WELLS FAMILY OF REAL ESTATE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
January 12, 1998
Revised March 4, 1998
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of the Wells Family of Real Estate Funds (the
"Trust") dated January 12, 1998. A copy of the Trust's Prospectus can be
obtained by writing the Trust at 312 Walnut Street, 21st floor, Cincinnati, Ohio
45202 or by calling the Trust nationwide toll-free 800-282-1581.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Wells Family of Real Estate Funds
3885 Holcomb Bridge Road
Atlanta, Georgia 30092
THE TRUST.............................................................. 3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS.......................... 3
INVESTMENT LIMITATIONS................................................. 5
TRUSTEES AND OFFICERS.................................................. 7
THE INVESTMENT ADVISER................................................. 9
THE SUB-ADVISER........................................................ 10
THE UNDERWRITER........................................................ 11
DISTRIBUTION PLAN...................................................... 12
SECURITIES TRANSACTIONS................................................ 13
PORTFOLIO TURNOVER..................................................... 14
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE................... 15
OTHER PURCHASE INFORMATION............................................. 15
TAXES .............................................................. 16
REDEMPTION IN KIND..................................................... 17
HISTORICAL PERFORMANCE INFORMATION..................................... 18
CUSTODIAN.............................................................. 20
AUDITORS .............................................................. 21
COUNTRYWIDE FUND SERVICES, INC......................................... 21
STATEMENT OF ASSETS AND LIABILITIES.................................... 22
- 2 -
<PAGE>
THE TRUST
The Wells Family of Real Estate Funds was organized as an Ohio business
trust on June 4, 1997. The Trust currently offers one series of shares to
investors: the Wells S&P REIT Index Fund (the "Fund").
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to the Fund with each other share of the
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
the Fund into a greater or lesser number of shares so long as the proportionate
beneficial interest in the assets belonging to the Fund are in no way affected.
In case of any liquidation of the Fund, the holders of shares of the Fund being
liquidated will be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to the Fund. No shareholder is liable
to further calls or to assessment by the Fund without his express consent.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objective, Investment
Policies and Risk Considerations") appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Fund means the
lesser of (1) 67% or more of the Fund's outstanding shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented at such meeting or (2) more than 50% of the outstanding
shares of the Fund.
REPURCHASE AGREEMENTS. The Fund may acquire U.S. Government Securities
or other high-grade debt securities subject to repurchase agreements. A
repurchase transaction occurs when, at the time the Fund purchases a security
(normally a U.S. Treasury obligation), it also resells it to the vendor
(normally a member bank of the Federal Reserve System or a registered Government
Securities dealer) and must deliver the security (and/or securities substituted
for them under the repurchase agreement) to the vendor on an agreed upon date in
the future. Such securities, including any securities so substituted, are
referred to as the "Repurchase Securities." The repurchase price exceeds the
purchase price by an amount which reflects an agreed upon market interest rate
effective for the period of time during which the repurchase agreement is in
effect.
- 3 -
<PAGE>
The majority of these transactions run day-to-day, and the delivery
pursuant to the resale typically will occur within one to five days of the
purchase. The Fund's risk is limited to the ability of the vendor to pay the
agreed upon sum upon the delivery date; in the event of bankruptcy or other
default by the vendor, there may be possible delays and expenses in liquidating
the instrument purchased, decline in its value and loss of interest. These risks
are minimized when the Fund holds a perfected security interest in the
Repurchase Securities and can therefore sell the instrument promptly. Under
guidelines issued by the Trustees, the Adviser will carefully consider the
creditworthiness of a vendor during the term of the repurchase agreement.
Repurchase agreements are considered loans collateralized by the Repurchase
Securities, such agreements being defined as "loans" under the Investment
Company Act of 1940 (the "1940 Act"). The return on such "collateral" may be
more or less than that from the repurchase agreement. The market value of the
resold securities will be monitored so that the value of the "collateral" is at
all times as least equal to the value of the loan, including the accrued
interest earned thereon. All Repurchase Securities will be held by the Fund's
custodian either directly or through a securities depository.
