fund may in certain circumstances generate UBTI for certain tax-exempt Members.

Subscribers, particularly taxable subscribers, should note that the Manager does not intend to consider tax effects when making investment decisions and that Members will be taxed on their allocable share of the Fund’s taxable income (if any), whether or not it is distributed to them. Certain taxable Members should also note that certain fees and expenses of the Fund may not be deductible in computing their federal income tax.

Members should see “VI. Tax Considerations” for a discussion of the tax considerations affecting an investment in the Fund.

Prospective Members are urged to consult their own tax advisers with specific reference to their own tax situations and potential changes in the tax laws applicable to an investment in the Fund.

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ERISA CONSIDERATIONS

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), is a broad federal statute governing various aspects of employee benefit plans maintained by non-governmental employers, including the investment of those plans’ assets. The relevant fiduciaries of any benefit plan subject to ERISA that is considering the acquisition of Shares should determine (after consultation with their advisers, as appropriate) that the investment will comply with the applicable fiduciary requirements of ERISA in the context of the particular plan. The Fund anticipates that Members that are considered to be “benefit plan investors” for purposes of ERISA will hold a percentage of the Shares sufficient to cause the assets of the Fund to be considered to be “plan assets” (to the extent of the Shares held by any such Members that are employee benefit plans under ERISA) under the plan assets regulations under ERISA. Accordingly, the Manager intends to proceed on the basis that its management of the Fund will be subject to ERISA. Prospective Members should see “VII. Regulatory Matters—ERISA Considerations” for a discussion of the ERISA considerations affecting an investment in the Fund.

SECURITIES LAW COMPLIANCE

The Shares are being offered only to investors who are “accredited investors” (as defined in Regulation D under the Securities Act of 1933, as amended (the “1933 Act”)). The Fund intends to avoid classification as an “investment company” (as defined in the 1940 Act) by relying on Section 3(c)(1) of the 1940 Act that requires that the Fund have no more than 100 beneficial owners. The purchase of Shares may be deemed to be a speculative investment and is not intended as a complete investment program. Investment in the Fund is designed only for sophisticated persons who are able to bear a substantial loss of their capital contributions in the Fund. Admission as a Member in the Fund is not open to the general public.

RISKS The value of an investment in the Fund will fluctuate. An investment in the Fund involves risks that a prospective Member should evaluate carefully before making a decision to invest in the Fund. See “VIII. Special Considerations.”

ADDITIONAL INFORMATION

Prospective Members or their advisers or representatives having questions or desiring additional information should contact the Manager at (510) 986-2100.

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II. MANAGEMENT

THE MANAGER

The Manager of the Fund, Adelante Capital Management LLC, is a registered investment adviser and was formerly known as ERE/Rosen Real Estate Securities, L.L.C., AMB Rosen Real Estate Securities, L.L.C. and Lend Lease Rosen Real Estate Securities LLC. The executive officers of Adelante consist of Michael A. Torres, Chief Executive Officer, Mark J. Nuti, Chief Operating Officer and Mark A. Hoopes, Chief Compliance Officer. Adelante is a real estate investment management company founded in 1993. As of December 31, 2005, assets under management were approximately $3.7 billion. Adelante is a research driven investment management firm managing assets principally on behalf of institutional investors and high net worth individuals. In addition to the information provided in this Memorandum, information about the Manager and its executives is included in Part II of the Manager’s Form ADV II, a copy of which will be provided to prospective Members upon request. The Manager will be entitled to a fee from each Member as described below under “V. Summary of the Operating Agreement—Asset Management Fee.”

PORTFOLIO COMMITTEE

The Portfolio Committee, which supports the investment decision process, consists of the following investment professionals:

Michael A. Torres is Chief Executive Officer and portfolio manager. Mr. Torres joined the firm in February 1995. He has 20 years of real estate and securities research experience. Prior to joining Adelante, Mr. Torres was the Director of Real Estate Research and a portfolio manager for Wilshire Asset Management. At Wilshire, he created the Wilshire Real Estate Securities Index, widely recognized as the industry’s performance benchmark. Mr. Torres is the Chairman of the Board of Directors for the Adelante Funds. He is a member of the New America Alliance, the Investors Advisory Council for NAREIT and the Board of Advisors of the Corporate Governance Center at the School of Business at Kennesaw State College. He is also a member of the Board and has been a mentor in the Toigo Foundation’s Mentor Program. Mr. Torres received a B.A. in Architecture and a M.B.A. from University of California, Berkeley.

Jeung S. Hyun is Vice President, responsible for company-specific research and

portfolio strategy. Mr. Hyun joined the firm in July 2003. He has 10 years of investment management experience. Prior to joining Adelante, Mr. Hyun was Vice President at Morgan Stanley Investment Management. Mr. Hyun is a returned Peace Corps volunteer. He received a B.A. in Government and a M.A. in Architecture from Harvard University.

Robert S. Promisel is Vice President, responsible for company-specific research and portfolio strategy. Mr. Promisel joined the firm in September 2001. He has 14 years of investment management experience. Prior to joining Adelante, Mr. Promisel was Vice President at European Investors, analyzing U.S. and European property companies. Previously, Mr. Promisel worked at AEW Capital Management in Boston and RREEF in San Francisco. Mr. Promisel received a B.A. in Economics and Geography from Johns Hopkins University and a M.S. in Urban Planning from Columbia University.

