U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 2
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 3
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(Check appropriate box or boxes)
WELLS FAMILY OF REAL ESTATE FUNDS
(Exact Name of Registrant as Specified in Charter)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 448-1010
Brian M. Conlon
Wells Asset Management, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(Name and Address of Agent for Service)
Copies to:
Tina D. Hosking
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/X/ on May 1, 1999 pursuant to paragraph (a) of Rule 485
Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
<PAGE>
THE WELLS FAMILY OF REAL ESTATE FUNDS
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
PART A
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Item No. Registration Statement Caption Caption in Prospectus
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1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Risk/Return Summary
Investments, Risks, and Performance
3. Risk/Return Summary: Fee Table Expense Information
4. Investment Objectives, Principal Investment Objective,
Investment Strategies, and Related Investment Strategies
Risks and Risk Considerations
5. Management's Discussion of Fund Inapplicable
Performance
6. Management, Organization, and Operation of the Fund
Capital Structure
7. Shareholder Information Calculation of Share Price;
Buying Fund Shares;
Redeeming Shares; Dividends
and Distributions; Taxes;
8. Distribution Arrangements Distribution Plans
9. Financial Highlights Information Financial Highlights
PART B
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Caption in Statement
of Additional
Item No. Registration Statement Caption Information
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10. Cover Page and Table of Contents Cover Page; Table of
Contents
11. Fund History The Trust
12. Description of the Fund and Its Definitions, Policies and
Investments and Risks Risk Considerations;
Investment Limitations;
Portfolio Turnover
<PAGE>
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Principal Security
Holders of Securities Holders
15. Investment Advisory and Other Services The Investment Adviser; The
Sub-Adviser; Distribution
Plans; The Underwriter;
Auditors; Custodian;
Countrywide Fund Services,
Inc.
16. Brokerage Allocation and Other Securities Transactions
Practices
17. Capital Stock and Other Securities The Trust
18. Purchase, Redemption and Pricing of Calculation of Share Price
Shares and Public Offering Price;
Redemption in Kind
19. Taxation of the Fund Taxes
20. Underwriters The Underwriter
21. Calculation of Performance Data Historical Performance
Information
22. Financial Statements Annual Report
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
WELLS S&P REIT
INDEX FUND
PROSPECTUS
MAY 1, 1999
Managed By:
WELLS ASSET MANAGEMENT, INC.
Sub-Managed By:
GATEWAY INVESTMENT ADVISERS, L.P.
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These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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This Prospectus includes important information about the Wells S&P REIT Index
Fund that you should know before investing. You should read the Prospectus and
keep it for future reference.
<PAGE>
WELLS FAMILY OF REAL ESTATE FUNDS
3885 HOLCOMB BRIDGE ROAD
ATLANTA, GEORGIA 30092
WELLS S&P REIT INDEX FUND
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The Wells S&P REIT Index Fund (the "Fund"), a series of the Wells Family of
Real Estate Funds, seeks to provide investment results corresponding to the
performance of the S&P Real Estate Investment Trust Composite Price Index by
investing in the stocks included in the Index.
Wells Asset Management, Inc. serves as the investment manager to the Fund.
Gateway Investment Advisers, L.P. manages the Fund's investments under the
supervision of Wells Asset Management, Inc.
The Fund offers three classes of shares, each with a different combination
of sales loads, ongoing fees and other features. The different distribution
arrangements permit you to choose the method of purchasing shares that you
believe is most beneficial given the amount of your purchase, the length of time
you expect to hold the shares and other relevant circumstances.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY......................................................... 2
EXPENSE INFORMATION......................................................... 3
INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS................................................... 5
OPERATION OF THE FUND....................................................... 8
BUYING FUND SHARES.......................................................... 9
DISTRIBUTION PLANS.......................................................... 16
REDEEMING SHARES............................................................ 17
DIVIDENDS AND DISTRIBUTIONS................................................. 19
TAXES....................................................................... 20
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................ 21
FINANCIAL HIGHLIGHTS........................................................ 22
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For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll Free) 1-800-282-1581
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide investment results corresponding to the
performance of the S&P Real Estate Investment Trust Composite Index (the "S&P
REIT Index" or the "Index").
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
Normally, at least 90% of the Fund's total assets are invested in the
stocks included in the S&P REIT Index. The proportion of the Fund's assets
invested in each stock held in the Fund's portfolio is substantially similar to
the proportion of the Index represented by the stock. The Fund is normally
invested in all of the stocks which comprise the Index, except when changes are
made to the Index itself.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The Fund's investment return and net asset value will fluctuate and when
you sell shares you may receive more or less than the amount you paid for them.
As with any mutual fund investment, there is a risk that you could lose money by
investing in the Fund. The Fund is subject to, among other risks:
MARKET RISK - Stock prices, including prices of REIT stocks, may decline
over short or extended periods. In a declining stock market, stock prices
for all REIT's may decline, regardless of any one particular company's own
unique prospects. As a result, the Index may also decline in a declining
stock market.
REAL ESTATE INDUSTRY RISK - When REIT profits, revenues, or the value of
real estate property owned by REITs decline or fail to meet market
expectations, REIT stock prices may decline as well. Therefore, the Index's
performance may, in part, fluctuate in accordance with the business success
of REITs in the index.
INTEREST RATE RISK - Increases in interest rates typically lower the
present value of a REIT's future earnings stream, and may make financing
property purchases and improvements more costly. Since the market price of
REIT stocks may change based upon investors' collective perceptions of
future earnings, the value of the Index will generally decline when
investors anticipate or experience rising interest rates.
- 2 -
<PAGE>
INVESTMENT COMPETITION RISK - REITs compete with other investment
opportunities (e.g., general business stocks, bonds, money market
instruments, etc.) for investors' dollars. If investors invest in these
opportunities instead of REITs, then the Index may decline in value.
EXPENSE INFORMATION
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your investment)
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.00% None None
Maximum Contingent Deferred Sales Load None(1) 5.00%(2) 1.00%
Sales Load Imposed on Reinvested Dividends None None None
Redemption Fee None(3) None(3) None(3)
(1) Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of 1.00% if a redemption
occurred within one year of purchase and a commission was paid to a
participating unaffiliated dealer.
(2) Class B shares pay a 5.00% contingent deferred sales load if shares are
redeemed in the first year. The contingent deferred sales load will be
incrementally reduced over time. After the sixth year, no contingent
deferred sales load will be assessed.
(3) A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently
$9. See "How to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Management Fees .50% .50% .50%
Distribution (12b-1) Fees .25% 1.00% 1.00%
Estimated Other Expenses .24% .24% .24%
----- ----- -----
Total Annual Fund Operating Expenses .99% 1.74% 1.74%
===== ===== =====
The Adviser currently intends to waive fees and continue to reimburse Fund
expenses in order to maintain total Fund operating expenses at or below .99% for
Class A shares of the Fund and at or below 1.74% for Class B and Class C shares
of the Fund. However, this arrangement may be terminated at any time at the
option of the Adviser.
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years
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Class A Shares $501 $715
Class B Shares 677 848
Class C Shares 277 648
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years
------ -------
Class B Shares $177 $548
Class C Shares 177 548
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<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
Investment Objective
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The Fund seeks to provide investment results corresponding to the
performance of the S&P REIT Index by investing in the stocks included in the
Index.
Investment Strategies
- ---------------------
The Fund attempts to duplicate the investment results of the S&P REIT
Index. The Index is made up of approximately 100 stocks which constitute a
representative sample of all publicly traded Real Estate Investment Trusts. A
Real Estate Investment Trust ("REIT") is a pooled investment vehicle which
invests primarily in income producing real estate or real estate related loans
or interests. REITs are generally classified as equity REITs, mortgage REITs or
hybrid REITs. An equity REIT, which owns properties, generates income from
rental and lease properties. Equity REITs also offer the potential for growth as
a result of property appreciation and, in addition, occasional capital gains
from the sales of appreciated property. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Hybrid REITs are designed to strike a balance between equity
investments and mortgage backed investments. They will derive their income from
the collection of rents, the realization of capital gains from the sale of
properties and from the collection of interest payments on outstanding mortgages
held within the trust.
The Fund is not actively managed by investment advisers who buy and sell
securities based on research and analysis. Instead, the Fund is "passively
managed," where the investment advisers attempt to match, as closely as
possible, the performance of the target index by either holding all the
securities in the index or by holding a representative sample. Indexing appeals
to many investors because of its simplicity (indexing is a straightforward
market-matching strategy); diversification (indexes generally cover a wide
variety of companies and industries); relative performance predictability (an
index fund is expected to move in the same direction - up or down - - as its
target index).
Investors buy shares in REITs rather than investing directly in properties
because direct ownership of real estate can be costly and difficult to quickly
convert into cash. REITs do not have to pay income taxes if they meet certain
Internal Revenue Code requirements. To qualify, a REIT must distribute at least
95% of its taxable income to its shareholders and receive at least 75% of that
income from rents, mortgages and sales of property. REITs offer investors
greater liquidity and diversification than does direct ownership of a handful of
properties.
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<PAGE>
To be included in the Index, a REIT must be traded on a major U.S. stock
exchange. As of December 31, 1998, 105 REITs were included in the Index. The
Index is rebalanced every calendar quarter as well as each time that a REIT is
removed from the Index because of corporate activity such as a merger,
acquisition, leveraged buyout, bankruptcy, IRS removal of REIT status,
fundamental change in business, or a change in shares outstanding.
The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or warranty, express or
implied, to the purchasers of the Fund or any member of the public regarding the
advisability of investing in securities generally, or in the Fund particularly
or the ability of the Index to track the market performance of real estate
investment trusts. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P REIT Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund or the purchasers of the Fund into
consideration in determining, composing or calculating the REIT Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the shares of the Fund or the timing of the issuance or sale of
the shares of the Fund or in the determination or calculation of the equation by
which the shares of the Fund are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P REIT
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, PURCHASERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P REIT INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P REIT INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Under normal market conditions, at least 90% of the Fund's total assets
will be invested in the stocks included in the S&P REIT Index. The proportion of
the Fund's assets invested in each stock held in the Fund's portfolio is
substantially similar to the proportion of the Index represented by the stock.
For example, if a stock represents 2% of the value of the Index, the Fund
invests approximately 2% of its assets in the stock. The Fund will normally be
invested in all of the stocks which
- 6 -
<PAGE>
comprise the S&P REIT Index, except when changes are made to the Index itself.
The Index is currently made up of approximately 95% equity REITs, 2% mortgage
REITs and 3% hybrid REITs; however, these percentages are subject to change at
any time at the discretion of S&P. The Sub-Adviser monitors the composition of
the Index and makes adjustments to the Fund's portfolio as necessary in order to
correlate with the Index.
The Fund will attempt to achieve a correlation between its performance and
that of the Index of at least 0.95, without taking into account expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the Fund's NAV, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the
Index. The Fund's ability to correlate its performance with the Index, however,
may be affected by, among other things, changes in securities markets, the
manner in which the Index is calculated by S&P and the timing of purchases and
redemptions.
Money market instruments will typically represent a portion of the Fund's
portfolio as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operational expenses of the Fund.
Investment Risks
- ----------------
There is no assurance that the Fund's investment objective will be met.
Generally, if the securities owned by the Fund increase in value, the value of
the shares of the Fund which you own will increase. Similarly, if the securities
owned by the Fund decrease in value, the value of your shares will also decline.
In this way, you participate in any change in the value of the securities owned
by the Fund.
The Fund, though not invested directly in real estate, still is subject to
the risks associated with investing in real estate, which include:
o possible declines in the value of real estate
o risks related to general and local economic conditions
o possible lack of availability of mortgage funds
o overbuilding
o changes in interest rates
o environmental problems
Investing in REITs involves certain risks in addition to those risks
associated with investing in the real estate industry in general, which include:
o dependency upon management skills
o limited diversification
o the risks of financing projects
o heavy cash flow dependency
o default by borrowers
o self-liquidation
- 7 -
<PAGE>
o possibility of failing to maintain exemptions from the Investment
Company Act of 1940
o in many cases, relatively small market capitalization, which may result
in less market liquidity and greater price volatility
OPERATION OF THE FUND
The Fund is a diversified series of the Wells Family of Real Estate Funds
(the "Trust"), an open-end management investment company organized as an Ohio
business trust. The Board of Trustees supervises the business activities of the
Trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Fund.
The Trust retains Wells Asset Management, Inc. (the "Adviser"), 3885
Holcomb Bridge Road, Atlanta, Georgia, to provide general investment supervisory
services to the Fund and to manage the Fund's business affairs. The controlling
shareholder of the Adviser is Leo F. Wells III. Mr. Wells, through various
organizations under his control, has extensive experience in the acquisition,
disposition, management, leasing and development of investment real estate. The
Fund pays the Adviser a fee at the annual rate of .50% of the average value of
its daily net assets.
Gateway Investment Advisers, L.P. (the "Sub-Adviser"), 400 TechneCenter
Drive, Milford, Ohio, has been retained by the Adviser to manage the Fund's
investments. The Sub-Adviser, including its predecessor, has been managing
assets for institutional and individual investors since 1977. The Sub-Adviser
has approximately 10 years of experience in managing portfolios which correlate
to an index, including mutual funds.
Year 2000 Readiness
-------------------
The Fund and its service providers depend on their computer systems to
conduct their businesses. If the Fund's or any of these service providers'
computer systems experience difficulty processing information with dates on or
after January 1, 2000, the Fund may have difficulty running its business. To
avoid these potential problems, the Fund is working hard to identify and correct
year 2000 related processing problems in its systems, and has obtained or is
getting assurances from its service providers that they are taking similar
precautions. Nevertheless, the Fund or its service providers may not identify
and correct all year 2000 related computer problems in time. Any such failure
could prevent the Fund from handling securities investments, trades, pricing, or
the processing of purchases and sales of Fund shares.
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<PAGE>
BUYING FUND SHARES
You may open an account with the Fund by investing the minimum amount
required for the type of account you open. You may invest additional amounts in
an existing account at any time. Several different account options and minimum
investment amounts options are detailed below.
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Account Options
Tax-Deferred Retirement Plans
- -----------------------------
TRADITIONAL IRA
Assets grow tax-deferred and contributions may be deductible. Withdrawals and
distributions are taxable in the year made.
SPOUSAL IRA
An IRA in the name of a non-working spouse by a Working spouse.
ROTH IRA
An IRA with tax free growth of assets and distributions, if certain conditions
are met. Contributions are not deductible.
IRA stands for "Individual Retirement Account." IRAs are special types of
accounts that offer different tax advantages. You should consult your tax
professional to help decide which is right for you.
You may also open accounts for:
- - Keogh Plans for self-employed individuals
- - Qualified pension and profit-sharing plans for employees, including those
profit-sharing plans with a 401(k) provision
- - 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
Automatic Investment Plan
- -------------------------
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account on either the 15th or
the last business day of the month or both. The Fund pays the costs associated
with these transfers, but reserves the right, upon thirty days' written notice,
to make reasonable charges for this service. Your depository institution may
impose its own charge for debiting your account which would reduce your return
from an investment in the Fund.
Minimum Investment
Requirements
Initial Additional
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Regular Accounts $2,500 None
Tax-Deferred $1,000 None
Retirement Plans
Automatic Investment
Plans:
Regular Accounts $2,500 $100
Tax-Deferred
Retirement Plans $1,000 $100
Direct Deposit Plans
- --------------------
You may purchase shares of the Fund through direct deposit plans offered by
certain employers and government agencies. These plans enable you to have all or
a portion of your payroll or social security checks transferred automatically to
purchase shares of the Fund.
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OPENING A NEW ACCOUNT. To open an account with us, please follow the steps
outlined below.
1. Complete the enclosed Account Application. Be sure to indicate the type of
account you wish to open, the amount of money you wish to invest, and which
class of shares you wish to purchase. If you do not indicate which class
you wish to purchase, we will invest your purchase in Class A shares.
