================================================================================
Wells S&P REIT Index Fund
-------------------------
SEMI-ANNUAL REPORT
June 30, 1999
(Unaudited)
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
WELLS ASSET MANAGEMENT, INC. COUNTRYWIDE FUND SERVICES, INC.
3885 Holcomb Bridge Road 312 Walnut Street
Atlanta, Georgia 30092 Cincinnati, Ohio 45201-5354
1.800.282.1581
================================================================================
<PAGE>
August 27, 1999
Dear Fellow Shareholders,
All of us at Wells Real Estate Funds thank you for your continued support. As a
valued shareholder, you have contributed significantly to our growth and
success, and we look forward to serving your financial needs for the remainder
of 1999 and beyond.
In the first half of 1999, the public REIT market continued to be characterized
by healthy earning growth and operating efficiency. Lehman Brothers reported
growth rates in Funds From Operations (the REIT industry's primary measure of
financial performance) for the office sector for the first and second quarters
of 1999 to be 14.2% and 14.6%, respectively, exceeding expectations.
The fundamentals underlying real estate also remain strong. Healthy occupancy
levels, a controlled supply of real estate and demand for space supported by a
growing economy continue to dominate the real estate investment environment.
These are the fundamentals that many analysts feel are presenting investors with
a great buying opportunity in the REIT market for the remainder of the year and
into the next century.
At Wells, we are committed to customer service and a risk-averse investment
management style corresponding to the performance of the S&P REIT Composite
Index. Standard & Poor's expertise in managing their indices based on sound
research and fundamental analysis has established S&P as a world leader in the
indexing arena. The Fund's ability to correlate to the S&P REIT Composite Index
has provided our shareholders with one of the only investments that represents
the total U.S.
REIT market.
We and our associated service partners have completed our Y2K verification
procedures and we believe that we are fully prepared for the year 2000. We will
continue running verification checks throughout the remainder of 1999 to ensure
a smooth transition into the year 2000.
For updates on your investment throughout the year, we are pleased to offer you
our website at www.WellsREF.com. Also, you may call our Investor Services
Department at (800) 282-1581.
Thank you for investing in the Wells S&P REIT Index Fund.
Yours truly,
/s/ Leo F. Wells, III
Leo F. Wells, III
President
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
================================================================================
ASSETS
Investment securities:
At acquisition cost $ 19,075,736
============
At market value (Note 1) $ 18,288,362
Dividends receivable 115,907
Receivable from Adviser (Note 3) 28,916
Receivable for capital shares sold 63,511
Organization expenses, net (Note 1) 27,771
Other assets 22,427
------------
TOTAL ASSETS 18,546,894
------------
LIABILITIES
Bank overdraft 1,534
Dividends payable 29,781
Payable for capital shares redeemed 12,922
Payable for securities purchased 249,972
Payable to Administrator (Note 3) 10,350
Other accrued expenses and liabilities 14,076
------------
TOTAL LIABILITIES 318,635
------------
NET ASSETS $ 18,228,259
============
NET ASSETS CONSIST OF:
Paid-in capital $ 19,658,541
Undistributed net investment income 18,970
Accumulated net realized losses from security transactions (661,878)
Net unrealized depreciation on investments (787,374)
------------
Net assets $ 18,228,259
============
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares $ 17,250,864
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 2,187,743
============
Net asset value and redemption price per share (Note 1) $ 7.89
============
Maximum offering price per share (Note 1) $ 8.22
============
PRICING OF CLASS B SHARES
Net assets applicable to Class B shares $ 354,667
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 44,545
============
Net asset value, offering price and
redemption price per share (Note 1) $ 7.96
============
PRICING OF CLASS C SHARES
Net assets applicable to Class C shares $ 622,728
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 78,495
============
Net asset value, offering price and
redemption price per share (Note 1) $ 7.93
============
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
================================================================================
INVESTMENT INCOME
Dividends $ 512,454
----------
EXPENSES
Investment advisory fees (Note 3) 35,087