DESCRIPTION OF MONEY MARKET INSTRUMENTS. Money market instruments may
include U.S. Government Securities, as described herein, provided that they
mature in thirteen months or less from the date of acquisition and are otherwise
eligible for purchase by the Fund. Money market instruments also may include
Bankers' Acceptances and Certificates of Deposit of domestic branches of U.S.
banks, Commercial Paper and Variable Amount Demand Master Notes ("Master
Notes"). BANKERS' ACCEPTANCES are time drafts drawn on and "accepted" by a bank,
which are the customary means of effecting payment for merchandise sold in
import-export transactions and are a source of financing used extensively in
international trade. When a bank "accepts" such a time draft, it assumes
liability for its payment. When the Fund acquires a Bankers' Acceptance, the
bank which "accepted" the time draft is liable for payment of interest and
principal when due. The Bankers' Acceptance, therefore, carries the full faith
and credit of such bank. A CERTIFICATE OF DEPOSIT ("CD") is an unsecured
interest- bearing debt obligation of a bank. CDs acquired by the Fund would
generally be in amounts of $100,000 or more. COMMERCIAL PAPER is an unsecured,
short term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated in the highest rating category by
any nationally recognized statistical rating organization ("NRSRO") or, if not
rated, if the issuer has an outstanding unsecured debt issue rated in the three
highest categories by any NRSRO or, if not so rated, is of
- 4 -
<PAGE>
equivalent quality in the Adviser's assessment. Commercial Paper may include
Master Notes of the same quality. MASTER NOTES are unsecured obligations which
are redeemable upon demand of the holder and which permit the investment of
fluctuating amounts at varying rates of interest. Master Notes are acquired by
the Fund only through the Master Note program of the Fund's custodian, acting as
administrator thereof. The Adviser will monitor, on a continuous basis, the
earnings power, cash flow and other liquidity ratios of the issuer of a Master
Note held by the Fund.
INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Fund. These limitations may
not be changed without the affirmative vote of a majority of the outstanding
shares of the Fund.
Under these fundamental limitations, the Fund MAY NOT:
(1) Issue senior securities, pledge its assets or borrow money, except that
it may borrow from banks as a temporary measure (a) for extraordinary
or emergency purposes, in amounts not exceeding 5% of the Fund's total
assets, or (b) in order to meet redemption requests that might
otherwise require untimely disposition of portfolio securities if,
immediately after such borrowing, the value of the Fund's assets,
including all borrowings then outstanding, less its liabilities
(excluding all borrowings), is equal to at least 300% of the aggregate
amount of borrowings then outstanding, and may pledge its assets to
secure all such borrowings;
(2) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter under the federal securities laws in
connection with the disposition of portfolio securities;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(4) Make short sales of securities or maintain a short position, except
short sales "against the box";
(5) Make loans of money or securities, except that the Fund may (i) invest
in repurchase agreements and commercial paper; (ii) purchase a portion
of an issue of publicity distributed bonds, debentures or other debt
securities; and (iii) acquire private issues of debt securities subject
to the limitations on investments in illiquid securities;
- 5 -
<PAGE>
(6) Write, purchase or sell commodities, commodities contracts, futures
contracts or related options;
(7) Invest more than 25% of its total assets in the securities of issuers
in any particular industry (other than securities of the United States
Government, its agencies or instrumentalities), except that the Fund
will invest at least 25% of its assets in securities of issuers in the
real estate industry;
(8) Invest for the purpose of exercising control or management of another
issuer;
(9) Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities
of companies (other than those which are not readily marketable) which
own or deal in such things;
(10) Invest in interests in real estate or real estate limited partnerships
(although it may invest in real estate investment trusts and purchase
securities secured by real estate or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein);
(11) Invest more than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others (a) securities for
which no readily available market exists or which have legal or
contractual restrictions on resale and (b) repurchase agreements not
terminable within seven days; or
(12) Purchase the securities of any issuer if such purchase at the time
thereof would cause less than 75% of the value of the total assets of
the Fund to be invested in cash and cash items (including receivables),
securities issued by the U.S. Government, its agencies or
instrumentalities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value
of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer.
Percentage restrictions stated as an investment limitation apply at the
time of investment; if a later increase or decrease in percentage beyond the
specified limits results from a change in securities values or total assets, it
will not be considered a violation. However, in the case of the borrowing
limitation (limitation number 1, above), the Fund will, to the extent necessary,
reduce its existing borrowings to comply with the limitation.