2. Write a check for your initial investment to "Wells S&P REIT Index Fund."
Mail your completed Account Application and your check to the following
address:
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<PAGE>
WELLS S&P REIT INDEX FUND
C/O COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
You may also establish an account through your broker-dealer. Since your
broker-dealer may charge you fees for his or her services other than those
described in this Prospectus, you should ask your broker-dealer about fees
before investing. The broker-dealer receives concessions for selling shares of
the Fund to you, he or she will receive the concessions described below with
respect to your purchases.
ADDING TO YOUR ACCOUNT. You may make additional purchases for your account at
any time. These purchases may be made by mail, wire transfer or by contacting
your broker-dealer (ask your-broker-dealer about any fees for his or her
services). Additional purchases must include your name and account number to
ensure proper crediting. Use the address above for additional purchases by mail,
and call us c/o our transfer agent, Countrywide Fund Services, at 800-282-1581
for wiring instructions. Your additional purchase requests must contain your
account name and number to permit proper crediting.
MISCELLANEOUS. In connection with all purchases of Fund shares, we observe the
following policies and procedures:
o We price direct purchases based on the next public offering price or net
asset value ("NAV") after your order is received. Direct purchase orders
received by the Transfer Agent by 4:00 p.m., Eastern time, are confirmed at
that day's public offering price or NAV. Purchases orders received by
dealers prior to 4:00 p.m., Eastern time, on any business day and
transmitted to the Transfer Agent by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price or NAV determined as of the close of
the regular session of trading on the New York Stock Exchange on that day.
o We do not accept third party checks for any investments.
o We may open accounts for less than the minimum investment or change minimum
investment requirements at any time.
o We may refuse to accept any purchase request for any reason or no reason.
o We mail you confirmations of all your purchases or redemptions of Fund
shares.
o Certificates representing shares are not issued.
o We may bar excessive traders from purchasing shares. Frequent trades,
involving either substantial Fund assets or a substantial portion of your
account or accounts controlled by you, can disrupt management of the Fund
and raise its expenses.
o If your order to purchase shares is canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by
the Fund or the Transfer Agent incur in the transaction.
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<PAGE>
o There is no fee for purchases made by wire, but we may charge you for this
service upon thirty days' prior notice.
The Fund's Account Application contains provisions in favor of the Fund,
the Transfer Agent and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services made available to
investors.
Choosing a Share Class
----------------------
The Fund offers three classes of shares: Class A shares, Class B shares and
Class C shares. These Classes, which represent interests in the same portfolio
of investments and have the same rights, differ primarily in sales loads and
expenses to which they are subject. Before choosing a Class, you should consider
the following factors, as well as any other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to you depends
on the amount and intended length of your investment. You should consider Class
A shares if you prefer an initial sales load. If you qualify for reduced sales
loads or, in the case of purchases of $1 million or more, no initial sales load,
you may find Class A shares attractive because similar sales load reductions are
not available with respect to Class B or Class C shares. Moreover, Class A
shares are subject to lower ongoing expenses than are Class B or Class C shares
over the term of the investment. As an alternative, Class B and Class C shares
are sold without any initial sales load so the entire purchase price is
immediately invested in the Fund. Any investment return on these investments may
partially or wholly offset the higher annual expenses; however, because the
Fund's future return cannot be predicted, there can be no assurance that this
would be the case.
Finally, you should consider the effect of contingent deferred sales loads
and any conversion rights of each Class in the context of your investment
timeline. For example, Class C shares are subject to a significantly lower
contingent deferred sales load upon redemption than Class B shares, however,
unlike Class B shares, they do not convert to Class A shares after a stated
period of time. Class C shares, therefore, are subject to a 1.00% annual 12b-1
fee for an indefinite period of time, while Class B shares will convert to Class
A shares after approximately eight years and will be subject to only a .25%
annual 12b-1 fee. Thus, Class B shares may be more attractive than Class C
shares if you have a longer term investment outlook. On the other hand, if you
are unsure of the length of time you intend to invest or the conversion feature
is not attractive to you, you may wish to elect Class C shares.
Set forth below is a chart comparing the sales loads, 12b-1 fees and
conversion options applicable to each Class of shares:
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<PAGE>
CONVERSION
CLASS SALES LOAD 12B-1 FEE FEATURE
- --------------------------------------------------------------------------------
A Maximum 4.00% initial 0.25% None
sales load reduced for
purchases of $50,000 and
over; shares sold without
an initial sales load
generally subject to a
1.00% contingent deferred
sales load during first year
- --------------------------------------------------------------------------------
B Maximum 5.00% contingent 1.00% Class B shares
deferred sales load will automatically
during the first year convert to Class
decreasing to 0 after A shares after
six years approximately
eight years
- --------------------------------------------------------------------------------
C 1.00% contingent deferred 1.00% None
sales load during first year
- --------------------------------------------------------------------------------
If you are investing $1 million or more, it is generally more beneficial
for you to buy Class A Shares because there is no front-end sales load and the
annual expenses are lower. Therefore, any purchase of $1 million or more is
automatically invested in Class A Shares.
Class A Shares
--------------
Class A shares are sold at NAV plus an initial sales load. In some cases,
reduced initial sales loads for the purchase of Class A shares may be available,
as described below. Investments of $1 million or more are not subject to a sales
load at the time of purchase but may be subject to a contingent deferred sales
load of 1.00% on redemptions made within one year after purchase if a commission
was paid by Wells Investment Securities, Inc. (the "Underwriter") to a
participating unaffiliated dealer. Class A shares are also subject to an annual
12b-1 fee of up to .25% of the Fund's average daily assets allocable to Class A
shares.
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<PAGE>
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares:
Sales Load as % of:
-------------------
Dealer
Public Net Reallowance
Offering Amount as % of Public
Amount of Investment Price Invested offering Price
- -------------------- ----- -------- --------------
Less than $50,000 4.00% 4.17% 3.50%
$50,000 but less than $100,000 3.50 3.63 3.00
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.50
$1,000,000 or more None None None
For initial purchases of Class A shares of the Fund of $1 million or more and
subsequent purchases further increasing the size of the account, a dealer's
commission of 1.00% of such purchases from $1 million to $5 million, .50% of
such purchases from $5 million to $50 million and .25% of such purchases in
excess of $50 million may be paid by the Underwriter to participating
unaffiliated dealers through whom such purchases are effected. No commission
will be paid if the purchase represents the reinvestment of a redemption from
the Fund made during the previous twelve months. Redemptions of Class A shares
may result in the imposition of a contingent deferred sales load if the dealer's
commission described in this paragraph was paid in connection with the purchase
of such shares. See "Contingent Deferred Sales Load for Certain Purchases of
Class A Shares" below.
Under certain circumstances, the Underwriter may increase or decrease the
reallowance to dealers. 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 load on all direct initial investments
in the Fund and on all investments in accounts with no designated dealer of
record.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the
cost or current NAV (whichever is higher) of your existing Class A shares of the
Fund with the amount of any current purchases in order to take advantage of the
reduced sales loads set forth in the table above. Purchases made pursuant to a
Letter of Intent may also be eligible for the reduced sales loads. The minimum
initial investment under a Letter of Intent is $10,000. You should contact the
Transfer Agent for information about the Right of Accumulation and Letter of
Intent.
PURCHASES AT NET ASSET VALUE. Banks, bank trust departments and savings and
loan associations, in their fiduciary capacity or for their own accounts, may
purchase Class A shares of the Fund at NAV. To the extent permitted by
regulatory authorities, a bank trust department may charge fees to clients for
whose account it purchases shares at NAV. Federal and state credit unions may
also purchase Class A shares at NAV.
- 13 -
<PAGE>
In addition, Class A shares of the Fund may be purchased at NAV by
broker-dealers who have a sales agreement with the Underwriter and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
Class A shares at NAV if their investment adviser or financial planner has
entered into an administrative services agreement with the Fund. The investment
adviser or financial planner must notify the Fund that an investment qualifies
as a purchase at NAV.
Trustees, directors, officers and employees of the Trust, the Adviser, the
Sub-Adviser, the Underwriter or the Transfer Agent, including members of the
immediate families of such individuals and employee benefit plans established by
such entities, may also purchase Class A shares of the Fund at NAV.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Underwriter and the shares are
redeemed within one year from the date of purchase. The contingent deferred
sales load will be paid to the Underwriter and will be equal to the commission
percentage paid at the time of purchase (either 1.00%, .50% or .25% depending on
the amount of purchase) as applied to the NAV at the time of purchase of the
Class A shares being redeemed. If a purchase of Class A shares is subject to the
contingent deferred sales load, you will be so notified on the confirmation you
receive for such purchase. Redemptions of such Class A shares of the Fund held
for at least one year will not be subject to the contingent deferred sales load.
Class B Shares
--------------
Class B shares are sold at NAV without an initial sales load so that the
full amount of your purchase payment may be immediately invested in the Fund.
Class B shares are subject to an annual 12b-1 fee of up to 1.00% of the Fund's
average daily net assets allocable to Class B shares. A contingent deferred
sales load will be imposed on redemptions of Class B shares that take place
within six years of the purchase date. The contingent deferred sales load will
be a percentage of the dollar amount of shares redeemed and will be assessed on
an amount equal to the NAV at the time of purchase of the Class B shares being
redeemed. The size of this sales load will depend on how long you have held your
shares, as set forth in the following table:
- 14 -
<PAGE>
CDSL as a
Year Since Purchase Percentage of
Payment Made Amount Redeemed
- --------------------------------- ---------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter None
The Underwriter intends to pay a commission of 4.00% of the purchase amount to
your broker at the time you purchase Class B shares.
CONVERSION TO CLASS A SHARES. Class B shares will convert automatically to
Class A shares, based on the relative NAVs of the shares of the two Classes on
the conversion date, approximately eight (8) years after the date of your
original purchase of those shares. Class B shares you have acquired through
automatic reinvestment of dividends and distributions will be converted in
proportion to the total number of Class B shares you have purchased and own.
Class C Shares
--------------
Class C shares are sold at NAV without an initial sales load so that the
full amount of your purchase payment may be immediately invested in the Fund. A
contingent deferred sales load of 1.00% will be imposed on redemptions of Class
C shares made within one year of their purchase. The contingent deferred sales
load will be a percentage of the dollar amount of shares redeemed and will be
assessed on an amount equal to the NAV at the time of purchase of the Class C
shares being redeemed. A contingent deferred sales load will not be imposed upon
redemptions of Class C shares held for at least one year. Class C shares are
subject to an annual 12b-1 fee of up to 1.00% of the Fund's average daily net
assets allocable to Class C shares. The Underwriter intends to pay a commission
of 1.00% of the purchase amount to your broker at the time you purchase Class C
shares.
Additional Information on the Contingent Deferred Sales Load
------------------------------------------------------------
The contingent deferred sales load is waived for any partial or complete
redemption following death or disability (as defined in the Internal Revenue
Code) of a shareholder (including one who owns the shares with his or her spouse
as a joint tenant with rights of survivorship) from an account in which the
deceased or disabled is named. The Underwriter may require documentation
- 15 -
<PAGE>
prior to waiver of the load, including death certificates, physicians'
certificates, etc.
All sales loads imposed on redemptions are paid to the Underwriter. In
determining whether the contingent deferred sales load is payable under each
Class of shares, it is assumed that shares not subject to the contingent
deferred sales load are the first redeemed followed by other shares held for the
longest period of time. The contingent deferred sales load will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that you open an account and purchase 1,000 shares
at $10 per share and that six months later the NAV per share is $12 and, during
such time, you have acquired 50 additional shares through reinvestment of
distributions. If at such time you should redeem 450 shares (proceeds of
$5,400), 50 shares will not be subject to the load because of dividend
reinvestment. With respect to the remaining 400 shares, the load is applied only
to the original cost of $10 per share and not to the increase in NAV of $2 per
share. Therefore, $4,000 of the $5,400 redemption proceeds will be charged the
load. At the rate of 5.00%, the contingent deferred sales load would be $200. At
the rate of 1.00%, the contingent deferred sales load would be $40. In
determining whether an amount is available for redemption without incurring a
deferred sales load, the purchase payments made for all Class B shares in your
account are aggregated and the purchase payments made for all Class C shares in
your account are aggregated.
DISTRIBUTION PLANS
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted three
separate plans of distribution under which each of its three Classes of shares
may directly incur or reimburse the Underwriter for certain expenses related to
the distribution of its shares, including payments to securities dealers and
other persons, including the Underwriter and its affiliates, who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of Fund shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by the Transfer Agent or the Trust;
expenses of formulating and implementing marketing and promotional activities,
including direct mail promotions and mass media advertising; expenses of
preparing, printing and distributing sales literature and prospectuses and
statements of additional information and reports for recipients other than
existing shareholders of the Fund; expenses of obtaining such
- 16 -
<PAGE>
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of each of the respective Classes.
The annual limitation for payment of expenses pursuant to the Class A Plan
is .25% of the Fund's average daily net assets allocable 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 allocable to Class
B shares and Class C shares, respectively. The payments permitted by the Class B
Plan and the Class C Plan fall into two categories. First, the Class B shares
and the Class C shares may each directly incur or reimburse the Underwriter in
an amount not to exceed .75% per year of the Fund's average daily net assets
allocable to Class B shares and Class C shares for certain distribution-related
expenses as described above. The Class B Plan and Class C Plan also provide for
the payment of an account maintenance fee of up to .25% per year of the Fund's
average daily net assets allocable to Class B shares and Class C shares, which
may be paid to dealers based on the average value of Fund shares owned by
clients of such dealers. Because these fees are paid out of the Fund's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales loads. In the
event a Plan is terminated by the Trust in accordance with its terms, the Fund
will not be required to make any payments for expenses incurred after the date
the Plan terminates. The Underwriter may make payments to dealers and other
persons in an amount up to .75% per annum of the average value of Class B and
Class C shares owned by their clients, in addition to the .25% account
maintenance fee described above.
REDEEMING YOUR SHARES
To redeem your shares, send a written request to us c/o our Transfer Agent,
Countrywide Fund Services, with your name, account number and the amount you
wish to redeem. You must sign your request exactly as your name appears on the
Fund's account records. Mail your written redemption request to:
WELLS S&P REIT INDEX FUND
C/O COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
If you would like your redemption proceeds deposited free of charge
directly into your account with a commercial bank or other depository
institution via an Automated Clearing House (ACH) transaction. Contact the
Transfer Agent for more information about ACH transactions.
- 17 -
<PAGE>
We redeem shares based on the current NAV on the day we receive a valid
request for redemption, less any contingent deferred sales load due on the
redeemed shares. Be sure to review "Buying Fund Shares" above to determine
whether your redemption is subject to a contingent deferred sales load.
You may also place a wire redemption request through your broker-dealer to
redeem your shares. The broker-dealer is responsible for ensuring that
redemption requests are transmitted to us in proper form in a timely manner. The
broker-dealer may charge you additional or different fees for redeeming shares
than those described in this Prospectus. If you request a redemption by wire,
you will be charged a $9 processing fee. We reserve the right to change the
processing fee upon thirty days' notice. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to your designated account.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE is required for any redemption which is $25,000 or more,
which is mailed to an address other than your address of record or if your
name(s) or address on your account has been changed within thirty days.
Additional Information About Accounts and Redemptions
- -----------------------------------------------------
SMALL ACCOUNTS. Due to the high costs of maintaining small accounts, we may ask
that you increase your account balance if your account falls below $2,500 (or
$1,000 for a retirement account). If the account remains under $2,500 (or $1,000
for a retirement account) thirty days after we notify you, we may close your
account and send you the proceeds, less any applicable sales load.
AUTOMATIC WITHDRAWAL PLAN. If your account's value is at least $5,000, you may
be eligible for our automatic withdrawal program that allows you to withdraw a
fixed amount from your account each month, calendar quarter or year. Under the
program, we send withdrawals to you or to another person you designate. Each
withdrawal must be $50 or more, and you should note that a withdrawal involves a
redemption of shares that may result in a gain or loss for federal income tax
purposes. Please contact us for more information about the automatic withdrawal
program.