Custodian fees 21,921
Registration fees, Common 19,314
Accounting services fees (Note 3) 16,000
Professional fees 14,556
Transfer agent fees, Class A (Note 3) 9,678
Transfer agent fees, Class B (Note 3) 2,400
Transfer agent fees, Class C (Note 3) 2,400
Administrative services fees (Note 3) 10,606
Postage and supplies 8,152
Insurance expense 5,322
Amortization of organization expenses (Note 1) 3,787
Reports to shareholders 3,080
Trustees' fees and expenses 2,250
Pricing expenses 1,081
Distribution expenses, Class A (Note 3) 87
----------
TOTAL EXPENSES 155,721
Fees waived and expenses reimbursed by the Adviser (Note 3) (85,785)
----------
NET EXPENSES 69,936
----------
NET INVESTMENT INCOME 442,518
----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized losses from security transactions (476,220)
Net change in unrealized appreciation/
depreciation on investments 670,562
----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 194,342
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 636,860
==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND
Statements of Changes in Net Assets
For the Periods Ended June 30, 1999 and December 31, 1998
===========================================================================================
Six Months
Ended Period
June 30, Ended
1999 December 31,
(Unaudited) 1998 (A)
- -------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 442,518 $ 283,229
Net realized losses from security transactions (476,220) (185,658)
Net change in unrealized appreciation/depreciation
on investments 670,562 (1,457,936)
------------ ------------
Net increase (decrease) in net assets from operations 636,860 (1,360,365)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income, Class A (419,529) (283,229)
Dividends from net investment income, Class B (889) --
Dividends from net investment income, Class C (3,130) --
Return of capital -- (61,104)
------------ ------------
Decrease in net assets from distributions to shareholders (423,548) (344,333)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A
Proceeds from shares sold 5,415,787 13,598,352
Net asset value of shares issued in
reinvestment of distributions to shareholders 369,346 318,441
Payments for shares redeemed (752,684) (326,417)
------------ ------------
Net increase in net assets from Class A share transactions 5,032,449 13,590,376
------------ ------------
CLASS B
Proceeds from shares sold 358,661 --
Net asset value of shares issued in
reinvestment of distributions to shareholders 599 --
------------ ------------
Net increase in net assets from Class B share transactions 359,260 --
------------ ------------
CLASS C
Proceeds from shares sold 635,555 --
Net asset value of shares issued in
reinvestment of distributions to shareholders 2,005 --
------------ ------------
Net increase in net assets from Class C share transactions 637,560 --
------------ ------------
TOTAL INCREASE IN NET ASSETS 6,242,581 11,885,678
NET ASSETS:
Beginning of period (Note 1) 11,985,678 100,000
------------ ------------
End of period $ 18,228,259 $ 11,985,678
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 18,970 $ --
============ ============
</TABLE>
(A) Represents the period from the commencement of operations (March 2, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND - CLASS A
FINANCIAL HIGHLIGHTS
=============================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ---------------------------------------------------------------------------------------------
SIX MONTHS
ENDED PERIOD
JUNE 30, ENDED
1999 DECEMBER 31,
(UNAUDITED) 1998 (A)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period $ 7.75 $ 10.00
---------- ----------
Income (loss) from investment operations:
Net investment income 0.22 0.26
Net realized and unrealized gains (losses) on investments 0.13 (2.20)
---------- ----------
Total from investment operations 0.35 (1.94)
---------- ----------
Less distributions:
Dividends from net investment income (0.21) (0.26)
Return of capital -- (0.05)
---------- ----------
Total distributions (0.21) (0.31)
---------- ----------
Net asset value at end of period $ 7.89 $ 7.75
========== ==========
Total return (B) 4.72%(D) (19.62)%(D)
========== ==========
Net assets at end of period (000's) $ 17,251 $ 11,986
========== ==========
Ratio of net expenses to average net assets (C) 0.99%(E) 0.99%(E)
Ratio of net investment income to average net assets 6.29%(E) 5.33%(E)
Portfolio turnover rate 15%(E) 9%(E)
- ---------------------------------------------------------------------------------------------
</TABLE>
(A) Represents the period from the initial public offering of Class A shares