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Luis R. Sanchez is Vice President, responsible for company-specific research and portfolio strategy. Mr. Sanchez joined the firm in April 2005. He has 21 years of experience in the commercial real estate lending markets. Prior to joining Adelante, Mr. Sanchez was a Principal at Prudential Mortgage Capital Company, LLC, a subsidiary of Prudential Financial. He received his B.S. in Architectural Engineering from The University of Texas at Austin and an MBA from the University of Southern California.

Mark Montgomery is the Trader. Mr. Montgomery joined the firm in October 2005. He

has 10 years of industry experience. Prior to joining Adelante, Mr. Montgomery was the Head Trader for Parametric Portfolio Associates, a subsidiary of Eaton Vance. He received his B.A. in Economics from the University of California at Davis and is currently pursuing his CFA designation.

CONFLICTS OF INTEREST

Under the terms of the Operating Agreement, the Manager may conduct any other business, including any business with respect to securities. Without limiting the generality of the foregoing, the Manager and each of its affiliates may act as an investment adviser or investment manager for others, may manage funds for others, may have, make and maintain investments in its own name or through other entities, may serve as a consultant, partner or shareholder of one or more investment funds, partnerships, securities firms or advisory firms and may act as a director, officer and/or employee of any corporation or a trustee of any trust.

PRIOR PERFORMANCE

The information found in the table on the following page, reflecting the Fund’s financial highlights, was extracted from its audited annual financial statements or are calculations based on such information.

Note: Due to the relatively small size of the Fund during the years ended December 31, 1995 and 1996, detailed performance information for these periods is not presented in the following table; however, is available upon request. For the years ended December 31, 1995 and 1996, the net asset value of the Fund was $701,240 and $979,373 respectively. For the years ended December 31, 1995 and 1996, the total return of the Fund was 11.95% and 36.26% respectively. The Fund commenced operations on June 1, 1995.

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TOTAL RETURN FUND - PRIOR PERFORMANCE

For a Share Outstanding

Year Ended December 31,

1997


1998


1999


2000


2001


2002


2003


2004


2005 Net asset value, beginning of year $68.58 $84.24 $73.32 $72.83 $97.38 $108.13 $111.59 $150.61 $204.57

Net investment Income 2.84 4.23 4.31 5.13 5.35 5.56 4.76 4.35 3.80 Net realized gains on investments 4.04 .95 -1.46 .81 1.22 (0.76) 6.66 8.20 21.99

Net unrealized depreciation on investments 8.78 -16.1 -3.34 18.61 4.18 (1.34) 27.60 41.41 6.04

Increase/decrease in net assets resulting from operations

15.66 -10.92 -0.49 24.55 10.75 3.46 39.02 53.96 31.83

Net asset value, end of year $84.24 $73.32 $72.83 $97.38 $108.13 $111.59 $150.61 $204.57 $236.40 Shares outstanding at year end 175,767 450,420 448,775 650,885 639,940 1,060,871 888,187 797,352 667,130

Total return, net management and custodian fees 22.94% -12.96% -0.67% 33.71% 11.04% 3.20% 34.97% 35.83% 15.56%

Ratios/ Supplemental data Net assets, end of year $14,806,346 $33,023,696 $32,684,283 $63,385,225 $69,196,701 $118,379,886 $133,770,311 $163,113,133 $157,708,058 Ratio of expenses to average net assets 0.96% 0.87% 0.84% 0.86% 0.83% 0.85% 0.83% 0.83% 0.81%

Ratio of net investment income to average net assets 3.55% 5.76% 6.12% 5.96% 5.31% 5.19% 3.88% 2.63% 1.76%

Portfolio turnover rate 56.0% 33.3% 19.7% 26.41% 32.22% 28.92% 32.98% 27.08% 26.63%

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As discussed below under “III. Investment Policy—Investment Objective,” one of the Fund’s objective’s is to outperform the Dow Jones Wilshire REIT Index. Below is comparative annualized return information regarding the Fund, net of fees and expenses, and the Dow Jones Wilshire REIT Index: Time Period Total Return Fund Dow Jones Wilshire REIT

Index Dec. 31, 2004 to Dec. 31, 2005 15.56 % 13.97 % Dec. 31, 2003 to Dec. 31, 2005 25.24 % 23.19 % Dec. 31, 2002 to Dec. 31, 2005 28.40 % 27.37 % Dec. 31, 2001 to Dec. 31, 2005 21.58 % 20.96 % Dec. 31, 2000 to Dec. 31, 2005 19.40 % 19.18 % Dec. 31, 1999 to Dec. 31, 2005 21.66 % 21.06 % Dec. 31, 1998 to Dec. 31, 2005 18.19 % 17.36 % Dec. 31, 1997 to Dec. 31, 2005 13.74 % 12.39 % Dec. 31, 1996 to Dec. 31, 2005 14.72 % 13.18 % Dec. 31, 1995 to Dec. 31, 2005 16.70 % 15.36 % June 1, 1995 (inception) to Dec. 31, 2005 16.98 % 15.56 % BROKERS

The Manager determines the broker to be used in each specific transaction with the objective of obtaining the most favorable price and market for the execution of each transaction. In seeking the most favorable price and market for the execution of transactions, the Manager will evaluate a wide range of criteria including the broker’s commission rate, execution capability, positioning and distribution capabilities, back office efficiency, ability to handle difficult trades, financial stability, and prior performance in serving the Manager and its clients. In certain circumstances where a broker has provided valuable investment information to the Manager, the Manager may give preference to such broker and cause the Fund to pay an amount of commission in excess of the amount of commission another broker would have charged if the Manager determines that the amount of commission is reasonable in relation to the value of the brokerage services and investment information received. Investment information received in connection with brokerage transactions involving the Fund or any other clients of, or entities managed by, the Manager, will likely be used by the Manager in servicing all of its clients, including the Fund. In the event that a portfolio transaction for the Fund is executed as part of concurrent authorizations to purchase or sell the same security for other accounts served by the Manager, it will effect such concurrent authorizations with the objective of allocating the executions in a manner that is deemed equitable to all the accounts involved, including the Fund.