- 18 -
<PAGE>
REINVESTMENT PRIVILEGE. If you have redeemed shares of the Fund, you may
reinvest all or part of the proceeds without any additional sales load. This
reinvestment must occur within ninety days of the redemption and the privilege
may only be exercised once per year.
MISCELLANEOUS. In connection with all redemptions of Fund shares, we observe the
following policies and procedures:
o We may refuse any redemption request involving recently purchased shares
until your check for the recently purchased shares has cleared. To
eliminate this delay, you may purchase shares of the Fund by certified
check or wire.
o We may delay mailing redemption proceeds for up to seven days (most
redemption proceeds are mailed within three days after receipt of a
request),
o We may process any redemption request that exceeds $250,000 or 1% of the
Fund's assets (whichever is less) by paying the redemption proceeds in
portfolio securities rather than cash (typically referred to as "redemption
in kind", see the Statement of Additional Information for further
discussion).
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment
income, if any, on a quarterly basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
You should indicate your choice of option on your application. If no option
is selected, distributions will automatically be reinvested in additional shares
of the Fund. All distributions will be based on the NAV in effect on the payable
date.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
Distributions are paid according to the following options:
SHARE OPTION - income distributions and capital gains distributions
reinvested In additional shares without a sales load.
INCOME OPTION - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares without a sales
load.
CASH OPTION - income distributions and capital gains distributions paid in
cash.
- --------------------------------------------------------------------------------
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then-current NAV
and your account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
An investor who has received any dividend or capital gains distribution
from the Fund in cash may return the distribution to the Transfer Agent within
thirty days of the distribution date for reinvestment at the NAV next determined
after its return. The investor or his dealer must notify the Transfer Agent that
a distribution is being reinvested pursuant to this provision.
TAXES
The Fund intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. Distributions of
net investment income as well as from net realized short-term capital gains, if
any, are taxable as ordinary income. Dividends distributed by the Fund from net
investment income are not eligible for the dividends received deduction
available to corporations.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) by the Fund are taxable to you as
capital gains, without regard to how long you have held your Fund shares.
Capital gains distributions may be taxable at different rates depending on the
length of time the Fund holds its assets. Redemptions of shares of the Fund are
taxable events on which you may realize a gain or loss.
- 20 -
<PAGE>
The Fund will mail a statement to you annually indicating the amount and
federal income tax status of all distributions made during the year. Because
REITs cannot provide complete information about the taxability of their
distributions until after the end of the calendar year, the Trust plans to ask
the Internal Revenue Service each year for an extension on issuing Forms
1099-DIV ("1099s") for the Fund. If this request is approved, we expect to mail
1099's to Fund shareholders in non-retirement plan accounts during February. The
Fund's distributions may be subject to federal income tax whether received in
cash or reinvested in additional shares. In addition to federal taxes, you may
be subject to state and local taxes on distributions.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the public offering price
(NAV plus applicable sales load) of Class A shares and the share price (NAV) of
Class B and C shares is determined as of the close of the regular session of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time). The
Trust is open for business on each day the New York Stock Exchange is open for
business and on any other day when there is sufficient trading in the Fund's
investments that its NAV might be materially affected. The NAV per share of the
Fund is calculated by dividing the sum of the value of the securities held by
the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent. The price at which a purchase or redemption of Fund shares
is effected is based on the next calculation of NAV after the order is placed.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (3) securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (4) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures
- 21 -
<PAGE>
established by and under the general supervision of the Board of Trustees. The
NAV per share of the Fund will fluctuate with the value of the securities it
holds.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance. Certain information reflects financial results for
a single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information, which
relates only to the Class A shares of the Fund, has been audited by Arthur
Andersen LLP, whose report, along with the Fund's financial statements, are
included in the Statement of Additional Information, which is available upon
request. Information is not provided for either Class B or Class C shares of the
Fund because the public offering of these Classes has not yet commenced as of
the date of this Prospectus.
FOR THE PERIOD ENDED DECEMBER 31, 1998 (A)
PER SHARE DATA FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD:
Net asset value at beginning of period $ 10.00
----------
Income from investment operations:
Net investment income 0.26
Net realized and unrealized losses on investments (2.20)
----------
Total from investment operations (1.94)
----------
Less distributions:
Dividends from net investment income (0.26)
Return of capital (0.05)
----------
Total distributions (0.31)
----------
Net asset value at end of period $ 7.75
==========
RATIOS AND SUPPLEMENTAL DATA:
Total return (B) (19.62)%
==========
Net assets at end of period (000's) $ 11,986
==========
Ratio of net expenses to average net assets (C) 0.99%(D)
Ratio of net investment income to average net assets 5.33%(D)
Portfolio turnover rate 9%(D)
- --------------------------------------------------------------------------------
(A) Represents the period from the commencement of operations (March 2, 1998)
through December 31, 1998.
(B) Total return shown excludes the effect of applicable sales loads and is not
annualized.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 3.30% (D).
(D) Annualized.
- 22 -
<PAGE>
WELLS S&P REIT INDEX FUND
3885 Holcomb Bridge Road
Atlanta, Georgia 30092
BOARD OF TRUSTEES
Leo F. Wells III
Brian M. Conlon
John L. Bell
Richard W. Carpenter
Bud Carter
Donald S. Moss
Walter W. Sessoms
INVESTMENT ADVISER
WELLS ASSET MANAGEMENT, INC.
3885 Holcomb Bridge Road
Atlanta, Georgia 30092
SUB-ADVISER
GATEWAY INVESTMENT ADVISERS, L.P.
400 TechneCenter Drive
Milford, Ohio 45150
UNDERWRITER
WELLS INVESTMENT SECURITIES, INC.
3885 Holcomb Bridge Road
Atlanta, Georgia 30092
INDEPENDENT AUDITORS
ARTHUR ANDERSEN LLP
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Services
- --------------------
Nationwide: (Toll-Free) 800-282-1581
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during the last fiscal year.
- 23 -
<PAGE>
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-800-282-1581.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the Fund are available on the Commission's Internet Site at http://www.sec.gov.
Copies of information on the Commission's Internet Site may be obtained, upon
payment of a duplicating fee, by writing to: Securities and Exchange Commission,
Public Reference Section, Washington, D.C. 20549-6009.
File No. 811-8355
- 24 -
<PAGE>
WELLS FAMILY OF REAL ESTATE FUNDS
---------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May 1, 1999
WELLS S&P REIT INDEX FUND
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of the Wells S&P REIT Index Fund (the "Fund")
dated May 1, 1999. A copy of the Fund's Prospectus can be obtained by writing
the Fund at 312 Walnut Street, 21st floor, Cincinnati, Ohio 45202 or by calling
the Fund 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................................ 4
INVESTMENT LIMITATIONS....................................................... 6
TRUSTEES AND OFFICERS........................................................ 8
THE INVESTMENT ADVISER....................................................... 11
THE SUB-ADVISER.............................................................. 13
THE UNDERWRITER.............................................................. 13
DISTRIBUTION PLANS........................................................... 14
SECURITIES TRANSACTIONS...................................................... 16
PORTFOLIO TURNOVER........................................................... 18
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE......................... 18
OTHER PURCHASE INFORMATION................................................... 18
TAXES .................................................................... 20
REDEMPTION IN KIND........................................................... 22
HISTORICAL PERFORMANCE INFORMATION........................................... 22
PRINCIPAL SECURITY HOLDERS................................................... 25
CUSTODIAN.................................................................... 25
AUDITORS .................................................................... 25
COUNTRYWIDE FUND SERVICES, INC............................................... 25
ANNUAL REPORT................................................................ 27
- 2 -
<PAGE>
THE TRUST
- ---------
The Wells Family of Real Estate Funds (the "Trust"), an open-end management
investment company, was organized as an Ohio business trust on June 4, 1997. The
Trust currently offers two series of shares, the Wells S&P REIT Index Fund and
the Wells S&P REIT Variable Annuity Index Fund. This Statement of Additional
Information relates to the Wells S&P REIT Index Fund (the "Fund"). Information
relating to the Wells S&P REIT Index Variable Annuity Fund is contained in a
separate Statement of Additional Information.
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 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.
Each Class of shares represent an interest in the same assets of the Fund,
have the same rights and are identical in all material respects except that (1)
Class B and Class C shares bear the expenses of higher distribution fees; (2)
Class B shares automatically convert to Class A shares after approximately 8
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, including transfer agent fees attributable to a specific class of
shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expense of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares;
and (4) each Class has exclusive voting rights with respect to matters relating
to its own distribution arrangements. The Board of Trustees may classify and
reclassify the shares of the Fund into additional classes of shares at a future
date.
- 3 -
<PAGE>
Shares of the Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Trust does not normally hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon the removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Trust's outstanding shares.
The Trust will comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 (the "1940 Act") in order to facilitate communications among
shareholders.
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
Strategies 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.
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
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<PAGE>
perfected security interest in the Repurchase Securities and can therefore sell
the instrument promptly. Under guidelines issued by the Trustees, the investment
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 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 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
investment 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.
Money Market investments mary also include shares of money
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<PAGE>
market investment companies. The Fund may invest in shares of money market
investment companies to the extent permitted by the 1940 Act. Investments by the
Fund in shares of other investment companies may result in duplication of
advisory and administrative fees and other expenses.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include direct
obligations of the U.S. Treasury, securities guaranteed as to interest and
principal by the U.S. Government such as obligations of the Government National
Mortgage Association, as well as securities issued or guaranteed as to interest
and principal by U.S. Government authorities, agencies and instrumentalities
such as the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, the Federal Land Bank, the Federal Farm Credit Banks, the
Federal Home Loan Banks, the Student Loan Marketing Association, the Small
Business Administration, the Bank for Cooperatives, the Federal Intermediate
Bank, the Federal Financing Bank, the Resolution Funding Corporation, the
Financing Corporation of America and the Tennessee Valley Authority. U.S.
Government Securities may be acquired subject to repurchase agreements. While
obligations of some U.S. Government sponsored entities are supported by the full
faith and credit of the U.S. Government, several are supported by the right of
the issuer to borrow from the U.S. Government, and still others are supported
only by the credit of the issuer itself. The guarantee of the U.S. Government
does not extend to the yield or value of the U.S. Government Securities held by
the Fund or to the Fund's shares.
BORROWING. The Fund may borrow, temporarily, up to 5% of its total assets
for extraordinary purposes and may increase this limit to 33.3% of its total
assets to meet redemption requests which might otherwise require untimely
disposition of portfolio holdings. To the extent the Fund borrows for these
purposes, the effects of market price fluctuations on portfolio net asset value
will be exaggerated. If, while such borrowing is in effect, the value of the
Fund's assets declines, the Fund would be forced to liquidate portfolio
securities when it is disadvantageous to do so. The Fund would incur interest
and other transaction costs in connection with such borrowing. The Fund will not
make any additional investments while its borrowings are outstanding.
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.
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<PAGE>
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;
(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;
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<PAGE>
(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.
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.
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<PAGE>
Compensation
Name Age Position Held From the Trust
- ---- --- ------------- --------------
*Leo F. Wells III 54 President $ 0
and Trustee
*Brian M. Conlon 40 Executive Vice
President
and Trustee 0
+John L. Bell 58 Trustee 1,000
+Richard W. Carpenter 61 Trustee 1,000
Bud Carter 61 Trustee 750
Donald S. Moss 63 Trustee 750
+Walter W. Sessoms 64 Trustee 1,000
Robert G. Dorsey 42 Vice President 0
Mark J. Seger 37 Treasurer 0
John F. Splain 42 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. 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.
BRIAN M. CONLON, 3885 Holcomb Bridge Road, Atlanta, Georgia, is the
Executive Vice President and Chief Operating Officer of Wells Capital, Inc. 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
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<PAGE>
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 (an oil terminal); Leisure
Technology, Inc. (a real estate company); and Wyatt Energy, Inc. (an oil
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.
BUD CARTER, 100 Mt. Shasta Lane, Alpharetta, Georgia, is the Regional
Manager Senior Vice President of The Executive Committee. He is also Board
Manager of Warebase 9 (an Internet Media Company).
DONALD S. MOSS, 181 Hummingbird Circle, Highlands, North Carolina, is
presently retired. He previously worked for Avon Products, Incorporated.
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, 1997.
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio, is President and
Treasurer of Countrywide Fund Services, Inc. (the Fund's administrator and
transfer agent) and CW Fund Distributors, Inc. (a registered broker-dealer) and
First Vice President and Treasurer of Countrywide Financial Services, Inc. (a
financial services holding company) and Countrywide Investments, Inc. (a
registered investment adviser and broker-dealer). He is also Vice President of
Countrywide Tax-Free Trust, Countrywide Strategic Trust, Countrywide Investment
Trust, Markman MultiFund Trust, Maplewood Investment Trust, a series company,
The Thermo Opportunity Fund, Inc., Dean Family of Funds, The New York State
Opportunity Funds, Brundage, Story and Rose Investment Trust, Lake Shore Family
of Funds, Boyar Value Fund, Inc., Profit Funds Investment Trust,
Atalanta/Sosnoff Investment Trust, UC Investment Trust, The bjurman Funds and
The Winter Harbor Fund and Assistant Vice President of Williamsburg
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<PAGE>
Investment Trust, Schwartz Investment Trust, The Tuscarora Investment Trust, The
Gannett Welsh & Kotler Funds, Firsthand Funds, The Westport Funds, Albemarle
Investment Trust, and The James Advantage Funds, all of which are registered
investment companies.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio, is First Vice
President and Chief Operating Officer of Countrywide Fund Services, Inc. and CW
Fund Distributors, Inc. He is also Treasurer of Countrywide Tax-Free Trust,
Countrywide Strategic Trust, Countrywide Investment Trust, Williamsburg
Investment Trust, Markman MultiFund Trust, Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund, Inc., The New York State Opportunity
Funds, Dean Family of Funds, Brundage, Story and Rose Investment Trust, Lake
Shore Family of Funds, Albemarle Investment Trust, Atalanta/Sosnoff Investment
Trust, UC Investment Trust, The Bjurman Funds, and The Winter Harbor Fund and
Assistant Treasurer of Schwartz Investment Trust, The Tuscarora Investment
Trust, The Gannett Welsh & Kotler Funds, Firsthand Funds, The Westport Funds,
Boyar Value Fund, Inc., and The James Advantage Funds.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio, is First Vice
President, Secretary and General Counsel of Countrywide Fund Services, Inc., CW
Fund Distributors, Inc., Countrywide Investments, Inc. and Countrywide Financial
Services, Inc. He is also Secretary of Countrywide Tax-Free Trust, Countrywide
Strategic Trust, Countrywide Investment Trust, Williamsburg Investment Trust,
Markman MultiFund Trust, The Tuscarora Investment Trust, Maplewood Investment
Trust, a series company, The Thermo Opportunity Fund, Inc., Lake Shore Family of
Funds, Brundage, Story and Rose Investment Trust, Boyar Value Fund, Inc., Profit
Funds Investment Trust, The Bjurman Funds, and The Winter Harbor Fund and
Assistant Secretary of Schwartz Investment Trust, The Gannett Welsh & Kotler
Funds, Firsthand Funds, The New York State Opportunity Funds, Dean Family of
Funds, The Westport Funds, Atalanta/Sosnoff Investment Trust, Albemarle
Investment Trust, The James Advantage Funds, and UC Investment Trust.
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
manager. 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
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<PAGE>
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 provides general investment supervisory services to the
Fund and manages the Fund's business affairs. 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. For the fiscal period ended December 31, 1998, the
Fund accrued advisory fees of $26,576. However, in order to reduce the operating
expenses of the Fund, the Adviser voluntarily waived its entire advisory fee and
reimbursed the Fund for $97,030 of its other operating expenses.