- 6 -
<PAGE>
While the Fund has reserved the right to make short sales "against the
box" (limitation number 4, above), the Sub-Adviser has no present intention of
engaging in such transactions at this time or during the coming year.
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the 1940 Act, is indicated by an asterisk.
ESTIMATED ANNUAL
COMPENSATION
NAME AGE POSITION HELD FROM THE TRUST
- ---- --- ------------- ---------------
*Leo F. Wells III 53 President $ 0
and Trustee
*Brian M. Conlon 39 Executive Vice
President
and Trustee 0
+John L. Bell 57 Trustee 1,000
+Richard W. Carpenter 60 Trustee 1,000
+Walter W. Sessoms 63 Trustee 1,000
Robert G. Dorsey 40 Vice President 0
Mark J. Seger 35 Treasurer 0
John F. Splain 40 Secretary 0
* Mr. Wells and Mr. Conlon, as affiliated persons of the
Adviser and the Underwriter, are "interested persons" of the
Trust within the meaning of Section 2(a)(19) of the 1940
Act.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
LEO F. WELLS III, 3885 Holcomb Bridge Road, Atlanta, Georgia, is
President and sole Director of Wells Capital, Inc. (a real estate company). In
addition, he is President of Wells & Associates, Inc. (a real estate brokerage
company). He is also the sole Director and President of Wells Management
Company, Inc., a property management company he founded in 1983; Wells Advisers,
Inc., a company he organized in 1991 to act as a non-bank custodian for IRAs;
Wells Real Estate Funds, Inc., a company he organized in February, 1997 to act
as a holding company for the Wells group of companies; and Wells Development
Corporation, a company formed in April, 1997 to acquire and develop commercial
real estate properties on behalf of the Wells Real Estate Funds and the Wells
REIT. Mr. Wells holds a Bachelor of Business Administration degree in Economics
from the University of Georgia. He is also a member of the International
Association for Financial Planning and a registered NASD principal.
- 7 -
<PAGE>
BRIAN M. CONLON, 3885 Holcomb Bridge Road, Atlanta, Georgia, is the
Executive Vice President and Chief Operating Officer of Wells Capital, Inc. Mr.
Conlon joined Wells Capital in 1985 as a Regional Vice President, served as Vice
President and National Marketing Director from 1991 until April, 1996, and as
Executive Vice President from April, 1996 until February, 1997 when he assumed
his current position. Mr. Conlon received a Bachelor of Business Administration
degree from Georgia State University and a Master of Business Administration
degree from the University of Dallas. Mr. Conlon is a member of the
International Association for Financial Planning, a general securities
principal, and a Georgia real estate broker. Mr. Conlon also holds the Certified
Financial Planner (CFP) designation of the Certified Financial Planner Board of
Standards, Inc. and the Certified Commercial Investment Member (CCIM)
designation of the Commercial Investment Real Estate Institute.
JOHN L. BELL, 800 Mount Vernon Highway, Suite 230, Atlanta, Georgia, is
the General Partner of JB Family LLP (an investment firm). He is also the past
owner and Chief Executive Officer of Bell-Mann, Inc. (a flooring company).
RICHARD W. CARPENTER, 5570 Glenridge Drive, Atlanta, Georgia, is
President and Director of the following business entities: Reamark Holdings,
Corp.(a real estate company); Commonwealth Oil Refining Company (a terminal);
Leisure Technology, Inc. (a real estate company); and Wyatt Energy, Inc. (a
terminal). In addition, he is also the Managing Partner of Carpenter Properties
LP (a real estate company) and a Director of TaraCorp (a manufacturing company).
He also serves as a Director of First Liberty Financial Corp. and First Liberty
Savings Bank.
WALTER WOODROW SESSOMS, 5995 River Chase Circle, Atlanta, Georgia, is
presently retired. He previously served as a Group President for BellSouth
Telecommunications from December, 1991 through June 30, 1997.