(March 2, 1998) through December 31, 1998.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 2.20% (E) and 3.30% (E) for
the periods ended June 30, 1999 and December 31, 1998, respectively (Note
3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND - CLASS B
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
PERIOD
ENDED
JUNE 30,
1999 (A)
(UNAUDITED)
- --------------------------------------------------------------------------------
Net asset value at beginning of period $ 8.16
----------
Income (loss) from investment operations:
Net investment income 0.04
Net realized and unrealized losses on investments (0.22)
----------
Total from investment operations (0.18)
----------
Less distributions:
Dividends from net investment income (0.02)
----------
Net asset value at end of period $ 7.96
==========
Total return (B) (2.21)%(D)
==========
Net assets at end of period (000's) $ 355
==========
Ratio of net expenses to average net assets (C) 1.68%(E)
Ratio of net investment income to average net assets 9.05%(E)
Portfolio turnover rate 15%(E)
- --------------------------------------------------------------------------------
(A) Represents the period from the initial public offering of Class B shares
(May 9, 1999) through June 30, 1999.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 2.22% (E) for the period
ended June 30, 1999 (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND - CLASS C
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
PERIOD
ENDED
JUNE 30,
1999 (A)
(UNAUDITED)
- --------------------------------------------------------------------------------
Net asset value at beginning of period $ 8.09
----------
Income (loss) from investment operations:
Net investment income 0.05
Net realized and unrealized losses on investments (0.17)
----------
Total from investment operations (0.12)
----------
Less distributions:
Dividends from net investment income (0.04)
----------
Net asset value at end of period $ 7.93
==========
Total return (B) (1.48)%(D)
==========
Net assets at end of period (000's) $ 623
==========
Ratio of net expenses to average net assets (C) 1.71%(E)
Ratio of net investment income to average net assets 7.00%(E)
Portfolio turnover rate 15%(E)
- --------------------------------------------------------------------------------
(A) Represents the period from the initial public offering of Class C shares
(May 5, 1999) through June 30, 1999.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 2.25% (E) for the period
ended June 30, 1999 (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
==============================================================================================
MARKET
INVESTMENT SECURITIES - 100.3% SHARES VALUE
- ----------------------------------------------------------------------------------------------
COMMON STOCKS - 97.8%
APARTMENT/RESIDENTIAL - 22.0%
<S> <C> <C>
Apartment Investment & Management Company - Class A 9,500 $ 406,125
Archstone Communities Trust 21,200 465,075
Associated Estates Realty Corp. 3,300 38,981
Avalon Bay Communities, Inc. 9,874 365,338
Berkshire Realty Company, Inc. 5,500 63,594
BRE Properties, Inc. - Class A 6,800 176,375
Camden Property Trust 6,575 182,456
Chateau Communities, Inc. 4,300 128,731
Colonial Properties Trust 3,900 110,175
Cornerstone Realty Income Trust, Inc. 6,500 69,875
Equity Residential Properties Trust 18,255 822,616
Essex Property Trust, Inc. 2,600 91,975
Gables Residential Trust 4,000 96,500
Manufactured Home Communities, Inc. 3,900 101,400
Merry Land Properties, Inc.* 175 864
Mid-America Apartment Communities, Inc. 2,900 67,063
Pennsylvania Real Estate Investment Trust 2,000 41,875
Post Properties, Inc. 5,900 241,900
Smith (Charles E.) Residential Realty, Inc. 2,900 98,419
Summit Properties, Inc. 4,300 84,925
Sun Communities, Inc. 2,600 92,300
United Dominion Realty Trust, Inc. 15,900 186,825
Walden Residential Properties, Inc. 3,700 79,550
------------
4,012,937
------------
DIVERSIFIED - 8.8%
Duke Realty Investments, Inc. 13,600 306,850
Franchise Finance Corporation of America 8,500 187,000
Glenborough Realty Trust, Inc. 4,800 84,000
Liberty Property Trust 10,100 251,238
National Golf Properties, Inc. 1,900 46,194
Pacific Gulf Properties, Inc. 3,100 70,138
Prison Realty Trust, Inc. 15,100 148,169
Spieker Properties, Inc. 9,700 377,087
U.S. Restaurant Properties, Inc. 2,200 46,750
Washington Real Estate Investment Trust 5,400 91,462
------------
1,608,888
------------
HEALTH CARE - 7.7%
American Health Properties, Inc. 3,800 76,475
Health Care Property Investors, Inc. 4,700 135,713
Health Care REIT, Inc. 4,300 99,975
Healthcare Realty Trust, Inc. 6,033 126,693
<PAGE>
<CAPTION>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
==============================================================================================