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 fees and expenses in connection with membership in investment
company organizations, brokerage fees and commissions, legal, auditing and
accouting expenses, expenses of registering shares under federal and state
securities laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations and 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 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 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
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<PAGE>
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") manages the Fund's
investments pursuant to a 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. For the fiscal
period ended December 31, 1998, the Adviser paid the Sub-Adviser fees of
$21,623.
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"), 3885 Holcomb Bridge
Road, Atlanta, Georgia 30092, is the principal
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<PAGE>
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.
For the fiscal period ended December 31, 1998, the aggregate commissions
collected on sales of the Fund's shares were $357,246, of which the Underwriter
paid $322,162 to unaffiliated broker-dealers in the selling network and retained
$35,084 from underwriting and broker commissions.
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 Plans" 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.
DISTRIBUTION PLANS
- ------------------
CLASS A SHARES -- As stated in the Prospectus, the Fund has adopted a plan
of distribution with respect to the Class A shares of the Fund (the "Class A
Plan") pursuant to Rule 12b-1 1940 Act which permits the Fund to pay for
expenses incurred in the distribution and promotion of its Class A 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 securities dealers or other firms who have executed a
distribution or service agreement with the Underwriter. The Class A 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 allocable
to its Class A shares. Unreimbursed expenses will not be carried over from year
to year.
- 14 -
<PAGE>
CLASS B SHARES AND CLASS C SHARES -- The Fund has also adopted plans of
distribution with respect to the Class B shares and Class C shares of the Fund
(the "Class B Plan" and the "Class C Plan"). The Class B Plan and the Class C
Plan provide for two categories of payments. First, the Plans provide for the
payment to the Underwriter of an account maintenance fee, in an amount equal to
an annual rate of .25% of the Fund's average daily net assets allocable to Class
B and Class C shares, which may be paid to other dealers based on the average
value of the Fund's Class B and Class C shares owned by clients of such dealers.
In addition, the Fund may pay up to an additional .75% per annum of its daily
net assets allocable to Class B and Class C shares for expenses incurred in the
distribution and promotion of the shares, including but not limited to,
prospectus costs for prospective shareholders, costs of responding to
prospective shareholder inquiries, payments to brokers and dealers for selling
and assisting in the distribution of Class B and Class C shares, costs of
advertising and promotion and any other expenses related to the distribution of
the Class B and Class C shares. Unreimbursed expenditures will not be carried
over from year to year. The Fund may make payments to dealers and other persons
in an amount up to .75% per annum of the average value of Class B and Class C
shares owned by their clients, in addition to the .25% account maintenance fee
described above.
GENERAL INFORMATION. The continuance of the Plans 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 Plans (the "Independent Trustees")
at a meeting called for the purpose of voting on such continuance. A Plan may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of the applicable
class of the Fund. In the event a 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 Plans may not be amended to increase materially
the amount to be spent for distribution without shareholder approval. All
material amendments to the Plans must be approved by a vote of the Trust's Board
of Trustees and by a vote of the Independent Trustees.
In approving the Plans, 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 Plans will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plans should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification
- 15 -
<PAGE>
and less chance of disruption of planned investment strategies. The Plans will
be renewed only if the Trustees make a similar determination for each subsequent
year of the Plans. There can be no assurance that the benefits anticipated from
the expenditure of the Fund's assets for distribution will be realized. While
the Plans are in effect, all amounts spent by the Fund pursuant to the Plans and
the purposes for which such expenditures were made must be reported quarterly to
the Board of Trustees for its review. Distribution expenses attributable to the
sale of more than one class of shares of the Fund will be allocated at least
annually to each class of shares based upon the ratio in which the sales of each
class of shares bears to the sales of all the shares of the Fund. In addition,
the selection and nomination of those Trustees who are not interested persons of
the Trust are committed to the discretion of the Independent Trustees during
such period.
By reason of his controlling interest in the Adviser, Leo F. Wells may be
deemed to have a financial interest in the operation of the Plans.
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. The Fund paid
brokerage commissions of $323,915 the fiscal period ended December 31, 1998.
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
- 16 -
<PAGE>
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. During the fiscal period
ended December 31, 1998, the amount of brokerage transactions and related
commissions for the Fund directed to brokers due to research services provided
were $14,396,170 and $22,880 respectively.
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.
Subject to the requirements of the 1940 Act and procedures adopted by the
Board of Trustees, the Fund may execute portfolio transactions through any
broker or dealer and pay brokerage commissions to a broker (i) which is an
affiliated person of the Trust, or (ii) which is an affiliated person of such
person, or (iii) an affiliated person of which is an affiliated person of the
Trust, the Adviser, the Sub-Adviser or the Underwriter.
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 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.
- 17 -
<PAGE>
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. For the
fiscal period ended December 31, 1998, the Fund's annualized portfolio turnover
rate was 9%.
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
(normally 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 and
explains any applicable sales loads. Additional information with respect to
certain types of purchases of Class A shares of the Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined below) of Class A shares
of the Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing Class A shares with the amount of his
current purchases in order
- 18 -
<PAGE>
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 below) of Class
A 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. 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. For purposes of determining the applicable sales load
and for purposes of the Letter of Intent and Right of Accumulation privileges, a
purchaser includes an individual, his or her spouse and their children under the
age of 21, purchasing shares for his, her or their own account; a trustee or
other fiduciary purchasing shares for a single fiduciary account although more
than one beneficiary is involved; employees of a common employer, provided that
economies of scale are realized through remittances from a single source and
quarterly confirmation of such purchases; or an organized group,
- 19 -
<PAGE>
provided that the purchases are made through a central administration, or a
single dealer, or by other means which result in economy of sales effort or
expense. Contact the Transfer Agent for additional information concerning
purchases at net asset value or at reduced sales loads.
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 Underwriter. 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, (1) 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
currencies; and (2) 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
- 20 -
<PAGE>
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.
The Internal Revenue Code requires a REIT to distribute at least 95% of its
taxable income to investors. In many cases, however, because of "non-cash"
expenses such as property depreciation, an equity REIT's cash flow will exceed
its taxable income. The REIT may distribute this excess cash to offer a more
competitive yield (in other words, provide investors with a higher
distribution). This portion of the distribution is classified as return of
capital. The portion of your distributions that is classified as a return of
capital is generally not taxable to you. However, when you receive a return of
capital, your cost basis (that is, the adjusted cost of your investment, which
is used to determine a capital gain or loss for tax purposes) is decreased by
the amount of the return of capital. This, in turn, will affect the capital gain
or loss you realize when you sell or exchange any of your Fund shares.
Two other important tax considerations about return of capital:
* If you do not reinvest your distributions (that is, you receive your
distributions in cash), your original investment in the Fund will be
reduced by the amount of return of capital and capital gains included
in the distribution.
* A return of capital is generally not taxable to you; however, any
return of capital distribution would be taxable as a capital gain once
your cost basis is reduced to zero (which could happen if you do not
reinvest your distributions and return of capital in those
distributions is significant).
- 21 -
<PAGE>
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.
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:
n
P (1 + T) = 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
- 22 -
<PAGE>
which, if included, would reduce total return. The Fund's (Class A shares)total
return (excluding the effect of applicable sales loads) since its inception on
March 2, 1998 through December 31, 1998 is -19.62%. 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:
6
Yield = 2[(a-b/cd + 1) - 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 yield of the Fund for the thirty days
ended December 31, 1998 was 6.16%.
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
- 23 -
<PAGE>
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 no 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.
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
- 24 -
<PAGE>
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.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of January 31, 1999, Donaldson Lufkin & Jenrette Securities Corporation,
P.O. Box 2052, Jersey City, New Jersey, owned of record 7.8% of the outstanding
shares of the Fund and Dingle & Co., C/O Comerica Bank, P.O. Box 75000, Detroit,
Michigan, owned of record 7.5% of the outstanding shares of the Fund.
As of January 31, 1999, the Trustees and officers of the Trust as a group
owned of record or beneficially less than one percent of the outstanding shares
of the Fund.
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.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending December 31, 1999. 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
- 25 -
<PAGE>
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 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.
For the fiscal period ended December 31, 1998, the Transfer Agent received
transfer agency fees, accounting services fees and administrative services fees
of $10,800, $18,000 and $10,042, respectively, from the Fund.
- 26 -
<PAGE>
ANNUAL REPORT
- -------------
The Fund's Annual Financial Statements as of December 31, 1998, which have
been audited by Arthur Andersen LLP, are attached to this Statement of
Additional Information.
- 27 -
<PAGE>
================================================================================
Wells S&P REIT Index Fund
-------------------------
ANNUAL REPORT
December 31, 1998
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>
February 19, 1999
Dear Shareholder:
At Wells, we are pleased to present the 1998 annual results for the Wells S&P
REIT Index Fund. The Fund is the first of its kind to meet the increasing demand
for a real estate investment alternative offering broad diversification and
liquidity, along with growth and income opportunities. The Fund primarily seeks
investment results that correspond to the performance of the S&P REIT Index and
normally invests at least 90% of assets in stocks included in the Index, in
approximately the same proportion. It also seeks a correlation between the
performance of the Fund and that of the Index of at least 0.95, not including
expenses.
Throughout the year, the S&P REIT Index represented approximately 90% of the
total U.S. REIT market capitalization, and 100% of REIT property types. These
investments included 105 REITs, 103 of which are on the New York Stock Exchange,
one on the American Stock Exchange, and one on the NASDAQ Stock Exchange. From
its inception on March 2, 1998, until April 1, 1998, the Fund was primarily
invested in cash. As a result, the Fund was unable to participate in the first
REIT market rally of 1998. For the period from inception through December 31,
1998, the Fund's total return (excluding the impact of applicable sales loads)
was -19.62%, which trailed the S&P REIT Index's total return of -17.65% by
1.97%. Of course, the S&P REIT Index does not reflect any expenses. As of
year-end, the Fund's portfolio was fully invested with no more than 5% of its
holdings in cash.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE WELLS S&P REIT INDEX FUND AND THE S&P REIT INDEX
WELLS S&P REIT INDEX FUND:
--------------------------
MONTHLY
DATE RETURN BALANCE
03/02/98 9,600
03/31/98 0.30% 9,629
04/30/98 -3.99% 9,245
05/31/98 -0.93% 9,158
06/30/98 -0.84% 9,082
07/31/98 -7.46% 8,404
08/31/98 -9.56% 7,600
09/30/98 5.99% 8,055
10/31/98 -3.05% 7,810
11/30/98 1.00% 7,889
12/31/98 -2.18% 7,717
S&P REIT INDEX:
---------------
MONTHLY
DATE RETURN BALANCE
03/02/98 10,000
03/31/98 1.96% 10,196
04/30/98 -3.62% 9,827
05/31/98 -0.79% 9,749
06/30/98 -0.62% 9,689
07/31/98 -7.50% 8,963
08/31/98 -9.84% 8,081
09/30/98 6.15% 8,577
10/31/98 -2.90% 8,329
11/30/98 0.96% 8,409
12/31/98 -2.07% 8,235
-------------------------
Wells S&P REIT Index Fund
Total Return
Since Inception* (22.83)%
-------------------------
* Commencement of operations was March 2, 1998.
Past performance is not predictive of future performance.
<PAGE>
UNDERSTANDING WHY THE REIT MARKET WAS OFF IN 1998:
Understanding why the REIT market was off in 1998 is important to projecting
1999. We believe two main factors caused the correction of 1998: high valuation
and decelerating earnings growth.
HIGH VALUATION - at the beginning of 1998 REITs were trading at peak
valuations based on historical measures.
DECELERATING EARNINGS GROWTH - 1998 turned out to be a great year for
cash-flow growth, about 13-14%. This clearly has to be seen as a peak
earnings year. Growth is anticipated to slow in 1999 and 2000 to about 9.5%
and 9%, respectively. Many people focused on the fact that growth was
better than the broader market but failed to recognize the importance of
the marginal direction, which was down.
Weakening fundamentals and too much equity issuance also contributed to the low
returns in the REIT market in 1998 but, in our opinion, to a smaller degree of
impact.
THE OUTLOOK FOR THE REIT MARKET IN 1999:
The outlook for the REIT market in 1999 looks very bullish. Research analysts
believe low valuations have overshot the fundamentals and lower cash flow
estimates should be met in 1999 and 2000. Also, vacancy rates are at or near all
time lows and rent growth should continue. 1999 and 2000 should be characterized
by moderating fundamentals, lower inflation, and lower interest rates. Total
return expectations are projected to be in the positive double-digit range.
THE LONG-TERM OUTLOOK FOR THE REIT MARKET:
Substantial, long-term growth has been maintained and continues to be expected.
The total REIT market (as tracked by the National Association of Real Estate
Investment Trusts, "NAREIT") which the S&P REIT Index mimics has a 25-year
performance history of an average total return of 12.01% compared to the S&P 500
Index total return of 11.25%. The S&P REIT Index dividend yield during the same
period has averaged 9.56% while the S&P 500 averaged 3.90%. The 1998 S&P REIT
Index total return was less than 1% off that of the NAREIT 1998 total return.
We are proud of the Wells S&P REIT Index Fund and we're looking forward to
adding many more distinctive products to our product base in the next few years.
We are also pleased to offer you more information about the Wells organization
via our website at www.WellsREF.com. This site is regularly updated.
Thank you for investing in the Wells S&P REIT Index Fund. Your questions and
comments are always welcome. Please do not hesitate to call us at (800) 282-1581
with any of your needs.
Yours truly,
Leo F. Wells, III
President
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
================================================================================
ASSETS
Investment securities:
At acquisition cost $ 13,434,959
============
At market value (Note 1) $ 11,977,023
Dividends receivable 84,326
Receivable for capital shares sold 62,230
Receivable for securities sold 74,117
Organization expenses, net (Note 1) 31,558
Other assets 29,632
------------
TOTAL ASSETS 12,258,886
------------
LIABILITIES
Dividends payable 14,767
Payable for capital shares redeemed 80,638
Payable for securities purchased 139,527
Payable to affiliates (Note 3) 24,182
Other accrued expenses and liabilities 14,094
------------
TOTAL LIABILITIES 273,208
------------
NET ASSETS $ 11,985,678
============
Net assets consist of:
Paid-in capital $ 13,629,272
Accumulated net realized losses from security transactions (185,658)
Net unrealized depreciation on investments (1,457,936)
------------
Net assets $ 11,985,678
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 1,546,689
============
Net asset value and redemption price per share (Note 1) $ 7.75
============
Maximum offering price per share (Note 1) $ 8.07
============
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998 (A)
================================================================================
INVESTMENT INCOME
Dividends $ 335,133
-----------
EXPENSES
Custodian fees 38,887
Investment advisory fees (Note 3) 26,576
Registration fees 24,365
Insurance expense 19,644
Accounting services fees (Note 3) 18,000
Postage and supplies 11,311
Transfer agent fees (Note 3) 10,800
Administrative services fees (Note 3) 10,042
Amortization of organization expenses (Note 1) 6,311
Professional fees 4,141
Trustees' fees and expenses 2,250
Pricing expenses 2,108
Reports to shareholders 1,075
-----------
TOTAL EXPENSES 175,510
Fees waived and expenses reimbursed by the Adviser (Note 3) (123,606)
-----------
NET EXPENSES 51,904
-----------
NET INVESTMENT INCOME 283,229
-----------
REALIZED AND UNREALIZED LOSSES
ON INVESTMENTS
Net realized losses from security transactions (185,658)
Net change in unrealized appreciation/
depreciation on investments (1,457,936)
-----------
NET REALIZED AND UNREALIZED
LOSSES ON INVESTMENTS (1,643,594)
-----------
NET DECREASE IN NET ASSETS FROM
OPERATIONS $(1,360,365)
===========
(A) Represents the period from the commencement of operations (March 2, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998 (A)
================================================================================
FROM OPERATIONS:
Net investment income $ 283,229
Net realized losses from security transactions (185,658)
Net change in unrealized appreciation/depreciation
on investments (1,457,936)
------------
Net decrease in net assets from operations (1,360,365)
------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (283,229)
Return of capital (61,104)
------------
Decrease in net assets from distributions to shareholders (344,333)
------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 13,598,352
Net asset value of shares issued in
reinvestment of distributions to shareholders 318,441
Payments for shares redeemed (326,417)
------------
Net increase in net assets from capital share transactions 13,590,376
------------
TOTAL INCREASE IN NET ASSETS 11,885,678
NET ASSETS:
Beginning of period (Note 1) 100,000
------------
End of period $ 11,985,678
============
CAPITAL SHARE ACTIVITY:
Shares sold 1,537,513
Shares issued in reinvestment of
distributions to shareholders 39,308
Shares redeemed (40,132)
------------
Net increase in shares outstanding 1,536,689
Shares outstanding, beginning of period (Note 1) 10,000
------------
Shares outstanding, end of period 1,546,689
============
(A) Represents the period from the commencement of operations (March 2, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED DECEMBER 31, 1998 (A)
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD:
Net asset value at beginning of period $ 10.00
----------
Income from investment operations:
Net investment income 0.26
Net realized and unrealized losses on investments (2.20)
----------
Total from investment operations (1.94)
----------
Less distributions:
Dividends from net investment income (0.26)
Return of capital (0.05)
----------
Total distributions (0.31)
----------
Net asset value at end of period $ 7.75
==========
RATIOS AND SUPPLEMENTAL DATA:
Total return (B) (19.62)%
==========
Net assets at end of period (000's) $ 11,986
==========
Ratio of net expenses to average net assets (C) 0.99%(D)
Ratio of net investment income to average net assets 5.33%(D)
Portfolio turnover rate 9%(D)
- --------------------------------------------------------------------------------
(A) Represents the period from the commencement of operations (March 2, 1998)
through December 31, 1998.