CUSTODIAN

Wilmington Trust Company serves as the Fund’s Custodian. The Fund reserves the right, in its discretion, to change the brokerage and custodial arrangements described above without notice to the Members.

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AUDITORS

Rothstein, Kass & Company, LLP serves as the Fund’s independent accountants.

LEGAL COUNSEL

Goodwin Procter LLP serves as counsel to the Fund, the Manager and certain affiliates of the Manager. Goodwin Procter LLP does not provide legal advice to the Members as part of its role as counsel to the Fund.

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III. INVESTMENT POLICY

INVESTMENT OBJECTIVE

The Fund is a Delaware limited liability company. The objective of the Fund is to seek a combination of income and long-term capital appreciation by investing in securities of companies principally engaged in the real estate industry. The Fund seeks to outperform the Dow Jones Wilshire REIT Index.

The Fund may also invest in private securities in the real estate industry. There can be no assurances that the Fund will achieve its objective.

PRINCIPAL INVESTMENT STRATEGY

Adelante’s investment style can be characterized as “fundamental quantitative.” Its approach employs both bottom-up fundamentals and top-down quantitative screens to identify potential portfolio companies. The Manager utilizes the considerable real estate securities experience of its investment professionals to seek securities for investment that are priced below what the Manager believes is their intrinsic value. See “III. Investment Policy—Investment Process.”

INVESTMENT PROCESS

The Manager employs a two-part analytical process consisting of an analysis of property sectors (top-down) and an analysis of individual companies within the selected property sectors (bottom-up). First, the top down process is used to identify promising property sectors of the real estate market. In conducting this analysis, the Manager relies on proprietary real estate transaction databases, supply and demand forecasts for various property types such as residential, commercial and industrial real estate and local market intelligence from an extensive network of real estate professionals around the United States and its own subjective views of the market for real estate and real estate securities. The Fund ordinarily expects to be invested in at least four property sectors of the real estate market but, if conditions warrant, may focus its investments more narrowly.

Second, the Manager quantifies the relative premium or discount to a company’s underlying real estate value in order to identify buying opportunities. In addition, the Manager evaluates potential investments based on a variety of factors including investment strategy, strength of company management, and financial statement analysis.

INVESTMENT CATEGORIES

Real Estate Investment Trusts. A substantial portion of the Fund’s portfolio at any given time may be invested in REITs. Furthermore, the Fund expects under normal circumstances to invest principally in what are know as “equity REITs.” An equity REIT owns or leases real estate and realizes a return on its holdings primarily from rental income although it may also realize gains (or losses) by selling properties in its portfolio. Equity REITs generally exercise some degree of control over the operational aspects of their real estate investments, lease terms and property maintenance and repair.

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REITs invest shareholder capital in real estate-related loans, interests or securities. A REIT is not taxed on income distributed to shareholders if it complies with certain federal tax requirements relating primarily to its organization, ownership, assets and income and, further, if it distributes the vast majority of its taxable income to shareholders each year. As a consequence, REITs generally focus on income-producing real estate investments.

Private Placement Transactions. The Fund may acquire securities in privately negotiated transactions with REITs and other issuers. The securities to be acquired in these transactions will be (i) equity securities of the same class which are already traded in the public market, and/or (ii) convertible preferred stock or convertible debt securities which do not trade in the public market but which are convertible into a class of equity securities which are already traded in the public market. Securities acquired in private placement transactions typically can be purchased at prices that are discounted from the current public market price for the same or equivalent securities; however, they will generally be subject to legal or contractual restrictions on resale in the public market for a stated period of time. In addition, in order to dispose of such securities, the Fund may need to exercise registration rights to compel the issuer to register the securities for public resale or, alternatively, seek institutional buyers in the private placement secondary market. Such transactions may require more time and expense to resell than if the securities were immediately eligible for public sale.

Investments in Registered Investment Companies and Exchange-Traded Funds. The Fund may invest in the shares of registered investment companies that invest primarily in equity securities of REITs and other issuers principally engaged in the real estate business and in registered investment companies and exchange-traded funds designed to replicate or model the performance of securities market indices. The Fund may also invest for short-term purposes (as described below) in registered investment companies structured as money market or short-term bond funds. The yield of such securities will be reduced by operating expenses of such companies, including payments to the investment managers of those investment companies or exchange-traded funds.

Short-Term Investments. The Fund may invest in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities (“U.S. Government Securities”); certificates of deposit, demand and time deposits and bankers’ acceptances; and securities issued by money market funds, “short-term” bond funds and other similar funds including those managed by the Manager or its affiliates. Typically, the Fund will invest a portion of its assets in such short-term securities to maintain liquidity for purposes of funding the withdrawal of by Members of all or part of their Capital Accounts in the Fund and meeting other cash obligations of the Fund. When the Manager believes that financial conditions warrant, it may invest all or any portion of the Fund’s assets in such securities for temporary defensive purposes. When the assets of the Fund are invested in short-term securities, the Fund will not be invested in a manner consistent with achieving its investment objective.