MARKET
INVESTMENT SECURITIES - 100.3% SHARES VALUE
- ----------------------------------------------------------------------------------------------
COMMON STOCKS - 97.8% (CONTINUED)
HEALTH CARE - 7.7% (CONTINUED)
<S> <C> <C>
HRPT Properties Trust 20,100 $ 307,781
LTC Properties, Inc. 4,100 53,300
Meditrust Corp. 22,800 297,825
National Health Investors, Inc. 3,700 84,406
Nationwide Health Properties, Inc. 7,000 133,438
OMEGA Healthcare Investors, Inc. 3,000 77,437
------------
1,393,043
------------
HOTEL - 4.0%
Equity Inns, Inc. 5,600 51,800
FelCor Lodging Trust, Inc. 10,400 215,800
Hospitality Properties Trust 8,500 230,562
MeriStar Hospitality Corp. 7,300 163,794
RFS Hotel Investors, Inc. 3,700 46,481
Winston Hotels, Inc. 2,400 25,200
------------
733,637
------------
INDUSTRIAL/OFFICE - 29.2%
AMB Property Corp. 13,100 307,850
Arden Realty, Inc. 9,500 233,938
Bedford Property Investors, Inc. 3,500 62,563
Boston Properties, Inc. 9,700 347,988
Brandywine Realty Trust 5,800 114,913
CarrAmerica Realty Corp. 10,200 255,000
CenterPoint Properties Corp. 3,100 113,538
Cornerstone Properties, Inc. 19,600 311,150
Cousins Properties, Inc. 4,900 165,681
Crescent Real Estate Equities Company 19,300 458,375
EastGroup Properties, Inc. 2,500 50,156
Equity Office Properties Trust 39,300 1,007,063
First Industrial Realty Trust, Inc. 5,800 159,137
Highwoods Properties, Inc. 9,400 257,912
Kilroy Realty Corp. 4,200 102,112
Koger Equity, Inc. 4,100 75,594
Mack-Cali Realty Corp. 8,900 275,344
Parkway Properties, Inc. 1,500 49,687
Prentiss Properties Trust 5,800 136,300
ProLogis Trust 24,590 497,947
Reckson Associates Realty Corp. 6,100 143,350
TriNet Corporate Realty Trust, Inc. 3,800 105,212
Weeks Corp. 3,000 91,500
------------
5,322,310
------------
<PAGE>
<CAPTION>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
==============================================================================================
MARKET
INVESTMENT SECURITIES - 100.3% SHARES VALUE
- ----------------------------------------------------------------------------------------------
COMMON STOCKS - 97.8% (CONTINUED)
MORTGAGE - 1.1%
<S> <C> <C>
Dynex Capital, Inc. 6,800 $ 13,600
Indymac Mortgage Holdings, Inc. 12,200 195,200
------------
208,800
------------
RETAIL CENTERS - 20.1%
Bradley Real Estate, Inc. 3,700 76,775
Burnham Pacific Properties, Inc. 4,900 60,331
CBL & Associates Properties, Inc. 3,800 100,225
Chelsea GCA Realty, Inc. 2,400 89,100
Commercial Net Lease Realty 4,500 57,937
Developers Diversified Realty Corp. 9,200 152,950
Federal Realty Investment Trust 6,100 139,918
General Growth Properties, Inc. 6,100 216,550
Glimcher Realty Trust 3,600 58,500
IRT Property Company 5,100 50,363
JDN Realty Corp. 5,100 114,112
JP Realty, Inc. 2,700 55,519
Kimco Realty Corp. 9,200 359,950
Kranzco Realty Trust 1,600 21,200
Macerich Company (The) 5,200 136,500
Mills Corp. 3,700 80,244
New Plan Excel Realty Trust 13,660 245,880
Prime Retail, Inc. 6,577 57,138
Realty Income Corp. 4,100 97,375
Simon Property Group, Inc. 26,400 669,900
Taubman Centers, Inc. 8,000 105,500
Urban Shopping Centers, Inc. 2,700 85,050
Vornado Realty Trust 13,000 459,062
Weingarten Realty Investors 4,100 171,175
------------
3,661,254
------------
SELF STORAGE - 4.9%
Public Storage, Inc. 20,734 580,552
Shurgard Storage Centers, Inc. - Class A 4,400 119,350
Sovran Self Storage, Inc. 1,900 51,181
Storage USA, Inc. 4,300 137,063
------------
888,146
------------
TOTAL COMMON STOCKS (COST $18,616,389) $ 17,829,015
------------
CASH EQUIVALENTS - 2.5% (COST $459,347)
Firstar Stellar Treasury Fund 459,347 $ 459,347
------------
TOTAL INVESTMENTS SECURITIES - 100.3% (COST $19,075,736) $ 18,288,362
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.3%) (60,103)
------------
NET ASSETS - 100.0% $ 18,228,259
============
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Wells S&P REIT Index Fund (the Fund) is a diversified series of the Wells
Family of Real Estate Funds (the Trust), an open-end management investment
company registered under the Investment Company Act of 1940. The Trust was
organized as an Ohio business trust on June 4, 1997. The Fund was capitalized on
December 22, 1997, when Leo F. Wells III, the President of the Fund's investment
adviser, Wells Asset Management, Inc. (the Adviser), purchased the initial
10,000 shares of the Fund at $10 per share. The public offering of Class A
shares of the Fund commenced on March 2, 1998. The Fund had no operations prior
to the public offering of Class A shares except for the initial issuance of
shares. The public offering of Class B shares and Class C shares commenced on
May 9, 1999 and May 5, 1999, respectively.