(B) Total return shown excludes the effect of applicable sales loads and is not
annualized.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 3.30% (D).
(D) Annualized.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
================================================================================
MARKET
COMMON STOCKS - 97.7% SHARES VALUE
- --------------------------------------------------------------------------------
APARTMENT/RESIDENTIAL - 20.2%
Apartment Investment & Management Company - Class A 4,900 $ 182,219
Archstone Communities Trust 14,500 293,625
Associated Estates Realty Corp. 2,200 25,988
Avalon Bay Communities, Inc. 6,474 221,734
Berkshire Realty Company, Inc. 3,800 36,100
BRE Properties, Inc. - Class A 4,500 111,375
Camden Property Trust 4,475 116,350
Chateau Communities, Inc. 2,800 82,075
Colonial Properties Trust 2,600 69,225
Cornerstone Realty Income Trust, Inc. 4,300 45,150
Equity Residential Properties Trust 11,755 475,342
Essex Property Trust, Inc. 1,700 50,575
Gables Residential Trust 2,700 62,606
Irvine Apartment Communities, Inc. 2,000 63,750
Manufactured Home Communities, Inc. 2,700 67,669
Merry Land Properties, Inc.* 175 634
Mid-America Apartment Communities, Inc. 1,900 43,106
Pennsylvania Real Estate Investment Trust 1,300 25,269
Post Properties, Inc. 3,800 146,063
Smith (Charles E.) Residential Realty, Inc. 1,800 57,825
Summit Properties, Inc. 2,500 43,125
Sun Communities, Inc. 1,700 59,181
United Dominion Realty Trust, Inc. 10,500 108,281
Walden Residential Properties, Inc. 1,800 36,788
------------
2,424,055
------------
DIVERSIFIED - 8.3%
CCA Prison Realty Trust 2,200 45,100
Duke Realty Investments, Inc. 8,500 197,625
Franchise Finance Corporation of America 5,000 120,000
Glenborough Realty Trust, Inc. 3,200 65,200
Liberty Property Trust 6,600 162,525
MGI Properties, Inc. 1,400 39,112
National Golf Properties, Inc. 1,200 34,725
Pacific Gulf Properties, Inc. 2,000 40,125
Spieker Properties, Inc. 6,300 218,138
Washington Real Estate Investment Trust 3,600 67,050
------------
989,600
------------
HEALTH CARE - 8.3%
American Health Properties, Inc. 2,500 51,562
Health Care Property Investors, Inc. 3,100 95,325
Health Care REIT, Inc. 2,800 72,450
Healthcare Realty Trust, Inc. 4,033 89,986
HRPT Properties Trust 13,400 188,438
LTC Properties, Inc. 2,700 44,888
Meditrust Corp. 15,300 231,412
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
================================================================================
MARKET
COMMON STOCKS - 97.7% SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH CARE - 8.3% (CONTINUED)
National Health Investors, Inc. 2,400 $ 59,250
Nationwide Health Properties, Inc. 4,700 101,344
OMEGA Healthcare Investors, Inc. 2,100 63,394
------------
998,049
------------
HOTEL - 7.6%
Equity Inns, Inc. 3,600 34,650
FelCor Lodging Trust, Inc. 6,900 159,131
Hospitality Properties Trust 4,300 103,738
MeriStar Hospitality Corp. 4,700 87,244
Patriot American Hospitality, Inc. 14,500 87,000
RFS Hotel Investors, Inc. 2,500 30,625
Starwood Hotels & Resorts 17,500 397,031
Winston Hotels, Inc. 1,600 13,100
------------
912,519
------------
INDUSTRIAL/OFFICE - 27.2%
AMB Property Corp. 8,700 191,400
Arden Realty, Inc. 6,300 146,081
Bedford Property Investors, Inc. 2,300 38,812
Boston Properties, Inc. 6,400 195,200
Brandywine Realty Trust 3,900 69,712
CarrAmerica Realty Corp. 6,800 163,200
CenterPoint Properties Corp. 2,000 67,625
Cornerstone Properties, Inc. 10,300 160,938
Cousins Properties, Inc. 3,200 103,200
Crescent Real Estate Equities Company 12,200 280,600
EastGroup Properties, Inc. 1,700 31,344
Equity Office Properties Trust 26,200 628,800
First Industrial Realty Trust, Inc. 3,800 101,888
Highwoods Properties, Inc. 6,000 154,500
Kilroy Realty Corp. 2,800 64,400
Koger Equity, Inc. 2,600 44,688
Mack-Cali Realty Corp. 5,700 175,988
Meridian Industrial Trust, Inc. 3,200 75,200
Prentiss Properties Trust 3,900 87,019
ProLogis Trust 12,500 259,375
Reckson Associates Realty Corp. 4,100 90,969
TriNet Corporate Realty Trust, Inc. 2,500 66,875
Weeks Corp. 2,000 56,375
------------
3,254,189
------------
MORTGAGE - 0.8%
Dynex Capital, Inc. 4,500 20,812
Indymac Mortgage Holdings, Inc. 7,600 80,275
------------
101,087
------------
RETAIL CENTERS - 20.6%
Bradley Real Estate, Inc. 2,400 49,200
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
================================================================================
MARKET
COMMON STOCKS - 97.7% SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL CENTERS - 20.6% (CONTINUED)
Burnham Pacific Properties, Inc. 3,200 $ 38,600
CBL & Associates Properties, Inc. 2,500 64,531
Chelsea GCA Realty, Inc. 1,500 53,438
Commercial Net Lease Realty 2,900 38,425
Developers Diversified Realty Corp. 6,000 106,500
Federal Realty Investment Trust 4,100 96,862
General Growth Properties, Inc. 3,600 136,350
Glimcher Realty Trust 2,400 37,650
IRT Property Company 3,300 33,000
JDN Realty Corp. 3,300 71,156
JP Realty, Inc. 1,800 35,325
Kimco Realty Corp. 5,800 230,188
Kranzco Realty Trust 1,000 14,938
Macerich Company (The) 3,200 82,000
Mills Corp. 2,500 49,688
New Plan Excel Realty Trust 8,960 198,800
Prime Retail, Inc. 4,377 42,949
Realty Income Corp. 2,700 67,162
Simon Property Group, Inc. 16,900 481,650
Taubman Centers, Inc. 5,300 72,875
Urban Shopping Centers, Inc. 1,800 58,950
Vornado Realty Trust 8,500 286,875
Weingarten Realty Investors 2,700 120,488
------------
2,467,600
------------
SELF STORAGE - 4.7%
Public Storage, Inc. 12,400 335,575
Shurgard Storage Centers, Inc. - Class A 2,900 74,856
Sovran Self Storage, Inc. 1,200 30,150
Storage Trust Realty 1,600 37,400
Storage USA, Inc. 2,800 90,474
------------
568,455
------------
TOTAL COMMON STOCKS (COST $13,173,490) 11,715,554
------------
CASH EQUIVALENTS - 2.2%
Star Treasury Fund (Cost $261,469) 261,469
------------
TOTAL INVESTMENTS SECURITIES - 99.9% (COST $13,434,959) 11,977,023
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.1% 8,655
------------
NET ASSETS - 100.0% $ 11,985,678
============
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 $10.00 per share. The public offering of shares of
the Fund commenced on March 2, 1998. The Fund had no operations prior to the
public offering of shares except for the initial issuance of shares.
The Fund seeks to provide investment results corresponding to the performance of
the S&P REIT Index (the Index) by investing in the stocks included in the Index.
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,
currently 4:00 p.m., Eastern time. Securities traded on stock exchanges or
quoted by NASDAQ are valued 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 the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding, rounded to the nearest cent. The offering price
per share 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
redemption price per share of the Fund is equal to the net asset value per
share.
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.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued 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.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code (the 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.
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 future years to offset net realized
capital gains prior to distribution to shareholders.
As of December 31, 1998, net unrealized depreciation on investments was
$1,540,464 for federal income tax purposes, of which $135,913 related to
appreciated securities and $1,676,377 related to depreciated securities based on
a federal income tax cost basis of $13,517,487. 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.
Reclassification of capital accounts -- On December 31, 1998, the Fund
reclassified $61,104 of overdistributed net investment income against paid-in
capital. This reclassification has no effect on the Fund's net assets or net
asset value per share.
2. INVESTMENT TRANSACTIONS
During the period ended December 31, 1998, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$13,914,593 and $482,415, 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 has overall supervisory responsibility for the general management
and investment of the Fund's assets and portfolio securities pursuant to the
terms of an Advisory Agreement. 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.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
In order to reduce the operating expenses of the Fund, the Adviser voluntarily
waived its investment advisory fees of $26,576 and reimbursed the Fund for
$97,030 of other operating expenses during the period ended December 31, 1998.
SUB-ADVISORY AGREEMENT
Gateway Investment Advisers, L.P. (the Sub-Adviser) has been retained by the
Adviser to provide portfolio management services for 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.
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. In addition, the
Fund pays 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, based on current asset
levels, of $2,000 from the Fund. In addition, the Fund pays 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 the
Fund's shares. For these services, the Underwriter earned $35,084 from
underwriting and broker commissions on the sale of Fund shares during the period
ended December 31, 1998. The Underwriter is an affiliate of the Adviser.
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
PLAN OF DISTRIBUTION
The Trust has adopted a Plan of Distribution (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund may directly incur or
reimburse the Underwriter for certain costs related to the distribution of the
Fund's shares, not to exceed 0.25% of average daily net assets. For the period
ended December 31, 1998, the Fund incurred no such expenses under the Plan.
<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Trustees of the Wells S&P REIT Index Fund:
We have audited the accompanying statement of assets and liabilities of the
Wells S&P REIT Index Fund of the Wells Family of Real Estate Funds, including
the portfolio of investments, as of December 31, 1998, and the related statement
of operations, the statement of changes in net assets, and the financial
highlights for the periods indicated thereon. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. 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 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Wells S&P REIT Index Fund of the Wells Family of Real Estate Funds as of
December 31, 1998, the results of its operations, the changes in its net assets,
and the financial highlights for the periods indicated thereon, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
January 13, 1999
<PAGE>
WELLS FAMILY OF REAL ESTATE FUNDS
---------------------------------
PART C. OTHER INFORMATION
- ------- -----------------
Item 23. Exhibits
- -------- --------
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of
Trust and Bylaws
(d)(i) Advisory Agreement with Wells Asset Management, Inc.*
(ii) Sub-Advisory Agreement with Gateway Investment Advisers,
L.P.*
(e) Underwriting Agreement with Wells Investment Securities,
Inc.*
(f) Inapplicable
(g) Custody Agreement with Star Bank, N.A.*
(h)(i) Administration Agreement with Countrywide Fund Services,
Inc.*
(ii) Accounting Services Agreement with Countrywide Fund
Services, Inc.*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m)(i) Plan of Distribution Pursuant to Rule 12b-1*
(ii) Form of Class B Plan of Distribution Pursuant to Rule 12b-1
(iii) Form of Class C Plan of Distribution Pursuant to Rule 12b-1
<PAGE>
(n) Financial Data Schedule
(o) Form of Rule 18f-3 Plan
- ---------------------------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A previously filed.
Item 24. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
None.
Item 25. Indemnification
- -------- ---------------
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. Subject
to and except as otherwise provided in the Securities Act of
1933, as amended, and the 1940 Act, the Trust shall indemnify
each of its Trustees and officers, including persons who serve at
the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person") against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered
Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, and
except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office
- 2 -
<PAGE>
Section 6.5 ADVANCES OF EXPENSES. The Trust shall advance
attorney's fees or other expenses incurred by a Covered Person in
defending a proceeding to the full extent permitted by the
Securities Act of 1933, as amended, the 1940 Act, and Ohio
Revised Code Chapter 1707, as amended. In the event any of these
laws conflict with Ohio Revised Code Section 1701.13(E), as
amended, these laws, and not Ohio Revised Code Section
1701.13(E), shall govern.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators. Nothing contained in this article shall affect
any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of
any such person."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability policy. The
policy provides
- 3 -
<PAGE>
coverage to the Registrant, its Trustees and officers, Wells Asset
Management, Inc. (the "Adviser") and Wells Investment Securities,
Inc., the Trust's principal underwriter. Coverage under the policy
includes losses by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
The Advisory Agreements with the Adviser provide that the Adviser
shall not be liable for any action taken, omitted or suffered to be
taken by it in its reasonable judgment, in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by the Advisory Agreements, or in accordance with
(or in the absence of) specific directions or instructions from the
Trust, provided, however, that such acts or omissions shall not have
resulted from the Adviser's willful misfeasance, bad faith or gross
negligence.
The Sub-Advisory Agreements with Gateway Investment Advisers, L.P.
(the "Sub-Adviser") provide that the Sub-Adviser shall be held
harmless and indemnified by the Adviser and the Trust from any and all
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) arising from any claim, demand, action, or
suit which results from any action taken, omitted or suffered to be
taken by it in its reasonable judgment, in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by the Sub-Advisory Agreements, or in accordance
with (or in the absence of) specific directions or instructions from
the Trust, provided, however, that such acts or omissions shall not
have resulted from the Sub-Adviser's willful misfeasance, bad faith or
gross negligence or reckless disregard of the Sub-Adviser's
obligations and duties under the Sub-Advisory Agreements.
Item 26. Business and Other Connections of the Investment Adviser
- -------- --------------------------------------------------------
(a) The Adviser is a Georgia corporation organized in June, 1997 to
provide investment advisory services to the Registrant. The
Adviser has no other business of a substantial nature.
The Sub-Adviser, a Delaware limited partnership, provides
investment advisory services to the Registrant, The Gateway Trust
and various other individual and institutional clients.
- 4 -
<PAGE>
(b) The directors and officers of the Adviser and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years:
(i) Leo F. Wells, III, President and Treasurer of the Adviser.
President and a Trustee of the Registrant.
President, Treasurer and a Director of Wells Investment
Securities, Inc., a registered broker-dealer and
Registrant's principal underwriter.
President of Wells & Associates, Inc.; Wells Management
Company, Inc.; Wells Capital, Inc.; Wells Real Estate
Funds, Inc.; Wells Advisors, Inc.; Wells Development
Corporation; and Wells Real Estate Investment Trust, Inc.