Companies With Limited Operating Histories. The Fund’s portfolio may include securities of companies that have limited operating histories and may not yet be profitable. The investments in such companies offer opportunities for capital gains, but entail significant risks including, but not limited to, the volatility of the stock price and the viability of the companies’ operations. The Fund will not invest in companies which together with predecessors have

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operating histories of less than three (3) years if immediately thereafter and as a result of such investment the value of the Fund’s holdings of such securities (other than securities of REITs) exceeds 5% of the value of the Fund’s total assets. It is anticipated that, under normal circumstances, at least 20% of the issuers in which the Fund invests will have operating histories of less than three years, and that the Fund will seek to make investments in various initial public offerings of newly established issuers.

INVESTMENT-RELATED ACTIVITIES

Portfolio Turnover. The Fund does not intend to use short-term trading as a primary means of achieving its investment objective, but will do so when the Manager determines that it is appropriate. It may be the case from time to time, for example, that the Fund will sell securities acquired in initial public offering transactions shortly after acquisition in the event that the securities experience material price increases following the commencement of secondary market trading. Although the Fund cannot accurately predict its annual portfolio turnover rate, it may exceed 100%. A 100% turnover rate would occur, for example, if the lesser of the value of purchases or sales of portfolio securities for a year (excluding all securities the maturities of which at acquisition were one year or less) were equal to 100% of the average monthly value of the securities held by the Fund during such year. Higher portfolio turnover rates will increase aggregate brokerage commission expenses which must be borne directly by the Fund and ultimately by the Fund’s Members. The Fund’s annual portfolio turnover rates for the past four years for which an audit has been completed appear in the performance table under “II. Management—Prior Performance.”

INVESTMENT RESTRICTIONS

The Manager has sole and complete discretion over the investment and reinvestment of the assets of the Fund. The Manager intends to invest the assets of the Fund in accordance with the following investment restrictions:

• The Fund will not sell securities short, buy securities on margin, borrow money or pledge assets, or buy or sell options, derivative securities (not including exchange-traded funds), commodities or currencies;

• The Fund will not engage in securities lending; • The Fund will not purchase any security for other than cash or settle any purchase on

other than customary market terms; • The Fund will not purchase preferred securities if, as a result of such purchase, more

than twenty-five percent (25%) the assets of the Fund would consist of preferred securities;

• The Fund will not purchase convertible debentures if, as a result of such purchase, more than twenty-five percent (25%) the assets of the Fund would consist of convertible debentures;

• The Fund will not purchase an amount of securities of any one class of any one issuer if, as a result of such purchase, more than ten percent (10%) the assets of the Fund would consist of such securities; provided, however, that if such securities represent more than nine percent (9%) of the Dow Jones Wilshire REIT Index, the Fund may

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purchase an amount of such securities such that no more than fifteen percent (15%) the assets of the Fund would consist of such securities; and

• The Fund will not purchase securities in a particular sector of the real estate market if, as a result of such purchase, the Fund’s exposure to such sector would exceed two times such sector’s market weight.

Unless otherwise noted, whenever an investment restriction states a maximum percentage

of the Fund’s assets that may be invested in any security or sector, such percentage limitation will be determined immediately after and as a result of the Fund’s acquisition of such security or investment in such sector. Accordingly, any subsequent change in values, net assets, or other circumstances will be not considered when determining whether the investment complies with the Fund’s investment restrictions.

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IV. THE OFFERING

Shares of the Fund will be offered and sold only to prospective Members who meet the requirements discussed below under “IV. The Offering—Member Requirements.” The Fund is not intended as a complete investment program and is designed only for persons who are able to bear the economic risk of the investment and are either sophisticated persons in connection with financial and business matters or are represented by such a person in connection with their investment in the Fund. Prospective Members should read the Operating Agreement being furnished to them along with this Memorandum. The Operating Agreement sets forth the specific provisions relating to the operation of the Fund (see V. Operating Agreement). Neither the Fund nor any Member will pay the Manager or the Fund a commission or similar charge in connection with the offering.

MEMBER REQUIREMENTS

The Fund is offering Shares for investment only to Members that are “accredited investors” as defined in Rule 501(a) under the 1933 Act. Each Member will be required to make certain representations and warranties in its Subscription Agreement, a copy of which accompanies this Memorandum. Certain of such representations will pertain to requirements the Fund must satisfy in order to qualify for an exclusion from the definition of “investment company” pursuant to Section 3(c)(1) of the 1940 Act (see VII. Regulatory Matters—1940 Act Considerations). The Fund reserves the right in its sole discretion to reject in whole or in part any subscription for Shares of the Fund for any reason whatsoever.

ADMISSION OF NEW MEMBERS

The Fund may admit additional Members at the discretion of the Manager, generally on the first Business Day of each month. In order to become a Member, a prospective Member should execute (i) two copies of the Subscription Agreement, inserting the amount of the capital contribution to be made and the prospective Member’s residence address and taxpayer identification or social security number, and the other information requested by such form, and (ii) two copies of the Operating Agreement, and return all four executed copies of the Agreements to the Manager at 555 12th Street, Suite 2100, Oakland, CA 94607. The Manager, upon acceptance of the subscription, will sign the Subscription Agreements and the Operating Agreements and return to each new Member executed copies of the agreements. In its discretion, the Fund may accept securities of equal value instead of cash in payment of all or a portion of the subscription price for a Share of the Fund. Any such securities (a) will be valued in accordance with the method of valuing the Fund’s portfolio as provided in the Operating Agreement; (b) must not be “restricted securities” subject to legal or contractual restrictions on resale by the Fund; and (c) must be permitted to be purchased in accordance with the Fund’s investment objective and policies set forth in this Memorandum and must be securities that the Fund would be willing to purchase at that time. Prospective Members considering this method of contribution should contact the Manager in advance to discuss the securities in question and the documentation necessary to complete the transaction. Members contributing appreciated securities may be subject to income tax with respect to any excess of the value of such securities over their tax basis to the same extent as if they sold the securities to the Fund. Accordingly, such Members should consult their tax advisers in this regard.

