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.
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.
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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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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.
INVESTMENT COMPETITION RISK - REITs compete with other
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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.
INDUSTRY CONCENTRATION RISK - The Fund concentrates its investments in a
single industry and could experience larger price fluctuations than funds
invested in a broader range of industries.
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 Charge (Load)
Imposed on Purchases 4.00% None None
Maximum Contingent Deferred Sales Charge
(Load) None(1) 5.00%(2) 1.00%
Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fee None(3) None(3) None(3)
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%
Other Expenses (Estimated for Class B & C) 2.80% .24% .24%
----- ----- -----
Total Annual Fund Operating Expenses 3.55%* 1.74%* 1.74%*
===== ===== =====
* THE ACTUAL TOTAL ANNUAL FUND OPERATING EXPENSES FOR CLASS A SHARES FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1998 WERE 0.99%. THE ADVISER INTENDS TO
CONTINUE WAIVING FEES AND REIMBURSING FUND EXPENSES IN ORDER TO MAINTAIN
TOTAL ANNUAL FUND OPERATING EXPENSES AT OR BELOW 0.99% FOR CLASS A SHARES
OF THE FUND AND AT OR BELOW 1.74% FOR CLASS B SHARES AND CLASS C SHARES OF
THE FUND. HOWEVER, THIS ARRANGEMENT MAY BE DISCONTINUED AT ANY TIME AT THE
OPTION OF THE ADVISER.
(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
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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.
(4) During the fiscal period ended December 31, 1998, the Trust did not pay or
accrue any distribution (12b-1) fees. After January 1, 1999, distribution
fees may be accrued at a rate of up to 0.25% of the Fund's average net
assets attributable to Class A shares.
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 5 Years 10 Years
------ ------- ------- --------
Class A Shares* $758 $1,488 $2,240 $4,222
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
* Using the actual expenses, net of all waivers, the costs of investing
in Class A shares for one, three, five and ten years would have been
$501, $715, $9147 and $1,613, respectively.
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INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
Investment Objective
- --------------------
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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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
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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 daily 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. If the Fund consistently fails to achieve its targeted correlation,
the Fund will reasses its investment strategies, cash management policies and
expense ratio in an attempt to achieve a correlation of 0.95 or higher.
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
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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
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o heavy cash flow dependency
o default by borrowers
o self-liquidation
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 Adviser (not the Fund) pays the Sub-Adviser's fee for its
services to the Fund. 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
Regular Accounts
- ----------------
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 $100 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.
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Minimum Investment
Requirements
Initial Additional
------- ----------
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
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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:
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.
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:
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o We price direct purchases based on the next public offering price (net
asset value plus any applicable sales load) or at 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.
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
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<PAGE>
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:
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
may be subject to a
1.00% contingent deferred
sales load during first year
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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
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If you are investing $1 million or more, it is generally more
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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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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.
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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:
- 15 -
<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 prior
to waiver of the load, including death certificates, physicians' certificates,
etc.
- 16 -
<PAGE>
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 information,
analyses and reports with respect to marketing and
- 17 -
<PAGE>
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.
We redeem shares based on the current NAV on the day we
- 18 -
<PAGE>
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 A SIGNATURE GUARANTEE is required
against fraud. You can obtain one from for any redemption which is $25,000
most banks or securities dealers, but or more, which is mailed to an
not from a notary public. For joint address other than your address of
accounts, each signature must be record or if your name(s) or
guaranteed. Please call us to ensure address on your account has been
that your signature guarantee will be changed within thirty days.
processed correctly.
- ----------------------------------------
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.
REINVESTMENT PRIVILEGE. If you have redeemed shares of the Fund,
- 19 -
<PAGE>
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 (see "Share Option" below). All distributions will be based on the
NAV in effect on the payable date.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- 20 -
<PAGE>
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.
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
- 21 -
<PAGE>
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 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 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 ACCOUNT NO. L ____-____________
Account Application (For Fund Use Only)
o Class A Shares (L4) $_______________
o Class B Shares (L5) $_______________ FOR BROKER/DEALER USE ONLY
o Class C Shares (L8) $_______________ Firm Name:______________________
Please mail completed account application to: Home Office Address:____________
Wells S&P REIT Index Fund Branch Address:_________________
P.O. Box 5354 Rep Name & No.:_________________
Cincinnati, Ohio 45201-5354 Rep Signature:__________________
================================================================================
Initial Investment of $____________________________ ($2,500 minimum)
o Check or draft enclosed payable to the Wells S&P REIT Index Fund.
o Bank Wire From: ____________________________________________________________
Account Name S.S. #/Tax l.D.#
ACCOUNT NAME S.S. #/Tax I.D.#
_______________________________________________ _____________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minors S.S.#)
Citizenship: o U.S.