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio, is President and
Treasurer of Countrywide Fund Services, Inc. (a registered transfer agent) and
Treasurer of Countrywide Investments, Inc. (a registered broker-dealer and
investment adviser) and Countrywide Financial Services, Inc. (a financial
services company and parent of Countrywide Fund Services, Inc. and Countrywide
Investments, Inc. and a wholly-owned subsidiary of Countrywide Credit
Industries, Inc.). He is also Vice President of Brundage, Story and Rose
Investment Trust, PRAGMA Investment Trust, Markman MultiFund Trust, Dean Family
of Funds, The New York State Opportunity Funds, Lake Shore Family of Funds and
Maplewood Investment Trust and Assistant Vice President of Interactive
Investments, Schwartz Investment Trust, The Tuscarora Investment Trust,
Williamsburg Investment Trust and The Gannett Welsh & Kotler Funds (all of which
are registered investment companies).
- 8 -
<PAGE>
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio, is Vice
President of Countrywide Financial Services, Inc. and Countrywide Fund Services,
Inc. He is also Treasurer of Countrywide Investment Trust, Countrywide Tax-Free
Trust, Countrywide Strategic Trust, Brundage, Story and Rose Investment Trust,
Markman MultiFund Trust, PRAGMA Investment Trust, Williamsburg Investment Trust,
Dean Family of Funds, The New York State Opportunity Funds, Lake Shore Family of
Funds and Maplewood Investment Trust and Assistant Treasurer of Interactive
Investments, Schwartz Investment Trust, The Tuscarora Investment Trust and The
Gannett Welsh & Kotler Funds.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio, is Secretary and
General Counsel of Countrywide Fund Services, Inc., Countrywide Investments,
Inc. and Countrywide Financial Services, Inc. He is also Secretary of
Countrywide Investment Trust, Countrywide Tax-Free Trust, Countrywide Strategic
Trust, Brundage, Story and Rose Investment Trust, Markman MultiFund Trust, The
Tuscarora Investment Trust, Williamsburg Investment Trust, PRAGMA Investment
Trust, Lake Shore Family of Funds and Maplewood Investment Trust and Assistant
Secretary of Interactive Investments, Schwartz Investment Trust, Dean Family of
Funds, The New York State Opportunity Funds and The Gannett Welsh & Kotler
Funds.
Each non-interested Trustee will receive a $250 fee for each Board
meeting attended and will be reimbursed for travel and other expenses incurred
in the performance of their duties.
THE INVESTMENT ADVISER
Wells Asset Management, Inc. (the "Adviser") is the Fund's investment
adviser. Leo F. Wells III is the controlling shareholder of the Adviser. Mr.
Wells, by reason of such affiliation, may directly or indirectly receive
benefits from the advisory fees paid to the Adviser. Mr. Wells is also the
controlling shareholder of the Underwriter and a Trustee of the Trust.
Under the terms of the advisory agreement between the Trust and the
Adviser, the Adviser manages the Fund's investments. The Fund pays the Adviser a
fee computed and accrued daily and paid monthly at an annual rate of .50% of its
average daily net assets.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Fund may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Adviser
- 9 -
<PAGE>
bears promotional expenses in connection with the distribution of the Fund's
shares to the extent that such expenses are not assumed by the Fund under their
plan of distribution (see below). The compensation and expenses of any officer,
Trustee or employee of the Trust who is an officer, director, employee or
stockholder of the Adviser are paid by the Adviser.
By its terms, the Trust's advisory agreement will remain in force until
January 12, 2000 and from year to year thereafter, subject to annual approval by
(a) the Board of Trustees or (b) a vote of the majority of the Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Trust's advisory agreement may be terminated at any time, on
sixty days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of the Fund's outstanding voting securities,
or by the Adviser. The advisory agreement automatically terminates in the event
of its assignment, as defined by the 1940 Act and the rules thereunder.
THE SUB-ADVISER
Gateway Investment Advisers, L.P. (the "Sub-Adviser") supervises the
Fund's investments pursuant to a Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between the Sub-Adviser, the Adviser and the Trust.
The Sub-Adviser is a Delaware limited partnership which has been
managing assets for institutional and individual investors since December 15,
1995. Prior to that time, Gateway Investment Advisers, Inc. ("GIA") had provided
investment management services to institutional and individual investors since
its inception in June, 1977. The Sub-Adviser became the successor in interest to
the assets, business and personnel of GIA. GIA is the general partner of the
Sub-Adviser with a 76% ownership interest, while Alex. Brown Investments
Incorporated ("ABII") is the sole limited partner with a 24% ownership interest.