(ii) Brian M. Conlon, Executive Vice President and Chief
Operating Officer of the Adviser.
Executive Vice President and a Trustee of the Registrant.
Secretary of Wells Investment Securities, Inc. and Chief
Operating Officer of Wells Capital, Inc.
(iii) Linda L. Carson - Secretary of the Adviser.
Vice President, Accounting of Wells Capital, Inc.
The directors and officers of the Sub-Adviser and any other
business, profession, vocation or employment of a substantial
nature engaged in at any time during the past two years:
(i) Walter G. Sall, Chairman of the Board and a controlling
shareholder of the Sub-Adviser.
(ii) J. Patrick Rogers, President and a controlling shareholder
of the Adviser.
President of The Gateway Trust.
- 5 -
<PAGE>
Item 27. Principal Underwriters
- -------- ----------------------
(a) Inapplicable
(b) Position with Position with
Name Underwriter Fund
---- ----------- -------------
Leo F. Wells, III President, President and
Treasurer and Trustee
a Director
Brian M. Conlon Secretary Executive Vice
President and
Trustee
The address of the above-named persons is 3885 Holcomb Bridge Road,
Norcross, Georgia 30092
(c) Inapplicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 3885 Holcomb Bridge Road 30092 as well as at the
offices of the Registrant's transfer agent located at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202.
Item 29. Management Services
- -------- -------------------
Inapplicable
Item 30. Undertakings
- -------- ------------
Inapplicable
- 6 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Norcross and State of Georgia, on the 1st day of
March, 1999.
WELLS FAMILY OF REAL ESTATE FUNDS
By: /s/ Leo F. Wells
-----------------------------
Leo F. Wells
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Leo F. Wells President March 2, 1999
- -------------------------- and Trustee
Leo F. Wells
/s/ Brian M. Conlon Executive March 2, 1999
- -------------------------- Vice President
Brian M. Conlon and Trustee
/s/ Mark J. Seger Treasurer March 2, 1999
- --------------------------
Mark J. Seger
Trustee
- --------------------------
John L. Bell*
Trustee
- --------------------------
Richard W. Carpenter*
Trustee By: /s/ John F. Splain
- -------------------------- ------------------
Bud Carter* John F. Splain
Attorney in Fact*
Trustee March 2, 1999
- --------------------------
Donald S. Moss*
Trustee
- --------------------------
Walter W. Sessoms*
<PAGE>
INDEX TO EXHIBITS
-----------------
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of Trust and
Bylaws
(d)(i) Advisory Agreement*
(ii) Sub-Advisory Agreement*
(e) Underwriting Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h)(i) Administration Agreement*
(ii) Accounting Services Agreement*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Agreement relating to Initial Capital*
(m)(i) Plan of Distribution Pursuant to Rule 12b-1*
(ii) Form of Class B Plan of Distribution Pursuant to Rule 12b-1
(iii) Form of Class C Plan of Distribution Pursuant to Rule 12b-1
(n) Financial Data Schedule
(o) Form of Rule 18f-3 Plan
- ----------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A previously filed.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use in this
Post-Effective Amendment No. 2 of our report dated January 13, 1999 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
February 25, 1999
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1 FOR
CLASS B SHARES OF WELLS FAMILY OF REAL ESTATE FUNDS
- --------------------------------------------------------------------------------
WHEREAS, Wells Family of Real Estate Funds (the "Trust"), an unincorporated
business trust organized under the laws of the State of Ohio, is an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest without par value (the "Shares"), which are divided into
separate Series of Shares; and
WHEREAS, the Trust issues shares of certain Series in Sub-Series (one of
which may be designated as Class B Shares); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Rule 12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit each Series and the holders of
its Class B Shares, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act, on the following terms and conditions:
1. DISTRIBUTION ACTIVITIES. Subject to the supervision of the Trustees of
the Trust, the Trust may, directly or indirectly, engage in any activities
related to the distribution of Class B Shares, which activities may include, but
are not limited to, the following: (a) maintenance fees or other payments to the
Trust's principal underwriter and to securities dealers and others who are
engaged in the sale of Class B Shares and who may be advising shareholders of
the Trust regarding the purchase, sale or retention of Class B Shares; (b)
expenses of maintaining personnel (including personnel of organizations with
which the Trust has entered into agreements related to this Plan) who engage in
or support distribution of Class B Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, office space and equipment, telephone facilities and expenses,
answering routine inquiries regarding the Trust, processing shareholder
transactions, and providing such other shareholder services as the Trust may
reasonably request; (c) formulating and implementing of marketing and
promotional activities, including,
<PAGE>
but not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (d) preparing, printing and
distributing sales literature; (e) preparing, printing and distributing
prospectuses and statements of additional information and reports of the Trust
for recipients other than existing shareholders of the Trust; and (f) obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable. The Trust is
authorized to engage in the activities listed above, and in any other activities
related to the distribution of Class B Shares, either directly or through other
persons with which the Trust has entered into agreements related to this Plan.
2. MAXIMUM EXPENDITURES. The expenditures to be made pursuant to Section 1
and the basis upon which payment of such expenditures will be made shall be
determined by the Trustees of the Trust, but in no event may such expenditures
exceed in any fiscal year an amount calculated at the rate of .75% of the
average daily net asset value of the Class B Shares of the Fund. Such payments
for distribution activities may be made directly by the Class B Shares or the
Trust's investment adviser or principal underwriter may incur such expenses and
obtain reimbursement from the Class B Shares.
3. MAINTENANCE FEE. In addition to the payments of compensation provided
for in Section 2 and in order to further enhance the distribution of its Class B
Shares, the Trust may pay the Trust's principal underwriter a maintenance fee,
accrued daily and paid monthly, in an amount equal to an annual rate of .25% of
the daily net assets of the Class B Shares of the Trust. When requested by and
at the direction of the Trust's principal underwriter, the Trust shall pay a
maintenance fee to dealers based on the amount of Class B Shares sold by such
dealers and remaining outstanding for specified periods of time, if any,
determined by the Trust's principal underwriter, in amounts up to .25% per annum
of the average daily net assets of the Class B Shares of the Trust. Any
maintenance fees paid to dealers shall reduce the maintenance fees otherwise
payable to the Trust's principal underwriter.
4. TERM AND TERMINATION. This Plan shall become effective on the date
hereof. Unless terminated as herein provided, this Plan shall continue in effect
for one year from the date hereof and shall continue in effect for successive
periods of one year thereafter, but only so long as each such continuance is
specifically approved by votes of a majority of both (i) the Trustees of the
Trust and (ii) the Rule 12b-1 Trustees, cast in person at a meeting called for
the purpose of voting on such approval. This Plan may be terminated with respect
to each Series at any time by vote of a majority of the Rule 12b-1 Trustees or
by vote of a majority (as defined in the 1940 Act) of the outstanding Class B
Shares of such Series of the Trust. In the event this Plan is terminated by any
Series in accordance
- 2 -
<PAGE>
with its terms, the obligations of the Class B Shares of such Series to make
payments to the Trust's principal underwriter pursuant to this Plan will cease
and such Series will not be required to make any payments for expenses incurred
after the date of termination.
5. AMENDMENTS. This Plan may not be amended with respect to any Series to
increase materially the amount of expenditures provided for in Sections 2 and 3
hereof unless such amendment is approved by a vote of the majority (as defined
in the 1940 Act) of the outstanding Class B Shares of such Series, and no
material amendment to this Plan shall be made unless approved in the manner
provided for annual renewal of this Plan in Section 4 hereof.
6. SELECTION AND NOMINATION OF TRUSTEES. While this Plan is in effect, the
selection and nomination of Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust shall be committed to the discretion of the
Trustees who are not interested persons of the Trust.
7. QUARTERLY REPORTS. The principal underwriter and the Treasurer of the
Trust shall provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
any related agreement, the purposes for which such expenditures were made and
the allocation of such expenditures as provided for in Section 8.
8. ALLOCATING EXPENDITURES BETWEEN CLASSES. Only distribution expenditures
properly attributable to the sale of a particular class of Shares may be used to
support the distribution fee charged to shareholders of such class of Shares.
Distribution expenses attributable to the sale of more than one class of Shares
of a Series will be allocated at least annually to each class of Shares based
upon the ratio in which the sales of each class of Shares bears to the sales of
all the Shares of such Series. For this purpose, Shares issued upon reinvestment
of dividends or distributions will not be considered sales.
9. RECORDKEEPING. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan, the agreements or
such reports, as the case may be, the first two years in an easily accessible
place.
10. LIMITATION OF LIABILITY. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of the State of Ohio and notice
is hereby given that this Plan is executed on behalf of the Trustees of the
Trust as trustees and not individually and that the obligations of this
instrument are not binding upon the Trustees or shareholders of the Trust
individually but are binding only upon the assets and property of the Trust.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as of the
date set forth below.
Dated: __________, 1999
Attest: WELLS FAMILY OF
REAL ESTATE FUNDS
By: By:
--------------------------- -------------------------
Secretary President
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1 FOR
CLASS C SHARES OF WELLS FAMILY OF REAL ESTATE FUNDS
- --------------------------------------------------------------------------------
WHEREAS, Wells Family of Real Estate Funds (the "Trust"), an unincorporated
business trust organized under the laws of the State of Ohio, is an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest without par value (the "Shares"), which are divided into
separate Series of Shares; and
WHEREAS, the Trust issues shares of certain Series in Sub-Series (one of
which may be designated as Class C Shares); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Rule 12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit each Series and the holders of
its Class C Shares, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act, on the following terms and conditions:
1. DISTRIBUTION ACTIVITIES. Subject to the supervision of the Trustees of
the Trust, the Trust may, directly or indirectly, engage in any activities
related to the distribution of Class C Shares, which activities may include, but
are not limited to, the following: (a) maintenance fees or other payments to the
Trust's principal underwriter and to securities dealers and others who are
engaged in the sale of Class C Shares and who may be advising shareholders of
the Trust regarding the purchase, sale or retention of Class C Shares; (b)
expenses of maintaining personnel (including personnel of organizations with
which the Trust has entered into agreements related to this Plan) who engage in
or support distribution of Class C Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, office space and equipment, telephone facilities and expenses,
answering routine inquiries regarding the Trust, processing shareholder
transactions, and providing such other shareholder services as the Trust may
reasonably request; (c) formulating and implementing of marketing and
promotional activities, including,
<PAGE>
but not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (d) preparing, printing and
distributing sales literature; (e) printing and distributing prospectuses and
statements of additional information and reports of the Trust for recipients
other than existing shareholders of the Trust; and (f) obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable. The Trust is
authorized to engage in the activities listed above, and in any other activities
related to the distribution of Class C Shares, either directly or through other
persons with which the Trust has entered into agreements related to this Plan.
2. MAXIMUM EXPENDITURES. The expenditures to be made pursuant to Section 1
and the basis upon which payment of such expenditures will be made shall be
determined by the Trustees of the Trust, but in no event may such expenditures
exceed in any fiscal year an amount calculated at the rate of .75% of the
average daily net asset value of the Class C Shares of any Series of the Trust.
Such payments for distribution activities may be made directly by the Class C
Shares or the Trust's investment adviser or principal underwriter may incur such
expenses and obtain reimbursement from the Class C Shares.
3. MAINTENANCE FEE. In addition to the payments of compensation provided
for in Section 2 and in order to further enhance the distribution of its Class C
Shares, the Trust may pay the Trust's principal underwriter a maintenance fee,
accrued daily and paid monthly, in an amount equal to an annual rate of .25% of
the daily net assets of the Class C Shares of the Trust. When requested by and
at the direction of the Trust's principal underwriter, the Trust shall pay a
maintenance fee to dealers based on the amount of Class C Shares sold by such
dealers and remaining outstanding for specified periods of time, if any,
determined by the Trust's principal underwriter, in amounts up to .25% per annum
of the average daily net assets of the Class C Shares of the Trust. Any
maintenance fees paid to dealers shall reduce the maintenance fees otherwise
payable to the Trust's principal underwriter.
4. TERM AND TERMINATION. This Plan shall become effective on the date
hereof. Unless terminated as herein provided, this Plan shall continue in effect
for one year from the date hereof and shall continue in effect for successive
periods of one year thereafter, but only so long as each such continuance is
specifically approved by votes of a majority of both (i) the Trustees of the
Trust and (ii) the Rule 12b-1 Trustees, cast in person at a meeting called for
the purpose of voting on such approval. This Plan may be terminated with respect
to any Series at any time by vote of a majority of the Rule 12b-1 Trustees or by
vote of a majority (as defined in the 1940 Act) of the outstanding Class C
Shares of such Series of the Trust. In the event this Plan is terminated by any
Series in accordance with
- 2 -
<PAGE>
its terms, the obligations of the Class C Shares of such Series to make payments
to the Trust's principal underwriter pursuant to this Plan will cease and the
such Series will not be required to make any payments for expenses incurred
after the date of termination.
5. AMENDMENTS. This Plan may not be amended with respect to any Series to
increase materially the amount of expenditures provided for in Sections 2 and 3
hereof unless such amendment is approved by a vote of the majority (as defined
in the 1940 Act) of the outstanding Class C Shares of such Series, and no
material amendment to this Plan shall be made unless approved in the manner
provided for annual renewal of this Plan in Section 4 hereof.
6. SELECTION AND NOMINATION OF TRUSTEES. While this Plan is in effect, the
selection and nomination of Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust shall be committed to the discretion of the
Trustees who are not interested persons of the Trust.
7. QUARTERLY REPORTS. The principal underwriter and the Treasurer of the
Trust shall provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
any related agreement, the purposes for which such expenditures were made and
the allocation of such expenditures as provided for in Section 8.
8. ALLOCATING EXPENDITURES BETWEEN CLASSES. Only distribution expenditures
properly attributable to the sale of a particular class of Shares may be used to
support the distribution fee charged to shareholders of such class of Shares.
Distribution expenses attributable to the sale of more than one class of Shares
of a Series will be allocated at least annually to each class of Shares based
upon the ratio in which the sales of each class of Shares bears to the sales of
all the Shares of such Series. For this purpose, Shares issued upon reinvestment
of dividends or distributions will not be considered sales.
9. RECORDKEEPING. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan, the agreements or
such reports, as the case may be, the first two years in an easily accessible
place.
10. LIMITATION OF LIABILITY. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of the State of Ohio and notice
is hereby given that this Plan is executed on behalf of the Trustees of the
Trust as trustees and not individually and that the obligations of this
instrument are not binding upon the Trustees or shareholders of the Trust
individually but are binding only upon the assets and property of the Trust.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as of the
date set forth below.
Dated: __________, 1999
Attest: WELLS FAMILY OF
REAL ESTATE FUNDS
By: By:
--------------------------- -------------------------
Secretary President
RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE
MULTIPLE CLASS DISTRIBUTION SYSTEM OF THE
WELLS FAMILY OF REAL ESTATE FUNDS
- --------------------------------------------------------------------------------
The Wells Family of Funds (the "Trust") has adopted this Plan pursuant to
Rule 18f-3 promulgated under the Investment Company Act of 1940 (the "1940
Act"). The individual series of the Trust is referred to collectively, in whole
or in part, as the context requires, as the "Fund." The Trust is an open-end
management investment company registered under the 1940 Act. Wells Asset
Management, Inc. (the "Adviser") provides investment advisory and management
services to the Trust. Gateway Investment Advisers, L.P. (the "Sub-Adviser")
provides investment advisory and management services to the Trust. Wells
Investment Securities, Inc. (the "Underwriter") acts as principal underwriter
for the Trust.
This Plan permits the Fund to issue and sell three classes of shares for
the purpose of establishing a multiple class distribution system (the "Multiple
Class Distribution System"). The Plan further permits the Fund to assess a
contingent deferred sales load ("CDSL") on certain redemptions of each of the
classes of the Funds shares and to waive the CDSL in certain instances. These
guidelines set forth the conditions pursuant to which the Multiple Class
Distribution System will operate and the duties and responsibilities of the
Trustees of the Trust with respect to the Multiple Class Distribution System.