_______________________________________________ o Other
Name of Joint Tenant, Partner, Custodian _____________
ADDRESS PHONE
_______________________________________________ ( )_______________________
Street or P.O. Box Business Phone
_______________________________________________ ( )_______________________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant
(Right of Survivorship Presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other
Occupation and Employer Name/Address____________________________________________
Are you an associated person of an NASD member? o Yes o No
================================================================================
TAXPAYER IDENTIFICATION NUMBER - Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option - Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option - Income distributions and short term capital gains
distributions paid in cash; long term capital gains
distributions reinvested in additional shares.
o Cash Option - Income distributions and capital gains distributions paid in
cash.
o By Check o By ACH to my bank checking or savings account.
PLEASE ATTACH A VOIDED CHECK.
================================================================================
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's
confirmation of the following holdings of the Wells S&P
REIT Index Fund.
Account Number/Name Account Number/Name
______________________________________ ____________________________________
______________________________________ ____________________________________
LETTER OF INTENT: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o l agree to the Letter of Intent in the current Prospectus of the Wells S&P
REIT Index Fund. Although I am not obligated to purchase, and the Fund is
not obligated to sell, I intend to invest over a 13 month period beginning
______________________ 19 _______ (purchase date of not more than 90 days
prior to this Letter) an aggregate amount in the Fund at least equal to
(check appropriate box):
o $50,000 o $100,000 o $250,000 o $500,000 o $1,000,000
================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for
shares, to receive dividends and distributions for automatic reinvestment in
additional shares of the Fund for credit to the investor's account and to
surrender for redemption shares held in the investor's account for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release the Fund,
Wells Asset Management, Inc., Gateway Investment Advisers, L.P., Wells
Investment Securities, Inc., Countrywide Fund Services, Inc., and their
respective officers, employees, agents and affiliates from any and all liability
in the performance of the acts instructed herein. The Internal Revenue Service
does not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
___________________________________ ______________________________________
Signature of Individual Owner, Signature of Joint Owner, if any
Corporate Officer, Trustee, etc
___________________________________ ______________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: Corporations, business trusts and other organizations must complete the
resolution form on the reverse side. Unless otherwise specified, each joint
owner shall have full authority to act on behalf of the account.
<PAGE>
AUTOMATIC INVESTMENT PLAN (Complete for Investments into the Fund)
The Automatic Investment Plan is available for all established accounts of the
Wells S&P REIT Index Fund. There is no charge for this service, and it offers
the convenience of automatic investing on a regular basis. The minimum
investment is $100.00 per month. For an account that is opened by using this
Plan, the minimum initial investment is $2,500 and subsequent investments must
be $100.00. Though a continuous program of 12 monthly investments is
recommended, the Plan may be discontinued by the shareholder at any time.
Please invest $ _________________ per ABA Routing Number_____________________
month in the Wells S&P REIT Index Fund FI Account Number______________________
o Checking Account o Savings Account
__________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
o the 15th day of each month
__________________________________
City State o both the 15th and last business day
X_________________________________ X_______________________________________
(Signature of Depositor EXACTLY as (Signature of Joint Tenant - if any)
it appears on FI Records)
(Joint Signatures are required when bank account is in joint names.
Please sign exactly as signature appears on your FIs records.)
PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("Countrywide") has put into effect, by which amounts, determined
by your depositor, payable to the Fund, for purchase of shares of the Fund, are
collected by Countrywide, Countrywide hereby agrees:
Countrywide will indemnify and hold you harmless from any liability to any
person or persons whatsoever arising out of the payment by you of any amount
drawn by the Fund to its own order on the account of your depositor or from any
liability to any person whatsoever arising out of the dishonor by you whether
with or without cause or intentionally or inadvertently, of any such amount.
Countrywide will defend, at its own cost and expense, any action which might be
brought against you by any person or persons whatsoever because of your actions
taken pursuant to the foregoing request or in any manner arising by reason of
your participation in this arrangement. Countrywide will refund to you any
amount erroneously paid by you to the Fund if the claim for the amount of such
erroneous payment is made by you within six (6) months from the date of such
erroneous payment; your participation in this arrangement and that of the Fund
may be terminated by thirty (30) days' written notice from either party to the
other.
================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund)
This is an authorization for you to withdraw $________ from my mutual fund
account beginning the last business day of the month of _______.