ABII is an affiliate of Alex. Brown Incorporated, a nationally known investment
banking firm and registered broker/dealer located in Baltimore, Maryland. Walter
G. Sall, Chairman, and J. Patrick Rogers, President, together own of record and
beneficially 99.85% of the outstanding shares of GIA and thereby control the
Sub-Adviser.
The Adviser (not the Fund) pays the Sub-Adviser a fee computed and
accrued daily and paid monthly at an annual rate of .15% of the value of the
Fund's average daily net assets up to $100,000,000, .10% of such assets from
$100,000,000 to $200,000,000 and .07% of such assets in excess of $200,000,000;
provided, however, that the minimum fee is $3,000 per month. The Sub-Adviser
will waive its fees for the first three months of the Fund's operations.
- 10 -
<PAGE>
By its terms, the Sub-Advisory Agreement will remain in force until
January 12, 2000 and from year to year thereafter, subject to annual approval by
(a) the Board of Trustees or (b) a vote of the majority of the Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting on
such approval. The Sub-Advisory Agreement may be terminated at any time, on
sixty days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of the Fund's outstanding voting securities,
or by the Adviser or Sub-Adviser. The Sub-Advisory Agreement automatically
terminates in the event of its assignment, as defined by the 1940 Act and the
rules thereunder.
THE UNDERWRITER
Wells Investment Securities, Inc. (the "Underwriter") is the principal
underwriter of the Fund and, as such, is the exclusive agent for distribution of
shares of the Fund. The Underwriter is obligated to sell the shares on a best
efforts basis only against purchase orders for the shares. Shares of the Fund
are offered to the public on a continuous basis.
The Underwriter currently allows concessions to dealers who sell shares
of the Fund. The Underwriter receives that portion of the initial sales load
which is not reallowed to the dealers who sell shares of the Fund. The
Underwriter retains the entire sales charge on all direct initial investments in
the Fund and on all investments in accounts with no designated dealer of record.
The Fund may compensate dealers, including the Underwriter and its
affiliates, based on the average balance of all accounts in the Fund for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" below.
By its terms, the Trust's underwriting agreement will remain in force
until January 12, 2000 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. The Trust's underwriting agreement may be terminated at
any time, on sixty days' written notice, without the payment of any penalty, by
the Board of Trustees, by a vote of the majority of the Fund's outstanding
voting securities, or by the Adviser. The underwriting agreement automatically
terminates in the event of its assignment, as defined by the 1940 Act and the
rules thereunder.
- 11 -
<PAGE>
DISTRIBUTION PLAN
As stated in the Prospectus, the Fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act which
permits the Fund to pay for expenses incurred in the distribution and promotion
of its shares, including but not limited to, the printing of prospectuses,
statements of additional information and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
promotion, marketing and sales expenses, and other distribution-related
expenses, including any distribution fees paid to the Underwriter and its
affiliates or to securities dealers or other firms who have executed a
distribution or service agreement with the Underwriter. The Plan expressly
limits payment of the distribution expenses listed above in any fiscal year to a
maximum of .25% of the average daily net assets of the Fund.
The continuance of the Plan must be specifically approved at least
annually by a vote of the Trust's Board of Trustees and by a vote of the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the Plan (the "Rule 12b-1 Trustees") at a meeting
called for the purpose of voting on such continuance. The Plan may be terminated
at any time by a vote of a majority of the Rule 12b-1 Trustees or by a vote of
the holders of a majority of the outstanding shares of the Fund. In the event
the Plan is terminated in accordance with its terms, the Fund will not be
required to make any payments for expenses incurred after the termination date.
The Plan may not be amended to increase materially the amount to be spent for
distribution without shareholder approval. All material amendments to the Plan
must be approved by a vote of the Trust's Board of Trustees and by a vote of the
Rule 12b-1 Trustees.
In approving the Plan, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, and less chance of disruption of planned investment
strategies. The Plan will be renewed only if the Trustees make a similar
determination for each subsequent year of the Plan. There can be no assurance
that the benefits anticipated from the expenditure of the Fund's assets for
distribution will be realized. While the Plan is in effect, all amounts spent by
the Fund pursuant to the Plan and the purposes for which such expenditures were
made must be reported quarterly to the Board of Trustees for its review. In
addition, the selection and nomination of those Trustees who are not interested
persons of the Trust are committed to the discretion of the Rule 12b-1 Trustees
during such period.