DESCRIPTION OF THE MULTIPLE CLASS DISTRIBUTION SYSTEM
- -----------------------------------------------------
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUND. The Multiple Class
Distribution System enables the Fund to offer
<PAGE>
investors the option of purchasing shares in one of three manners: (1) subject
to a conventional front-end sales load and a distribution fee not to exceed .25%
of average net assets (Class A shares); (2) subject to a CDSL of up to 5% and a
distribution fee and service fee of up to 1% of the average net assets (Class B
shares);(3) subject to a CDSL of 1% and a distribution fee and service fee of up
to 1% of average net assets (Class C shares).
The three classes will each represent interests in the same portfolio of
investments of the Fund. The three classes will be identical except that (i) the
distribution fees attributable to each class payable by the Fund pursuant to the
distribution plans adopted by the Fund in accordance with Rule 12b-1 under the
1940 Act will be higher for Class B and Class C shares than for Class A shares;
(ii) Class B shares will convert to Class A shares in approximately 8 years,
after their initial purchase; (iii) each class may bear different Class Expenses
(as defined below); (iv) each class will vote separately as a class with respect
to the Trust's Rule 12b-1 distribution plan; (v) each class may bear a different
name or designation.
Investors purchasing Class A shares will do so at net asset value plus a
front-end sales load in the traditional manner. The sales load may be subject to
reductions for larger purchases, under a combined purchase privilege, under a
right of accumulation or under a letter of intent. The sales load may be subject
to certain other reductions permitted by Section 22(d) of the 1940 Act and set
forth in the registration statement of the Trust. The public offering price for
the Class A shares will be
- 2 -
<PAGE>
computed in accordance with Rule 22c-1, Section 22(d) and other relevant
provisions of the 1940 Act and the rules and regulations thereunder. The Fund
will also pay a distribution fee pursuant to the appropriate Rule 12b-1
distribution plan at an annual rate of up to .25% of the average daily net asset
value of its Class A shares.
Investors purchasing Class B shares will do so at net asset value per share
without the imposition of a sales load at the time of purchase. The Fund will
pay a distribution fee pursuant to the appropriate Rule 12b-1 distribution plan
at an annual rate of up to 1% of the average daily net asset value of its Class
B shares. In addition, an investor's proceeds from a redemption of Class B
shares made within six years of the time of their purchase generally will be
subject to a CDSL of up to 5% in year one, 4% in years 2 and 3, 3% in year 4, 2%
in year 5, and 1% in year 6. Redemptions of shares held for greater than six
years will not be subject to a CDSL. The CDSL will be made subject to the
conditions set forth below. The Class B alternative is designed to permit the
investor to purchase Class B shares without the assessment of a front-end sales
load and at the same time permit the Underwriter to pay financial intermediaries
selling shares of a Fund a 4% commission on the sale of the Class B shares.
Investors purchasing Class C shares will do so at net asset value per share
without the imposition of a sales load at the time of purchase. The Fund will
pay a distribution fee pursuant
- 3 -
<PAGE>
to the appropriate Rule 12b-1 distribution plan at an annual rate of up to 1% of
the average daily net asset value of its Class C shares. In addition, an
investor's proceeds from a redemption of Class C shares made within one year of
time of their purchase generally will be subject to a CDSL of 1%. Redemptions of
shares held for greater than one year will not be subject to a CDSL. The CDSL
will be made subject to the conditions set forth below. The Class C alternative
is designed to permit the investor to purchase Class C shares without the
assessment of a front-end sales load and at the same time permit the Underwriter
to pay financial intermediaries selling shares of a Fund a 1% commission on the
sale of the Class C shares.
Under the Trust's distribution plans, the Underwriter will not be entitled
to any specific percentage of the net asset value of each class of shares of the
Fund or other specific amount. As described above, the Fund will pay a
distribution fee pursuant to its distribution plan at an annual rate of up to
.25% of the average daily net assets of such Fund's Class A shares and up to 1%
of the average daily net asset value of the Fund's Class B and Class C shares.
Under the Trust's distribution plans, payments will be made for expenses
incurred in providing distribution-related services (including, in the case of
the Class B and Class C shares, commission expenses as described in more detail
below). Each Fund will accrue at a rate (but not in excess of the applicable
maximum percentage rate) which is reviewed by the Trust's Board of Trustees
quarterly. Such rate is intended to
- 4 -
<PAGE>
provide for accrual of expenses at a rate that will not exceed the unreimbursed
amounts actually expended for distribution by a Fund. If at any time the amount
accrued by a Fund would exceed the amount of distribution expenses incurred with
respect to the Fund during the fiscal year (plus, in the case of Class B and
Class C shares, prior unreimbursed commission-related expenses), then the rate
of accrual will be adjusted accordingly. In no event will the amount paid by the
Fund exceed the unreimbursed expenses previously incurred in providing
distribution-related services.
Proceeds from the distribution fee and, in the case of Class B and Class C
shares, the CDSL, will be used to compensate financial intermediaries with a
service fee based upon a percentage of the average daily net asset value of the
shares maintained in the Fund by their customers and to defray the expenses of
the Underwriter with respect to providing distribution related services,
including commissions paid on the sale of Class B and Class C shares.
GENERAL. All three classes of shares of the Fund will have identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except for the differences mentioned above.
Under the Multiple Class Distribution System, the Board of Trustees could
determine that any of certain expenses attributable to the shares of a
particular class of shares will
- 5 -
<PAGE>
be borne by the class to which they were attributable ("Class Expenses"). Class
Expenses are limited to (a) transfer agency fees identified by the Trust as
being attributable to a class of shares; (b) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(c) SEC and Blue Sky registration fees incurred by a class of shares; (d) the
expenses of administrative personnel and services as required to support the
shareholders of a specific class; (e) litigation or other legal expenses
relating to a specific class of shares; (f) Trustees' fees or expenses incurred
as a result of issues relating to a specific class of shares; (g) accounting
fees and expenses relating to a specific class of shares; and (h) additional
incremental expenses not specifically identified above that are subsequently
identified and determined to be properly allocated to one class of shares and
approved by the Board of Trustees.
Under the Multiple Class Distribution System, expenses that are
attributable to the Fund but not to a particular class thereof ("Series
Expenses"), would be borne by each class on the basis of the net assets of such
class in relation to the aggregate net assets of the Fund. In addition to
distribution fees, Class Expenses may be applied to the shares of a particular
class. Any additional Class Expenses not specifically identified above in the
preceding paragraph which are subsequently identified and determined to be
properly applied to one class of
- 6 -
<PAGE>
shares shall not be so applied until approved by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may be
applied differently if their current application becomes no longer appropriate.
For example, if a Class Expense is no longer attributable to a specific class,
it may be charged to the Fund. In addition, if application of all or a portion
of a particular expense to a class is determined by the Internal Revenue Service
or counsel to the Trust to result in a preferential dividend for which, pursuant
to Section 562(c) of the Internal Revenue Code of 1986, as amended (the "Code"),
the Fund would not be entitled to a dividends paid deduction, all or a portion
of the expense may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be
borne by each class of shares, the net income of (and dividends payable with
respect to) one class may be different from the net income of (and dividends
payable with respect to) the other class of shares of the Fund. Dividends paid
to holders of each class of shares in the Fund would, however, be declared and
paid on the same days and at the same times and, except as noted with respect to
the varying distribution fees and Class Expenses would be determined and paid in
the same manner. To the extent that the Fund has undistributed net income, the
net asset value per share of each class of the Fund's shares will vary.
The salient features of the Multiple Class Distribution System will be
described in the Fund prospectus. The Fund will disclose the respective
expenses, performance data, distribution
- 7 -
<PAGE>
arrangements, services, fees, sales loads and deferred sales loads to each class
of shares offered through the prospectus. The shareholder reports of the Fund
will disclose the respective expenses and performance data applicable to each
class of shares. The shareholder reports will contain, in the statement of
assets and liabilities and statement of operations, information related to the
Fund as a whole generally and not on a per class basis. The Fund's per share
data, however, will be prepared on a per class basis with respect to all classes
of shares of the Fund. The information provided by the Underwriter or Adviser
for publication in any newspaper or similar listing of Fund net asset values and
public offering prices will separately present Class A, Class B and Class C
shares.
The Class B and Class C alternatives are designed to permit the investor to
purchase Class B and Class C shares without the assessment of a front-end sales
load and the same time permit the Underwriter to pay financial intermediaries a
commission on the sale of such shares. Proceeds from the distribution fee and
the CDSL will be used to compensate financial intermediaries with a service fee
and to defray the expenses of the Underwriter with respect to providing
distribution related services, including commissions paid on the sale of Class B
and Class C shares.
Class B shares will not be charged a CDSL if they are not redeemed within
six years of their purchase date. Class C shares will not be charged a CDSL if
they are not redeemed within one year of their purchase date. The CDSL for all
three classes of
- 8 -
<PAGE>
shares will be imposed on the net asset value of the shares being redeemed at
the time of their respective purchase. No CDSL will be imposed on shares
acquired through reinvestment of income dividends or capital gains
distributions. In determining whether a CDSL is applicable, unless the
shareholder otherwise specifically directs, it will be assumed that a redemption
is made first of any Class A, Class B or Class C shares derived from
reinvestment of distributions, second of Class B or Class C shares held for a
period long enough that no CDSL will be imposed, third of any Class A shares in
the shareholder's account, and forth of Class B or Class C shares held for a
period such that a CDSL will be imposed.
In addition, the Fund will waive the CDSL on redemptions following the
death or disability of a shareholder as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986. The Underwriter will require satisfactory proof
of death or disability before it determines to waive the CDSL. In cases of death
or disability, the CDSL may be waived where the decedent or disabled person is
either an individual shareholder or owns the shares with his or her spouse as a
joint tenant with rights of survivorship if the redemption is made within one
year of death or initial determination of disability.
Under the Multiple Class Distribution System, Class B shares of the Fund
will be converted to Class A shares after approximately eight years, relative to
the net asset levels of both classes of shares. The conversion allows the
investor to take advantage of the lower distribution fees associated with
- 9 -
<PAGE>
Class A shares.
LEGAL ANALYSIS
- --------------
The Adviser and the Underwriter believe that the Multiple Class
Distribution System as described herein will better enable the Fund to meet the
competitive demands of today's financial services industry. Under the Multiple
Class Distribution System, an investor will be able to choose the method of
purchasing shares that is most beneficial given the amount of his or her
purchase, the length of time the investor expects to hold his or her shares, and
other relevant circumstances. The System permits the Fund to facilitate both the
distribution of the securities and provide investors with a broader choice as to
the method of purchasing shares without assuming excessive accounting and
bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1
plans in the manner described is equitable and does not discriminate against any
group of shareholders. In addition, such arrangements should not give rise to
any conflicts of interest because the rights and privileges of each class of
shares are substantially identical.
The Adviser and the Underwriter believe that the Multiple Class
Distribution System will not increase the speculative character of the shares of
the Fund. The Multiple Class Distribution System does not involve borrowing, nor
will it affect the Funds existing assets or reserves, and does not involve a
complex capital structure. Nothing in the Multiple
- 10 -
<PAGE>
Class Distribution System suggests that it will facilitate control by holders of
any class of shares.
The Adviser and the Underwriter believe that the ability of the Fund to
implement the CDSL is appropriate in the public interest, consistent with the
protection of investors, and consistent with the purposes fairly intended by the
policy and provisions of the 1940 Act. The CDSL arrangement will provide
shareholders the option of having their full payment invested for them at the
time of their purchase of shares of the Fund with no deduction of a sales
charge.
CONDITIONS OF OPERATING UNDER THE MULTIPLE CLASS DISTRIBUTION SYSTEM
- --------------------------------------------------------------------
The operation of the Multiple Class Distribution System shall at all times
be in accordance with Rule 18f-3 under the 1940 Act and all other applicable
laws and regulations, and in addition, shall be subject to the following
conditions:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund, and be identical in all material respects, except as
set forth below. The only differences among the various classes of the Fund will
relate solely to: (a) the impact of the disproportionate Rule 12b-1 distribution
plan payments allocated to each of the Class A shares Class B shares or Class C
shares of the Fund; (b) conversion of Class B shares to Class A shares
approximately 8 years after their initial purchase; (c) Class Expenses, which
are limited to (i) transfer agency fees (including the incremental cost of
monitoring a CDSL applicable to a specific class of shares), (ii) printing and
postage expenses related to preparing
- 11 -
<PAGE>
and distributing materials such as shareholder reports, prospectuses and proxies
to current shareholders of a specific class, (iii) SEC and Blue Sky registration
fees incurred by a class of shares, (iv) the expenses of administrative
personnel and services as required to support the shareholders of a specific
class, (v) litigation or other legal expenses relating to a specific class of
shares, (vi) Trustees' fees or expenses incurred as a result of issues relating
to a specific class of shares, and (vii) accounting fees and expenses relating
to a specific class of shares; (d) the fact that each class will vote separately
as a class with respect to the Rule 12b-1 distribution plans or any other matter
affecting only that class; (e) the designation of each class of shares of the
Fund. Any additional incremental expenses not specifically identified above that
are subsequently identified and determined to be properly allocated to one class
of shares shall not be so allocated until approved by the Board of Trustees.
2. The Trustees of the Trust, including a majority of the Trustees who are
not interested persons of the Trust, have approved this Plan as being in the
best interests of each class individually and the Fund as a whole. In making
this finding, the Trustees evaluated the relationship among the classes, the
allocation of expenses among the classes, potential conflicts of interest among
classes, and the level of services provided to each class and the cost of those
services.
3. Any material changes to this Plan, including but not limited to a change
in the method of determining Class Expenses
- 12 -
<PAGE>
that will be applied to a class of shares, will be reviewed and approved by
votes of the Board of Trustees of each Trust, including a majority of the
Trustees who are not interested persons of the Trust.
4. On an ongoing basis, the Trustees of the Trust, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the interests of the
classes of shares. The Trustees, including a majority of the Trustees who are
not interested persons of the Trust, shall take such action as is reasonably
necessary to eliminate any such conflicts that may develop. The Adviser will be
responsible for reporting any potential or existing conflicts to the Trustees.
If a conflict arises, the Adviser at its own cost will remedy such conflict up
to and including establishing a new registered management investment company.
5. The Trustees of the Trust will receive quarterly and annual Statements
complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from
time to time. In the Statements, only distribution expenditures properly
attributable to the sale of a class of shares will be used to support the Rule
12b-1 fee charged to shareholders of such class of shares. Expenditures not
related to the sale of a particular class will not be presented to the Trustees
to justify any fee attributable to that class. The Statements, including the
allocations upon which they are based, will be subject to the review and
approval of the Trustees who are not interested persons of the Trust in
- 13 -
<PAGE>
the exercise of their fiduciary duties.
6. Dividends paid by a Fund with respect to each class of shares, to the
extent any dividends are paid, will be calculated in the same manner, at the
same time, on the same day, and will be in the same amount, except that
distribution fee payments and Class Expenses relating to each respective class
of shares will be borne exclusively by that class.
7. Applicants have established the manner in which the net asset value of
the multiple classes of shares will be determined and the manner in which
dividends and distributions will be paid. Attached hereto as Exhibit A is a
procedures memorandum and worksheets with respect to the methodology and
procedures for calculating the net asset value and dividends and distributions
of the various classes and the proper allocation of income and expenses among
the classes.
8. The Underwriter represents that it has in place, and will continue to
maintain, adequate facilities in place to ensure implementation of the
methodology and procedures for calculating the net asset value and dividends and
distributions among the various classes of shares.
9. The Underwriter has adopted compliance standards as to when Class A,
Class B and Class C shares may appropriately be sold to particular investors.
The Underwriter will require all persons selling shares of the Fund to agree to
conform to such standards.