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V. SUMMARY OF THE OPERATING AGREEMENT

The Fund was formed in 1995 as a Delaware limited liability company pursuant to the Delaware Limited Liability Company Act, as amended (the “Act”). Under the Operating Agreement, a Member will be liable only for its initial contribution to the Fund and as otherwise provided under the Act. The Act generally provides that Members will have limited liability with respect to the Fund and third parties.

THE MANAGER

Except and to the extent as otherwise provided by applicable law, the Manager will have no liability to the Fund or any Member for any loss suffered by the Fund which arises out of any action or inaction of the Manager if the Manager determined that such course of conduct was in the best interest of the Fund and such course of conduct did not constitute gross negligence or willful misconduct. Except and to the extent as otherwise provided by applicable law, the Manager shall not be liable for the return of any Capital Contributions to the Members. The same exculpation applies to the Manager’s affiliates. The Manager is also entitled to indemnification from the Fund as described under “V. Summary of the Operating Agreement—Indemnification.”

ASSET MANAGEMENT FEE

The Manager is entitled to a management fee (the “Management Fee”) payable by the Fund equal to 0.8% (on an annual basis and with appropriate pro ration of such fee based on the number of days in the relevant period) of the Net Asset Value of the Fund. The Management Fee shall be calculated and accrued monthly and paid quarterly in arrears. In its sole discretion, the Manager may waive or rebate all or a portion of the Management Fee for the benefit of one or more investors.

EXPENSES

The Fund will incur and pay out of its property, either on a current basis or subject to amortization over such period as the Manager may reasonably determine to be appropriate, any and all expenses relating to the ongoing operations of the Fund and other charges that, in the opinion of the Manager, are necessary or incidental to, or in support of, the carrying out of any of the purposes of the Operating Agreement.

ALLOCATIONS

As a general rule, Net Profits and Net Losses of the Fund will be allocated to the Members in proportion to their relative Capital Account balances. Unless otherwise determined by the Manager under specific circumstances as provided in the Operating Agreement, such allocations will be made on the close of business on the last business day of each month, the date prior to any purchase of Shares and such other dates determined by the Manager.

Generally, tax allocations will be made in a manner designed to cause such allocations to match, as closely as possible, the economic allocations; however, the Fund intends to comply

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with certain tax regulations, which may from time to time cause a disparity between the economic and tax consequences to certain Members.

DISTRIBUTIONS

Although the Manager retains the right to distribute any income from the Fund’s investments and any proceeds from any gains realized on the sale of its underlying investments, the Manager intends to follow a policy of retaining and reinvesting within the Fund, all of the net income and capital gains realized by the Fund, thereby increasing the net assets of the Fund.

REDEMPTIONS

A Member may, at such times as determined by the Manager but, unless otherwise determined by the Manager under certain circumstances as provided in the Operating Agreement, no less frequently than as of the close of business on the last business day of each month (the “Redemption Date”), require the Fund to redeem all or any part of its Shares upon five (5) Business Days’ prior written notice or such shorter notice as may be permitted by the Manager. The redemption price paid by the Fund for such Shares shall be equal to the Net Asset Value per Share as of the Redemption Date.

The Manager may require a Member to have its Shares redeemed by the Fund immediately following notice thereof to such Member if continued ownership of Shares by such Member would cause the Fund (i) to be ineligible for certain exemptions under the 1940 Act or (ii) not to be treated as a partnership for federal income tax purposes. The redemption price paid by the Fund for such Shares shall be equal to the Net Asset Value per Share as of the next Redemption Date.

SEGREGATED ACCOUNTS

The Manager may allocate investments made by a Member in the Fund to a segregated account established by the Manager pending their investment in securities which the Manager considers suitable for the Fund, for the purpose of making redemptions, or for such other purposes as the Manager shall deem appropriate. The Manager shall maintain and administer segregated accounts in accordance with the provisions of the Operating Agreement (except the Manager may deviate from the Investment Policies in the course of liquidating a segregated account).

PAYMENT OF REDEMPTION PRICE

Payment of the redemption price shall be made within ten (10) business days of the relevant Redemption Date, unless the Manager reasonably determines that payment upon a later date is necessary to prevent such redemption from having a material adverse impact on the Fund or its Members, and shall be payable in cash or, if the Manager reasonably determines that making such payment wholly in cash is unwise or undesirable to the Fund, in kind or partially in cash and partially in kind. The Manager may reduce the amount to be distributed to any such redeeming Member by the amount of actual expenses incurred or estimated expenses expected to be incurred in connection with liquidating portfolio Securities to fund such redemptions of Shares which are to be paid in cash.