- 12 -
<PAGE>
SECURITIES TRANSACTIONS
Decisions to buy and sell securities for the Fund and the placing of
the Fund's securities transactions and negotiation of commission rates where
applicable are made by the Sub-Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Sub-Adviser seeks best execution for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Sub-Adviser generally seeks favorable prices and commission rates
that are reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer.
The Sub-Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Fund and/or other accounts over
which the Sub-Adviser exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Sub-Adviser determines in good faith that the commission is reasonable in
relation to the value of the brokerage and research services provided. The
determination may be viewed in terms of a particular transaction or the
Sub-Adviser's overall responsibilities with respect to the Fund and to accounts
over which it exercises investment discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Sub-Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Sub-Adviser in servicing all of its accounts and not all such
services may be used by the Sub-Adviser in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Sub-Adviser and other
affiliates of the Trust or the Sub-Adviser may effect securities transactions
which are executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. The Fund
- 13 -
<PAGE>
will not effect any brokerage transactions in its portfolio securities with the
Sub-Adviser if such transactions would be unfair or unreasonable to its
shareholders. Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers. Although the Fund does not
anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Neither the
Adviser nor the Sub-Adviser, nor affiliates of the Trust, the Adviser, or the
Sub-Adviser will receive reciprocal brokerage business as a result of the
brokerage business transacted by the Fund with other brokers.
CODE OF ETHICS. The Trust, the Adviser and the Sub-Adviser have each
adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act of 1940.
The Code significantly restricts the personal investing activities of all
employees of the Adviser and the Sub-Adviser and, as described below, imposes
additional, more onerous, restrictions on investment personnel of the Adviser
and the Sub-Adviser. The Code requires that all employees of the Adviser and the
Sub-Adviser preclear any personal securities investment (with limited
exceptions, such as U.S. Government obligations). The preclearance requirement
and associated procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. In addition, no employee
may purchase or sell any security which at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is being considered
for purchase or sale, by the Fund. The substantive restrictions applicable to
investment personnel of the Adviser and the Sub-Adviser include a ban on
acquiring any securities in an initial public offering and a prohibition from
profiting on short-term trading in securities. Furthermore, the Code provides
for trading "blackout periods" which prohibit trading by investment personnel of
the Adviser and the Sub-Adviser within periods of trading by the Fund in the
same (or equivalent) security.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Sub-Adviser anticipates that the Fund's portfolio turnover rate
normally will not exceed 100%. A 100% turnover rate would occur if all of the
Fund's portfolio securities were replaced once within a one year period.
- 14 -
<PAGE>
Generally, the Fund intends to invest for long-term purposes. However,
the rate of portfolio turnover will depend upon cash flows into and out of the
Fund, changes in the S&P REIT Index and market and other conditions, and it will
not be a limiting factor when the Sub-Adviser believes that portfolio changes
are appropriate.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
The share price (net asset value) and the public offering price (net
asset value plus applicable sales load) of the shares of the Fund are determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Trust may also be open for business on other days in
which there is sufficient trading in the Fund's portfolio securities that its
net asset value might be materially affected. For a description of the methods
used to determine the share price and the public offering price, see
"Calculation of Share Price and Public Offering Price" in the Prospectus.
OTHER PURCHASE INFORMATION
The Prospectus describes generally how to purchase shares of the Fund.
Additional information with respect to certain types of purchases of shares of
the Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of the Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing Fund shares with the amount of his current
purchases in order to take advantage of the reduced sales loads set forth in the
tables in the Prospectus. The purchaser or his dealer must notify Countrywide
Fund Services, Inc. (the "Transfer Agent") that an investment qualifies for a
reduced sales load. The reduced sales load will be granted upon confirmation of
the purchaser's holdings by the Fund.
LETTER OF INTENT. The reduced sales loads set forth in the tables in
the Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of the Fund who submits a Letter of Intent to the Transfer
Agent. The Letter must state an intention to invest in the Fund within a
thirteen month period a specified amount which, if made at one time, would
qualify for a reduced sales load. A Letter of Intent may be submitted with a
purchase at the beginning of the thirteen month period or within ninety days of
the first purchase under the Letter of Intent.