10. The Fund will briefly describe the salient features of the Multiple
Class Distribution System in its prospectus. The
- 14 -
<PAGE>
Fund will disclose the respective expenses, performance data, distribution
arrangements, services, fees, sales loads and deferred sales loads applicable to
each class of shares offered through the prospectus. The Fund will disclose the
respective expenses and performance data applicable to each class of shares in
every shareholder report. The shareholder reports will contain, in the statement
of assets and liabilities and statement of operations, information related to
the Fund as a whole generally and not on a per class basis. The Fund's per share
data, however, will be prepared on a per class basis with respect to all classes
of shares of the Fund. The information provided by the Trust for publication in
any newspaper or similar listing of the Fund's net asset value and public
offering price will separately present Class A, Class B and Class C shares.
11. The Trust will comply with the provisions of Rule 6c-10 under the 1940
Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as it
may be amended.
<PAGE>
EXHIBIT A
WELLS FAMILY OF REAL ESTATE FUNDS
MULTIPLE-CLASS FUND
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
<PAGE>
INTRODUCTION
------------
Wells Family of Real Estate Funds (the "Trust") is an Ohio business trust
registered under the Investment Company Act of 1940 as open-end management
investment company. Wells Asset Management, Inc. (the "Adviser") acts as the
investment manager to the Fund, Gateway Investment Advisers, L.P. (the
"Sub-Adviser")acts as sub-adviser to the Fund and Wells Investment Securities,
Inc. (the "Underwriter") serves as the Fund's principal underwriter. The
Underwriter is an affiliate of the Adviser. The Trust presently offers the
following series of shares (the "Fund") representing interests in separate
investment portfolios:
Wells S&P REIT Index Fund
The Fund may offer multiple classes of shares as more fully described in
the Trust's Rule 18f-3 Plan. The Multiple Class Distribution System would enable
the Fund to offer investors the option of purchasing shares in three different
manners: (1) subject to a conventional front-end sales load and a distribution
fee not to exceed .25% of average net assets (Class A shares); (2) subject to a
contingent deferred sales charge of up to 5% (reduced to 0, after sixth year)
and a distribution fee and service fee of up to 1% of average net assets (Class
B shares); or (3) subject to a contingent deferred sales charge and a
distribution fee and service fee of up to 1% of average net assets (Class C
shares). The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. Future series of the Trust may declare
dividends daily or periodically. The Fund and any future series of the Trust
will declare and pay substantially all net realized gains, if any, at least
annually.
Pursuant to an Accounting Services Agreement, Countrywide Fund Services,
Inc. ("Countrywide") maintains the Fund's accounting records and performs the
daily calculations of the Fund's net asset value. Thus, the procedures and
internal accounting controls for the Fund include the participation of
Countrywide.
The internal accounting control environment at Countrywide provides for
minimal risk of error. This has been accomplished through the use of competent
and well-trained employees, adequate facilities and established internal
accounting control procedures.
Additional procedures and internal accounting controls have been designed
for the multiple class funds. These procedures and internal accounting controls
have been reviewed by management of the Trust and Countrywide to ensure that the
risks associated with multiple-class funds are adequately addressed.
- 1 -
<PAGE>
The specific internal accounting control objectives and the related
methodology, procedures and internal accounting controls to achieve these stated
objectives are outlined below.
METHODOLOGY, PROCEDURES AND INTERNAL
------------------------------------
ACCOUNTING CONTROLS FOR MULTIPLE-CLASS FUNDS
--------------------------------------------
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of the Fund are
accurately calculated.
(2) Recorded expenses of the Fund are properly allocated between each
class of shares.
(3) Dividend distributions are accurately calculated for each class of
shares.
1. Control Objective
The daily net asset value for all classes of shares of the Fund are
accurately calculated.
Methodology, Procedures and Internal Accounting Controls
--------------------------------------------------------
a. Securities of the Fund will be valued daily at their current market
value by a reputable pricing source. Security positions will be
reconciled from the Trust's records and to custody records and
reviewed for completeness and accuracy.
b. Prepaid and intangible assets will be amortized over their estimated
useful lives. These assets will be reviewed monthly to ensure a proper
presentation and amortization during the period.
c. Investment income, realized and unrealized gains or losses will be
calculated daily from Countrywide's portfolio system and reconciled to
the general ledger. Yields and fluctuations in security prices will be
monitored on a daily basis by Countrywide personnel. Interest and
dividend receivable amounts will be reconciled to holdings reports.
d. An estimate of all expenses for the Fund will be accrued daily. Daily
expense accruals will be reviewed and revised, as required, to reflect
actual payments made to vendors.
e. Capital accounts for each class of shares will be updated based on
daily share activity and reconciled to transfer agent reported
outstanding shares.
- 2 -
<PAGE>
f. All balance sheet asset, liability and capital accounts will be
reconciled to subsidiary records for completeness and accuracy.
g. For the Fund, a pricing worksheet (see attached example) will be
prepared daily which calculates the net asset value of outstanding
shares and the percentage of net asset value of such class to the
total of all classes of shares. Investment income and joint expenses
will be allocated by class of shares according to such percentages.
Realized and unrealized gains will be allocated by class of shares
according to such percentages.
h. Prior day net assets by class will be rolled forward to current day
net assets by class of shares by adjusting for current day income,
expense and distribution activity. (There may or may not be
distribution activity in the periodic dividend funds.) Net assets by
class of shares will then be divided by the number of outstanding
shares for each class to obtain the net asset value per share. Net
asset values will be reviewed and approved by supervisors.
i. Net asset values per share of the different classes of shares for
daily dividend funds should be identical except with respect to
possible differences attributable to rounding. Differences, if any,
will be investigated by the accounting supervisor.
j. Net asset values per share of the different classes of shares for the
periodic dividend funds may be different as a result of accumulated
income between distribution dates and the effect of class specific
expenses. Other differences, if any, will be investigated by the
accounting supervisor.
2. Control Objective
Recorded expenses of the Fund are properly allocated between each class of
shares.
Methodology, Procedures and Internal Accounting Controls
--------------------------------------------------------
a. Expenses will be classified as being either joint or class specific on
the pricing worksheet.
b. Expenses attributable to the Fund but not to a particular class
thereof will be borne by each class on the basis of the net assets of
such class in relation to the aggregate net assets of the Fund. These
expenses could include, for example, advisory fees and custodian fees,
and fees related to the preparation of separate documents for current
shareholders of the
- 3 -
<PAGE>
Fund.
c. Class specific expenses are those identifiable with each individual
class of shares. These expenses include 12b-1 distribution fees;
transfer agent fees as identified by Countrywide as being attributable
to a specific class; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a particular
class; SEC and Blue Sky registration fees; the expenses of
administrative personnel and services required to support the
shareholders of a specific class; litigation or other legal expenses
relating solely to one class of shares; Trustees' fees incurred as a
result of issues relating to one class of shares; and accounting fees
and expenses relating to a specific class of shares.
d. Joint expenses will be allocated daily to each class of shares based
on the percentage of the net asset value of shares of such class to
the total of the net asset value of shares of all classes of shares.
Class specific expenses will be charged to the specific class of
shares. Both joint expenses and class specific expenses are compared
against expense projections.
e. The total of joint and class specific expense limits will be reviewed
to ensure that voluntary or contractual expense limits are not
exceeded. Amounts will be adjusted to ensure that any limits are not
exceeded. Expense waivers and reimbursements will be calculated and
allocated to each class of shares based upon the pro rata percentage
of the net assets of the Fund as of the end of the prior day, adjusted
for the previous day's share activity.
f. The Fund and each class will accrue distribution expenses at a rate
(but not in excess of the applicable maximum percentage rate) which
will be reviewed by the Board of Trustees on a quarterly basis. Such
distribution expenses will be calculated at an annual rate not to
exceed .25% of the average daily net assets of the Fund's Class A
shares and not to exceed 1% of the average daily net assets of the
Fund's Class B and Class C shares. Under the distribution plans,
payments will be made only for expenses incurred in providing
distribution related services. Unreimbursed distribution expenses of
the Underwriter will be determined daily and the Underwriter shall not
be entitled to reimbursement for any amount with respect
- 4 -
<PAGE>
to any day on which there exist no unreimbursed distribution expenses.
g. Expense accruals for both joint and class specific expenses are
reviewed each month. Based upon these reviews, adjustments to expense
accruals or expense projections are made as needed.
h. Expense ratios and yields for each class of shares will be reviewed
daily to ensure that differences in yield relate solely to acceptable
expense differentials.
i. Any change to the classification of expenses as joint or class
specific is reviewed and approved by the Board of Trustees.
j. Countrywide will perform detailed expense analyses to ensure that
expenses are properly charged to the Fund and to each class of shares.
Any expense adjustments required as a result of this process will be
made.
3. Control Objective
Dividend distributions are accurately calculated for each class of shares.
Methodology, Procedures and Internal Accounting Controls
--------------------------------------------------------
a. The Fund declares substantially all net investment income
periodically.
b. Investment income, including amortization of discount and premium,
where applicable, is recorded by the Fund and is allocated to each
class of shares based upon its pro rata percentage of the net assets
of the Fund as of the end of the prior day, adjusted for the previous
day's share activity.
c. The Fund will determine the amount of accumulated income available for
all classes after deduction of allocated expenses but before
consideration of any class specific expenses. This amount will be
divided by total outstanding shares for all classes combined to arrive
at a gross dividend rate for all shares. From this gross rate, a class
specific amount per share for each class (representing the unique and
incrementally higher, if any, expenses accrued during the period to
that class divided by the shares outstanding for that class) is
subtracted. The result is the actual per share rate available for each
class in determining amounts to distribute.
d. Realized capital gains, if any, are allocated daily to each class
based upon its relative percentage of the
- 5 -
<PAGE>
total net assets of the Fund as of the end of the prior day, adjusted
for the previous day's share activity.
e. Capital gains are distributed at least once every twelve months with
respect to each class of shares.
f. The capital gains distribution rate will be determined on the ex-date
by dividing the total realized gains of the Fund to be declared as a
distribution by the total outstanding shares of the Fund as of the
record date.
g. Capital gains dividends per share should be identical for each class
of shares within the Fund. Differences, if any, will be investigated
and resolved.
h. Distributions are reviewed annually by Countrywide at fiscal year end
and as required for excise tax purposes during the fiscal year to
ensure compliance with IRS regulations and accuracy of calculations.
There are several pervasive procedures and internal accounting controls which
impact all three of the previously mentioned objectives.
a. Countrywide's supervisory personnel will be involved on a daily basis
to ensure that the methodology and procedures for calculating the net
asset value and dividend distribution for each class of shares is
followed and a proper allocation of expenses among each class of
shares is performed.
b. Countrywide fund accountants will receive overall supervision. Their
work with regard to multiple class calculations will be reviewed and
approved by supervisors.
c. Countrywide's pricing worksheets will be clerically checked and
verified against corresponding computer system generated reports.
- 6 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
------ ------ ------ ------
1 Prior day NAV per share (unrounded) ______ ______ ______
Allocation Percentages
----------------------
Complete for all Funds:
2 Shares O/S - prior day ______ ______ ______ ______
3 Prior day shares activity ______ ______ ______ ______
4 Adjusted shares O/S [2 + 3] ______ ______ ______ ______
5 Adjusted net assets [4 x 1] ______ ______ ______ ______
6 % Assets by class ______ ______ ______ ______
For daily dividend funds complete Rows 7 - 11
For periodic (non daily) dividend funds insert
same # from Rows 2 - 6
7 Settled shares prior day ______ ______ ______ ______
8 Prior day settled shares activity ______ ______ ______ ______
9 Adjusted settled shares O/S [7 & 8] ______ ______ ______ ______
10 Adjusted settled assets [9 x 1] ______ ______ ______ ______
11 % Assets by class ______ ______ ______ ______
Income and Expenses
-------------------
12 Daily income * Expenses: ______ ______ ______ ______
13 Management Fee* ______ ______ ______ ______
14 12-1 Fee ______ ______ ______ ______
15 Other Joint Expenses* ______ ______ ______ ______
16 Direct Class Expenses ______ ______ ______ ______
17 Daily expenses [13+14+15+16] ______ ______ ______ ______
18 Daily Net Income [12 - 17] ______ ______ ______ ______
19 Dividend Rate (Daily Dividend Funds Only) ______ ______ ______
[18/9]
Capital
-------
20 Income distribution ______ ______ ______ ______
21 Undistributed Net Income [18 - 20] ______ ______ ______ ______
22 Capital share activity ______ ______ ______ ______
23 Realized Gains/Losses:
24 Short-Term** ______ ______ ______ ______
25 Long-Term** ______ ______ ______ ______
26 Capital gain distribution ______ ______ ______ ______
27 Unrealized appreciation/depreciation** ______ ______ ______ ______
28 Daily net asset change ______ ______ ______ ______
[21 + 22 + 24 + 25 + 26 + 27]
- 7 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
------ ------ ------ ------
NAV Proof
---------
29 Prior day net assets ______ ______ ______ ______
30 Current day net assets [28 + 29] ______ ______ ______ ______
31 NAV per share [30 / 4] ______ ______ ______ ______
32 Sales Load as a percent of offering price ______ ______
33 Offering Price [31 / (100% - 32)] ______ ______
* - Allocated based on Line 11 percentages.
** - Allocated based on Line 6 percentages.
- 8 -
<PAGE>
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
Statement of Assets and Liabilities
- -----------------------------------
- Assets and liabilities will be disclosed in accordance with standard
reporting format.
- The following will be disclosed for each class:
Net Assets:
Class A Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $_____ per share based
on _____ shares outstanding.
Class B Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $_____ per share based
on _____ shares outstanding.
Class C Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $_____ per share based
on _____ shares outstanding.
- 9 -
<PAGE>
Statement of Operations
- -----------------------
- Standard reporting format, except that class specific expenses will be
disclosed for each class.
Statement of Changes in Net Assets
- ----------------------------------
- Show components by each class of shares and in total as follows:
Current Year
- --------------------------------------------------------------------------------
Total Class A Class B Class C
- ----- ------- ------- -------
Prior Year
- --------------------------------------------------------------------------------
Total Class A Class B Class C
- ----- ------- ------- -------
Selected Share Data and Ratios
- ------------------------------
- Show components by each class as follows:
Current Year
- --------------------------------------------------------------------------------
Class A Class B Class C
- ------- ------- -------
Prior Years
- --------------------------------------------------------------------------------
Class A Class B Class C
- ------- ------- -------
Notes to Financial Statements
- -----------------------------
- Note on share transactions will include information on each class of
shares for two years.
- Notes will include additional disclosure regarding allocation of
expenses between classes.
- Notes will describe the distribution arrangements, incorporating
disclosure on any class 12b-1 fee arrangements.
- 10 -
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001040623
<NAME> WELLS FAMILY OF REAL ESTATE FUNDS
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 13,434,959
<INVESTMENTS-AT-VALUE> 11,977,023
<RECEIVABLES> 220,673
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 61,190
<TOTAL-ASSETS> 12,258,886
<PAYABLE-FOR-SECURITIES> 139,527
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,681
<TOTAL-LIABILITIES> 273,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,629,272
<SHARES-COMMON-STOCK> 1,546,689
<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (185,658)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,457,936)
<NET-ASSETS> 11,985,678
<DIVIDEND-INCOME> 335,133
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 51,904
<NET-INVESTMENT-INCOME> 283,229
<REALIZED-GAINS-CURRENT> (185,658)
<APPREC-INCREASE-CURRENT> (1,457,936)
<NET-CHANGE-FROM-OPS> (1,360,365)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 283,229
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 61,104
<NUMBER-OF-SHARES-SOLD> 1,537,513
<NUMBER-OF-SHARES-REDEEMED> 40,132
<SHARES-REINVESTED> 39,308
<NET-CHANGE-IN-ASSETS> 11,885,678
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,576
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 175,510
<AVERAGE-NET-ASSETS> 6,357,844
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> (2.20)
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .05
<PER-SHARE-NAV-END> 7.75
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