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VALUATION

The value of each of the Fund’s assets will be determined on, unless otherwise determined by the Manager under specific circumstances as provided in the Operating Agreement, the close of business on the last Business Day of each month, the date prior to any purchase of Shares and such other dates determined by the Manager. The value of each publicly traded security will be calculated using the last reported sale price or, if no such price is available the most recent available last reported sale price, of such security on its primary market. In the case of securities for which market quotations are not readily available, such securities shall be valued at fair value as determined in good faith by the Manager. All values assigned to the assets of the Fund pursuant to the Operating Agreement shall be binding and conclusive as to all parties. The valuation of all or some of the Fund’s securities may be suspended by the Manager, at its discretion, for the whole or any part of any period when (i) any market or exchange on which a significant portion of the investments of the Fund are quoted is closed (other than for ordinary holidays) or during which dealings therein are restricted or suspended, (ii) there exists any state of affairs which, in the reasonable opinion of the Manager, constitutes an emergency as a result of which disposition of the assets of the Fund would not be reasonably practicable or would be seriously prejudicial to the Members, (iii) there has been a breakdown in the means of communication normally employed in determining the price or value of any of the investments of the Fund or of current prices on any market or exchange on which a significant portion of the investments of the Fund are quoted or when for any reason the prices or values of any investments owned by the Fund cannot reasonably be promptly and accurately ascertained or (iv) the transfer of funds involved in the realization or acquisition of any investment cannot, in the reasonable opinion of the Manager, be effected at normal rates of exchange.

INDEMNIFICATION

Except and to the extent as otherwise provided by applicable law, the Fund shall indemnify the Manager and its affiliates against any and all liabilities, judgments, obligations, losses, damages, certain taxes and interest and penalties thereon, claims, actions, suits or other proceedings, costs, expenses and disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted at any time against such person in any way related to or arising out of the Operating Agreement, the administration of Fund property or the action or inaction of such person, provided such person shall not have been finally adjudicated in any such action, suit or other proceeding, or otherwise by a court of competent jurisdiction, to have committed an act or omission involving his, her or its own bad faith, willful misconduct, gross negligence or reckless disregard of his, her or its duties under the Operating Agreement. As to any matter disposed of by a compromise payment, no indemnification shall be provided unless there has been obtained an opinion in writing of legal counsel to the effect that the person subject to indemnification appears to have acted in good faith and that such indemnification would not protect such person against any liability to the Fund or the Members to which he, she or it would otherwise be subject by reason of gross negligence, willful malfeasance or fraud in the conduct of his, her or its office or actions not taken in good faith by such person. Such indemnified parties shall have a lien on Fund property for any compensation or expenses and indemnity due hereunder; provided, however, that the Manager shall have a first priority lien, superior to the liens of any other person, regardless of when such indemnification obligation arises. Such lien

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shall continue notwithstanding the distribution of such property in accordance with the Operating Agreement.

The Fund shall also indemnify and, upon proper and timely request, assume the defense and satisfy any judgment on behalf of any Member or former Member if such person is sued solely by reason of being or having been a Member and not because of such Member’s acts or omissions or for some other reason. Any Member entitled to such indemnification shall have a claim against Fund property notwithstanding its distribution in accordance with the Operating Agreement.

Except and to the extent as otherwise provided by applicable law, the Fund may advance amounts for legal expenses and other costs to the Manager, a Member or any officer, employee or agent of the Fund a result of a legal action to which such person is entitled to indemnification by the Fund if, in the case of an advance to the Manager or any officer, employee or agent, such person agrees in writing to repay funds so advanced if it is subsequently determined that such person is not entitled to indemnification.

RESTRICTION ON TRANSFER

No Member may sell, assign or transfer any Shares of the Fund without the prior written consent of the Manager, which it may withhold in its sole discretion. In addition, Shares of the Fund will not be registered under applicable federal or state securities laws and, therefore, will be subject to restrictions on transfer under such laws.

AMENDMENTS TO THE PARTNERSHIP AGREEMENT

The Operating Agreement may be amended, subject to certain exclusions, by the Manager upon thirty (30) days’ prior written notice to the Members; provided, however, that no such notice shall be required if the Manager determines such amendment is necessary or appropriate to prevent the LLC from being treated as a publicly traded partnership taxed as a corporation under Section 7704 of the Code.

REPORTS

Annually, the Manager will provide to each Member audited financial statements of the Fund for the preceding fiscal year. After the end of each fiscal year, the Manager will provide each Member with a Schedule K-1, reporting to such Member the taxable items of income, gain, loss and deduction for the prior fiscal year. Following the close of each quarter, the Manager will advise each Member as to the operations of the Fund. In addition, the Manager currently provides the Members with a monthly report indicating their Share ownership and the value of their Shares.

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VI. TAX CONSIDERATIONS

The Fund will be classified as a partnership for federal income tax purposes. In consequence, the Fund will not itself be subject to federal or California state income tax, but each Member will be required to take into account its distributive share of items of Fund income, gain, loss and deduction, substantially as though such items had been realized directly by the Member and without regard to whether any distribution by the Fund has been or will be received. Taxable Members should note that the Manager does not intend to consider tax effects when making investment decisions with respect to the Fund and that Members will be taxed on their allocable share of the Fund’s taxable income (if any), whether or not it is distributed to them.

TAX-EXEMPT MEMBERS

For tax-exempt Members, a portion of the Fund’s taxable income (and possibly the gain on the sale of all or a portion of the Members’ interest in the Fund) may constitute UBTI, which is subject to taxation at rates applicable to taxable investors. For example, although the Fund does not intend to leverage its portfolio for investment, short-term borrowing for settlement or redemption purposes may give rise to such income. The Manager anticipates that the majority of the Fund’s investments will not generate UBTI; however, there are no restrictions on the Fund’s ability to recognize income that could be characterized as UBTI.