- 15 -
<PAGE>
Upon acceptance of this Letter, the purchaser becomes eligible for the reduced
sales load applicable to the level of investment covered by such Letter of
Intent as if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Fund to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
load). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. The Trust does not impose a sales load or imposes a
reduced sales load in connection with purchases of shares of the Fund made under
the reinvestment privilege or the purchases described in the "Reduced Sales
Load" or "Purchases at Net Asset Value" sections in the Prospectus because such
purchases require minimal sales effort by the Adviser. Purchases described in
the "Purchases at Net Asset Value" section may be made for investment only, and
the shares may not be resold except through redemption by or on behalf of the
Fund.
TAXES
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. To so qualify the Fund must, among other things, (i) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currency, or certain other income
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in stock, securities or
- 16 -
<PAGE>
currencies; and (ii) diversify its holdings so that at the end of each quarter
of its taxable year the following two conditions are met: (a) at least 50% of
the value of the Fund's total assets is represented by cash, U.S. Government
securities, securities of other regulated investment companies and other
securities (for this purpose such other securities will qualify only if the
Fund's investment is limited in respect to any issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer) and (b) not more than 25% of the value of the Fund's assets is
invested in securities of any one issuer (other than U.S. Government securities
or securities of other regulated investment companies).
The Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the 1940 Act. This election will
require the Fund to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any ninety day period for any one
shareholder. Should payment be made in securities, the redeeming shareholder
will generally incur brokerage costs in converting such securities to cash.
Portfolio securities which are issued in an in-kind redemption will be readily
marketable.
- 17 -
<PAGE>
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
The calculation of average annual total return assumes the reinvestment
of all dividends and distributions and the deduction of the current maximum
initial sales load from the initial $1,000 payment. If the Fund has been in
existence less than one, five or ten years, the time period since the date of
the initial public offering of shares will be substituted for the periods
stated. The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable initial sales load which, if included, would reduce
total return. A nonstandardized quotation may also indicate average annual
compounded rates of return without including the effect of the applicable
initial sales load or over periods other than those specified for average annual
total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
From time to time, the Fund may also advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
- 18 -
<PAGE>
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The Fund's performance may be compared in advertisements, sales
literature and other communications to the performance of other mutual funds
having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded in the United
States securities markets. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service, such as
Lipper Analytical Services, Inc. or Morningstar, Inc., or by one or more
newspapers, newsletters or financial periodicals. Performance comparisons may be
useful to investors who wish to compare the Fund's past performance to that of
other mutual funds and investment products. Of course, past performance is not a
guarantee of future results.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
- 19 -
<PAGE>
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Investors may use such indices in addition to the Fund's Prospectus to
obtain a more complete view of the Fund's performance before investing. Of
course, when comparing the Fund's performance to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return, investors should take into consideration
any relevant differences in funds such as permitted portfolio compositions and
methods used to value portfolio securities and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
that are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as Standard & Poor's Ratings Group and Moody's Investors Service, Inc.).
The Fund may also depict the historical performance of the securities in which
the Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indices of those investments, or economic indicators. The Fund may
also include in advertisements and in materials furnished to present and
prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained
to act as Custodian for the Fund's investments. Star Bank, N.A. acts as the
Fund's depository, safekeeps its portfolio securities, collects all income and
other payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
- 20 -
<PAGE>
AUDITORS
The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending December 31, 1998. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Funds as to certain accounting
matters.
COUNTRYWIDE FUND SERVICES, INC.
The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent") to act as its transfer agent. The Transfer Agent is an indirect
wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New York Stock
Exchange listed company principally engaged in the business of residential
mortgage lending. The Transfer Agent maintains the records of each shareholder's
account, answers shareholders' inquiries concerning their accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent and performs other shareholder service functions.
The Transfer Agent receives from the Fund for its services as transfer agent a
fee payable monthly at an annual rate of $20 per account, provided, however,
that the minimum fee is $1,200 per month. In addition, the Fund pays
out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
The Transfer Agent also provides accounting and pricing services to the
Fund. For calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties,
the Fund pays the Transfer Agent a fee in accordance with the following
schedule:
AVERAGE MONTHLY NET ASSETS MONTHLY FEE
$ 0 - $ 50,000,000 $2,000
$ 50,000,000 - 100,000,000 $2,500
$100,000,000 - 200,000,000 $3,000
$200,000,000 - 300,000,000 $4,000
Over - 300,000,000 $5,000 + .001%
of average monthly
net assets.