The Fund seeks to provide investment results corresponding to the performance of
the S&P Real Estate Investment Trust Composite Index (the Index) by investing in
the stocks included in the Index.
The Fund offers three classes of shares: Class A shares (sold subject to a
maximum front-end sales load of 4% and a distribution fee of up to 0.25% of the
average daily net assets attributable to Class A shares), Class B shares (sold
subject to a maximum 5% contingent deferred sales load if redeemed within six
years of purchase and an annual distribution fee of up to 1% of the average
daily net assets attributable to Class B shares) and Class C shares (sold
subject to a 1% contingent deferred sales load if redeemed within one year of
purchase and an annual distribution fee of up to 1% of the average daily net
assets attributable to Class C shares). Each class of shares represents an
interest in the same assets of the Fund, has the same rights and is identical in
all material respects except that (1) Class B shares and Class C shares bear the
expenses of higher distribution fees; (2) Class B shares automatically convert
to Class A shares after approximately eight years, resulting in lower annual
expenses; (3) certain other class specific expenses will be borne solely by the
class to which such expenses are attributable; and (4) each class has exclusive
voting rights with respect to matters relating to its own distribution
arrangements.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of the regular session of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time). Securities traded on stock exchanges or quoted by
NASDAQ are valued at their last sales price on the principal exchange where the
security is traded or, if not traded on a particular day, at the closing bid
price. Securities traded in the over-the-counter market, and which are not
quoted by NASDAQ, are valued at their last sales price or, if not available, at
their last quoted bid price.
Share valuation -- The net asset value per share of each class of shares of the
Fund is calculated daily by dividing the total value of the Fund's assets
attributable to that class, less liabilities attributable to that class, by the
number of shares of that class outstanding, rounded to the nearest cent. The
maximum offering price per share of Class A shares of the Fund is equal to the
net asset value per share plus a sales load equal to 4.17% of the net asset
value (or 4% of the offering price). The offering price of Class B shares and
Class C shares is equal to the net asset value per share.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
================================================================================
The redemption price per share of each class of shares of the Fund is equal to
the net asset value per share. However, Class B shares are subject to a maximum
contingent deferred sales load of 5% on amounts redeemed within one year of
purchase, incrementally reduced to 0% over a six year period from the date of
purchase. Class C shares are subject to a contingent deferred sales load of 1%
on amounts redeemed within one year of purchase.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
Distributions to shareholders -- Distributions to shareholders arising from net
investment income are declared and paid quarterly. Net realized short-term
capital gains, if any, may be distributed throughout the year and net realized
long-term capital gains, if any, are distributed at least once each year. Income
dividends and capital gain distributions are determined in accordance with
income tax regulations.
Allocations between classes -- Investment income earned, realized capital gains
and losses, and unrealized appreciation and depreciation are allocated daily to
each class of shares based upon its proportionate share of total net assets of
the Fund. Class specific expenses are charged directly to the class incurring
the expense. Common expenses which are not attributable to a specific class are
allocated daily to each class of shares based upon its proportionate share of
total net assets of the Fund.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Organization expenses -- Expenses of organization, net of certain expenses paid
by the Adviser, have been capitalized and are being amortized on a straight-line
basis over five years.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which the Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
================================================================================
As of December 31, 1998, the Fund had capital loss carryforwards for federal
income tax purposes of $61,580, which expire on December 31, 2006. In addition,
the Fund elected to defer until its subsequent tax year $41,550 of capital
losses incurred after October 31, 1998. These capital loss carryforwards and
"post-October" losses may be utilized in the current and future years to offset
net realized capital gains prior to distribution to shareholders.
As of June 30, 1999, net unrealized depreciation on investments was $884,740 for
federal income tax purposes, of which $511,868 related to appreciated securities
and $1,396,608 related to depreciated securities based on a federal income tax
cost basis of $19,173,102. The difference between the federal income tax cost of
portfolio investments and the acquisition cost is due to certain timing
differences in the recognition of capital losses under income tax regulations
and generally accepted accounting principles.