SUMMARY: LAWS SUBJECT TO CHANGE

The preceding discussion is intended as a summary of certain U.S. federal income tax consequences of an investment in the Fund. Because many of these consequences will vary from one Member to another, the summary does not address all of the provisions of the Code that might be applicable to a particular Member. Moreover, changes in applicable tax laws after the date of this Memorandum may alter anticipated tax consequences. Neither the Manager, the Fund nor any of their accountants, counsel nor consultants assume any responsibility for the tax consequences to any Member of an investment in the Fund.

Prospective Members are urged to consult their own tax advisers with specific reference to their own tax situations and potential changes in the tax laws applicable to an investment in the Fund.

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VII. REGULATORY MATTERS

ERISA CONSIDERATIONS

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), is a broad federal statute governing various aspects of employee benefit plans maintained by non-governmental employers, including the investment of those plans’ assets. The relevant fiduciaries of any benefit plan subject to ERISA that is considering the acquisition of Shares of the Fund should determine (after consultation with their advisers, as appropriate) that the investment will comply with the applicable fiduciary requirements of ERISA in the context of the particular plan. The Manager expects that Members that are considered to be “benefit plan investors” for purposes of ERISA will hold a percentage of the Shares of the Fund sufficient to cause the assets of the Fund to be considered to be “plan assets” (to the extent of the Shares of the Fund held by any such Members that are employee benefit plans subject to ERISA (“ERISA Plan Investors”)) under the plan assets regulations under ERISA.

Consequently, the Manager, which is responsible for managing and investing the assets of the Fund, will be subject to certain ERISA provisions, including ERISA fiduciary duty and prohibited transaction provisions to the extent of the ERISA Plan Investors’ interest in the Fund. As an ERISA fiduciary, the Manager will be required to comply with ERISA’s general fiduciary standards, including the prudent person rule and the requirement that investments of the Fund be in the best interest of any such ERISA Plan Investor. In addition, ERISA prohibited transaction rules would preclude the Manager from causing the Fund to engage in any transaction with a “party in interest” (as defined in ERISA) to any ERISA Plan Investor, unless there is an available exemption. Because the Fund will be primarily engaged in public market transactions involving equity securities and given that the Manager is a “qualified professional asset manager” (“QPAM”) and will generally be able to utilize the QPAM exemption, the Manager does not believe that its status as a fiduciary under ERISA with respect to ERISA Plan Investors will materially constrain its ability to make investments of the type contemplated by the Fund’s investment objective.

The authorized fiduciary of each ERISA Plan Investor is responsible for the decision to make and retain the investment of such ERISA Plan in the Fund and, as a consequence, the decision to continue to retain the Manager as an investment manager for the ERISA Plan Investor. Each ERISA Plan Investor is also responsible for determining whether the investment strategy of the Fund is appropriate for such ERISA Plan in the context of its entire portfolio. Neither the Manager nor the Fund has any responsibility for, or has provided any advice with respect to, the ERISA Plan Investor’s decision to invest in the Fund. In addition, in managing the Fund, the Manager has no responsibility to take into account how any of the other assets of such ERISA Plan Investor are invested.

1940 ACT CONSIDERATIONS

The Fund will not be registered as an investment company under the 1940 Act in reliance upon an exclusion from the definition of an “investment company” under the 1940 Act. The Fund will rely upon the exclusion provided by Section 3(c)(1) of the 1940 Act, which requires that the Fund be beneficially owned by no more than one hundred (100) beneficial owners, and

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the Fund not make a public offering of its Shares. If a Member (i) is a registered investment company or a company excepted from the definition of an investment company under the 1940 Act pursuant to the provisions of Section 3(c)(1) or Section 3(c)(7) of the 1940 Act and (ii) owns 10% or more of the outstanding Shares of the Fund, then all of such Member’s owners will be included as beneficial owners for determining if there are more than one hundred (100) beneficial owners of the Fund. Accordingly, the Members are required to represent, among other things, that the conditions that would result in their owners being counted as beneficial owners of the Fund do not exist.

Given that the Fund will not be registered as an investment company under the 1940 Act, Members will not be entitled to the protections and benefits of the 1940 Act, including restrictions on or requirements relating to capital structure; composition of the board of directors or a similar managing board; approval of investment advisory and distribution arrangements and certain other matters by independent members of the managing board; affiliated transactions; custody of assets; investment policies and procedures for making changes therein; valuation and pricing of shares; bonding and certain other matters.

1933 ACT AND “BLUE SKY” CONSIDERATIONS

The offering of Shares of the Fund is intended to constitute a private placement under Rule 506 of Regulation D under the 1933 Act. Accordingly, Shares of the Fund will not be registered under the 1933 Act and, as a result, will be subject to restrictions on transfer thereunder. Under the Operating Agreement, Shares of the Fund will be offered and sold only to “accredited investors” as defined in Regulation D and may not be transferred without the consent of the Manager. In addition, under Section 18(a) of the 1933 Act and/or exemptions under various state securities or “blue sky” laws available in connection with the offer and sale of securities to institutional investors, the Shares will not be registered under state securities laws.

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VIII. SPECIAL CONSIDERATIONS

An investment in the Fund involves a variety of risks that a prospective Member should carefully consider, including the following:

Concentration of Investments in REITs and Other Real Estate Securities. The Fund is not intended to constitute a complete investment program. Under normal circumstances, virtually all of the Fund’s portfolio (other than cash-management investments) will consist of the equity securities of public companies principally engaged in the real estate business. It is anticipated that approximately 85% of those investments will consist of securities of equity REITs. Because the Fund’s portfolio investments will be concentrated in the real estate industry, the Fund will be subject to the risks associated with the direct ownership of real estate (as well as risks associated with investments in securities). For example, real estate values may fluctuate as a result of general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, present and future environmental regulation, casualty or condemnation losses, the need for ongoing capital improvements, regulatory limitations on rents, changes in neighborhood values, changes in the appeal of properties to tenants, fluctuations in rental income, defaults by borrowers or tenants, and increases in interest rates. The value of securities of REITs and other issuers in the real estate business will be affected by such risks. Thus, the value of Shares of the Fund may change at different rates compared to the value of shares of a fund with investments diversified among many industries.