Please Indicate Withdrawal Schedule (Check One)::
o Monthly - Withdrawals will be made on the last business day of each month.
o Quarterly - Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o Annually - Please make withdrawals on the last business day of the month
of: _________________.
Please Select Payment Method (Check One):
o Check: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is no
charge.
o Bank Wire: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is a $9.00 fee.
Please attach a voided ___________________________________________________
check for ACH or bank wire Bank Name Bank Address
___________________________________________________
Bank ABA# Account # Account Name
o Send to special payee (other than applicant): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee________________________________________________________
Please send to:______________________________________________________
Street address City State Zip
================================================================================
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the
Wells S&P REIT Index Fund (the Fund) and that
____________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Fund,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
Fund, to establish or acknowledge terms and conditions governing the redemption
of said shares and to otherwise implement the privileges elected on the
Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the
____________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of _____________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on __________________ at which
a quorum was present and acting throughout, and that the same are now in full
force and effect. I further certify that the following is (are) duly elected
officer(s) of the corporation or organization, authorized to act in accordance
with the foregoing resolutions.
Name Title
_____________________________ _____________________________
_____________________________ _____________________________
_____________________________ _____________________________
Witness my hand and seal of the corporation or organization this ______ day of
__________________________, 19_______.
______________________________ _____________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<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.
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<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
<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.............................................................. 12
THE UNDERWRITER.............................................................. 13
DISTRIBUTION PLANS........................................................... 14
SECURITIES TRANSACTIONS...................................................... 15
PORTFOLIO TURNOVER........................................................... 17
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE......................... 17
OTHER PURCHASE INFORMATION................................................... 18
TAXES ....................................................................... 19
REDEMPTION IN KIND........................................................... 21
HISTORICAL PERFORMANCE INFORMATION........................................... 21
PRINCIPAL SECURITY HOLDERS .................................................. 24
CUSTODIAN.................................................................... 25
AUDITORS .................................................................... 25
COUNTRYWIDE FUND SERVICES, INC............................................... 25
ANNUAL REPORT................................................................ 26
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<PAGE>
THE TRUST
- ---------
The funds are 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 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
- 5 -
<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.
- 6 -
<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;
- 7 -
<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 L. Bennett 57 Treasurer 0
Tina D. Hosking 30 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 Financial Planner (CFP) designation of the
Certified Financial
- 9 -
<PAGE>
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 L. BENNETT, 312 Walnut Street, Cincinnati, Ohio, is First Vice
President and Chief Operations Officer of Countrywide Fund Services, Inc. (a
registered transfer agent). He is also Treasurer for the Dean Family of Funds,
Williamsburg Investment Trust, The New York State Opportunity Funds, Wells
Family of Real Estate Funds and The Winter Harbor Fund (all of which are
registered investment companies).
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio, is Associate General
Counsel of Countrywide Fund Services, Inc. She is also Secretary of The Winter
Harbor Fund, The Bjurman Funds, Dean Family of Funds, The James Advantage Funds,
UC Investment Trust, Williamsburg Investment Trust, Wells Family of Real Estate
Funds and The New York State Opportunity Funds and Assistant Secretary of The
Gannett Welsh & Kotler Funds, The Westport Funds and Lake Shore Family of Funds.
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<PAGE>
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
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
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<PAGE>
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 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
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<PAGE>
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 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.
- 13 -
<PAGE>
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.
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
- 14 -
<PAGE>
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 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
- 15 -
<PAGE>
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 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.
- 16 -
<PAGE>
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.
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
- 17 -
<PAGE>
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 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
- 18 -
<PAGE>
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, 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
- 19 -
<PAGE>
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 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
- 20 -
<PAGE>
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).
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:
- 21 -
<PAGE>
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 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
- 22 -
<PAGE>
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 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
- 23 -
<PAGE>
maximum rating is five stars, and ratings are effective for two weeks.
Investors may use such indices in addition to the Fund's Prospectus to
obtain a more complete view of the Fund's performance before investing. Of
course, when comparing the Fund's performance to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return, investors should take into consideration
any relevant differences in funds such as permitted portfolio compositions and
methods used to value portfolio securities and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
that are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as Standard & Poor's Ratings Group and Moody's Investors Service, Inc.).
The Fund may also depict the historical performance of the securities in which
the Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indices of those investments, or economic indicators. The Fund may
also include in advertisements and in materials furnished to present and
prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
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.
- 24 -
<PAGE>
CUSTODIAN
- ---------
Firstar, 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 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.
- 25 -
<PAGE>
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.
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.
- 26 -
<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