2. INVESTMENT TRANSACTIONS
During the six months ended June 30, 1999, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$6,979,254 and $1,052,334, respectively.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of the Adviser or
of Countrywide Fund Services, Inc. (CFS), the administrative services agent,
shareholder servicing and transfer agent, and accounting services agent for the
Trust.
ADVISORY AGREEMENT
The Adviser provides general investment supervisory services to the Fund and
manages the Fund's business affairs pursuant to the terms of an Advisory
Agreement between the Adviser and the Trust. The Fund pays the Adviser an
investment advisory fee, computed and accrued daily and paid monthly, at an
annual rate of 0.50% of the average daily net assets of the Fund.
In order to reduce the operating expenses of the Fund, the Adviser voluntarily
waived its investment advisory fees of $35,087 and reimbursed the Fund for
$50,698 of other operating expenses during the six months ended June 30, 1999.
SUB-ADVISORY AGREEMENT
Gateway Investment Advisers, L.P. (the Sub-Adviser) has been retained by the
Adviser to manage the Fund's investments pursuant to the terms of a Sub-Advisory
Agreement between the Sub-Adviser, the Adviser and the Trust. The Adviser (not
the Fund) pays the Sub-Adviser a fee, computed and accrued daily and paid
monthly, at an annual rate of 0.15% of the Fund's average daily net assets up to
$100 million; 0.10% of such net assets from $100 million to $200 million; and
0.07% of such net assets in excess of $200 million, subject to a $3,000 minimum
monthly fee.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
================================================================================
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related administrative and compliance services for the Fund. CFS supervises the
preparation of tax returns, reports to shareholders, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For these services, CFS
receives a monthly fee from the Fund at an annual rate of 0.15% of the Fund's
average daily net assets up to $50 million; 0.125% of such net assets from $50
million to $100 million; and 0.10% of such net assets in excess of $100 million,
subject to a $1,000 minimum monthly fee.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, CFS 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. For these
services, CFS receives a monthly fee from the Fund at an annual rate of $20 per
shareholder account, subject to a $1,200 minimum monthly fee for each class of
shares. In addition, the Fund pays CFS out-of-pocket expenses including, but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, CFS receives a monthly fee from the Fund, based on
current net assets and the number of classes of shares, of $4,000. In addition,
the Fund pays CFS certain out-of-pocket expenses incurred by CFS in obtaining
valuations of the Fund's portfolio securities.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement, Wells Investment Securities, Inc.
(the Underwriter) serves as the exclusive agent for the distribution of shares
of the Fund. For these services, the Underwriter earned $23,606 from
underwriting and broker commissions on the sale of Class A shares of the Fund
during the six months ended June 30, 1999. The Underwriter is an affiliate of
the Adviser.
PLANS OF DISTRIBUTION
The Trust has adopted three separate plans of distribution under which each
class of shares of the Fund may directly incur or reimburse the Underwriter for
certain expenses related to the distribution of its shares. The annual
limitation for payment of expenses pursuant to the Class A Plan is 0.25% of the
Fund's average daily net assets attributable to Class A shares. The annual
limitation for payment of expenses pursuant to the Class B Plan and the Class C
Plan is 1.00% of the Fund's average daily net assets attributable to Class B
shares and Class C shares, respectively. For the six months ended June 30, 1999,
the Fund paid Class A distribution expenses of $87.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
================================================================================
4. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
Six Months
Ended Period
June 30, Ended
1999 Dec. 31,
(Unaudited) 1998
CLASS A
Shares sold 690,592 1,537,513
Shares issued in reinvestment of
distributions to shareholders 48,669 39,308
Shares redeemed (98,207) (40,132)
---------- ----------
Net increase in shares outstanding 641,054 1,536,689
Shares outstanding, beginning of
period (Note 1) 1,546,689 10,000
---------- ----------
Shares outstanding, end of period 2,187,743 1,546,689
========== ==========
CLASS B
Shares sold 44,470 --
Shares issued in reinvestment of
distributions to shareholders 75 --
---------- ----------
Net increase in shares outstanding 44,545 --
Shares outstanding, beginning of
period -- --
---------- ----------
Shares outstanding, end of period 44,545 --
========== ==========
CLASS C
Shares sold 78,242 --
Shares issued in reinvestment of
distributions to shareholders 253 --
---------- ----------
Net increase in shares outstanding 78,495 --
Shares outstanding, beginning of
period -- --
---------- ----------
Shares outstanding, end of period 78,495 --
========== ==========