REITs and other real estate businesses are dependent upon specialized management skills, have limited diversification of holdings and are, therefore, subject to risks inherent in financing a limited number of projects. REITs depend generally on their ability to generate cash flow to make distributions to shareholders, and certain REITs have self-liquidation provisions by which mortgages held may be paid in full and distributions of capital returns may be made at any time. In addition, the performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Code or its failure to maintain an exemption from registration under the 1940 Act.

Furthermore, when interest rates rise, investors in REIT and real estate business securities may demand a higher annual yield from future distributions, which may in turn decrease market prices for such securities. Equity REITs may be affected by the ability of tenants to pay rent. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of the Fund’s portfolio securities to decline. During periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors elect to prepay, which could diminish the yield on securities issued by such mortgage REITs. Mortgage REITs also may be affected by the ability of borrowers to repay when due the debt extended by the REIT.

Limited Number of Investments. Various factors, including, but not limited to, the size of the Fund and the availability of suitable investments, may result in the Fund making a limited number of investments. As a consequence, the unfavorable performance of a small number of such investments or any particular investment may adversely affect the aggregate returns realized by the Fund.

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Lack of Diversification. The Fund will not, ordinarily, invest more than 10% of its total assets (computed at the time the investment is made) in the securities of any one issuer, nor will the Fund purchase securities of any issuer which represent more than 5% of the equity securities of that issuer. The Fund retains the right to exclude from this limitation exchange-traded funds designed to replicate or model the performance of securities market indices.

The Fund’s portfolio of securities will not generally represent a broad diversification of investments among particular issuers or types of securities. The Fund’s portfolio will not be diversified outside of the real estate industry and may be subject to more rapid changes in value than would be the case if the Fund were to maintain a wide portfolio diversification among industry groups. As the Fund may participate in a limited number of investments, the Fund’s performance may be adversely affected by the poor performance of a particular sector of the REIT market or any particular investment.

Reliance on the Manager. Members have no right to participate in the management of the Fund or to make any decisions with respect to the investments to be made by the Fund. Consequently, Members must rely on the Manager with respect to the management of the Fund. Members also have limited rights to control amendments made to the Operating Agreement. Prospective Members should be aware that the Fund and its partners incur all the risks inherent in discretionary securities investments involving equity and debt securities and other investments. The Manager through its Investment Committee has primary responsibility for management of the Fund’s portfolio. Employees at Adelante may devote significant time in the future to the management of significant investments of other investment entities sponsored by Adelante.

Tax Risks. Members should be aware of certain federal income tax risks associated with an investment in the Fund. For example, the availability and amount of certain deductions from income allocable to the Members may be subject to challenge by the IRS on legal or factual grounds. If an allocation under the Operating Agreement is determined by the IRS not to have “substantial economic effect” under the Code, then the Members’ distributive shares of income, gain, loss, deduction or credit will be in accordance with their interests in the Fund, taking into account all facts and circumstances. There can be no assurance that the IRS will not successfully challenge the allocations made in the Operating Agreement and attempt to reallocate Fund profits and losses among the Members.

Members will be required to report their allocable shares of Fund income and gain, if any, on their own separate returns, whether or not they receive actual cash distributions from the Fund. Accordingly, it is possible that a Member could be allocated taxable income in excess of cash distributions and be required to satisfy the resulting tax liability with its own funds.

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IX. PRIVACY POLICY

Protecting your nonpublic personal information is an important priority for Adelante. Its privacy policy is designed to support this objective. Adelante collects nonpublic personal information about Members who use the Fund for personal, family or household purposes from the Subscription Agreement and other forms Members may complete in connection with their investment in the Fund.

Adelante does not disclose nonpublic personal information about current or former Members to anyone, except as permitted by law. Adelante may share nonpublic personal information with its affiliated advisory organizations. Adelante may also disclose this information to third parties that help it perform services for the Members. For example, Adelante may forward this information to a custodian to process transactions, respond to inquiries from Members or their representatives or fulfill legal and regulatory requirements.

Adelante may disclose the following nonpublic personal information about current or former Members or clients to companies that perform marketing services on Adelante’s behalf or to other financial institutions with which it has joint marketing agreements: information such as names, contact information and financial profile received from subscription agreements, account documents or other forms.

Adelante restricts access to nonpublic personal information about Members to those service providers that use that information in connection with Fund operations or managing and servicing Member accounts. Adelante maintains physical, electronic, and procedural safeguards that comply with federal guidelines to protect Members’ nonpublic personal information.

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X. ADDITIONAL INFORMATION

Prospective Members are invited to review any materials available to the Manager that relate to Fund, the operations of the Fund and other matters relating to this offering. All such materials will be made available, upon request, during regular business hours at the office of the Manager: 555 12th Street, Suite 2100, Oakland, CA 94607. In particular, any agreement or document referenced in this Memorandum is available upon request from the Manager.

Prospective Members or their advisers or representatives having questions or desiring additional information should contact the Manager at (510) 986-2100.

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