In addition, the Fund pays all costs of external pricing services.
The Transfer Agent also provides administrative services to the Fund.
In this capacity, the Transfer Agent supplies non-investment related statistical
and research data, internal regulatory compliance services and executive and
administrative
- 21 -
<PAGE>
services. The Transfer Agent supervises the preparation of tax returns, reports
to shareholders of the Fund, reports to and filings with the Securities and
Exchange Commission and state securities commissions, and materials for meetings
of the Board of Trustees. For the performance of these administrative services,
the Fund pays the Transfer Agent a fee at the annual rate of .15% of the average
value of its daily net assets up to $50,000,000, .125% of such assets from
$50,000,000 to $100,000,000 and .1% of such assets in excess of $100,000,000,
provided, however, that the minimum fee is $1,000 per month.
STATEMENT OF ASSETS AND LIABILITIES
The Fund's Statement of Assets and Liabilities as of December 22, 1997,
which has been audited by Arthur Andersen LLP, is attached to this Statement of
Additional Information.
- 22 -
<PAGE>
WELLS S&P REIT INDEX FUND
(A Series of the Wells Family of Real Estate Funds)
STATEMENT OF ASSETS AND LIABILITIES
AS OF
DECEMBER 22, 1997
TOGETHER WITH
AUDITORS' REPORT
- 23 -
<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
----------------------------------------
To the Trustees and Shareholder of
The Wells S&P REIT Index Fund:
We have audited the accompanying statement of assets and liabilites of
The Wells S&P REIT Index Fund as of December 22, 1997. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of The Wells
S&P REIT Index Fund as of December 22, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
December 23, 1997
- 24 -
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 22, 1997
ASSETS:
Cash $ 100,000
Organization costs (Note 2) 36,000
------------
TOTAL ASSETS $ 136,000
------------
LIABILITIES
Accrued expenses (Note 2) 36,000
------------
TOTAL LIABILITIES 36,000
------------
NET ASSETS FOR SHARES OF
BENEFICIAL INTEREST OUTSTANDING $ 100,000
============
SHARES OUTSTANDING 10,000
============
NET ASSET VALUE PER SHARE $ 10.00
============
The accompanying notes are an integral part of this statement.
- 25 -
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 22, 1997
(1) The Wells S&P REIT Index Fund (the Fund) is a diversified series of the
Wells Family of Real Estate Funds, an open-end investment company
established as an Ohio business trust under a Declaration of Trust
dated June 4, 1997. The Fund has had no operations except for the
initial issuance of shares. On December 23, 1997, 10,000 shares of the
Fund were issued for cash at $10.00 per share.
(2) Expenses incurred in connection with the organization of the Fund and
the initial offering of shares are estimated to be $36,000, which
includes $30,000 paid to Countrywide Fund Services, Inc., the Fund's
administrator. These expenses have been paid by Wells Asset Management,
Inc. (the Adviser). Upon commencement of the public offering of shares
of the Fund, the Fund will reimburse the Adviser for such expenses,
with that amount being capitalized and amortized on a straight- line
basis over five years. As of December 22, 1997, all outstanding shares
of the Fund were held by an affiliate of the Adviser, who purchased
these initial shares in order to provide the Trust with its required
capital. In the event the initial shares of the Fund are redeemed below
the required minimum initial capitalization of $100,000 by any holder
thereof at any time prior to the complete amortization of
organizational expenses, the redemption proceeds payable with respect
to such shares will be reduced by the pro rata share (based upon the
portion of the shares redeemed in relation to the required minimum
initial capitalization) of the unamortized deferred organizational
expenses as of the date of such redemption.
(3) Reference is made to the Prospectus and this Statement of Additional
Information for a description of the Advisory Agreement, the
Sub-Advisory Agreement, the Underwriting Agreement, the Distribution
Expense Plan, the Administration Agreement, tax aspects of the Fund and
the calculation of the net asset value of shares of the Fund.
- 26 -
