September 20, 2000
WELLS S&P REIT INDEX FUND
SUPPLEMENT TO PROSPECTUS
The Prospectus, dated May 1, 2000, of the Wells S&P REIT Index Fund (the
"Fund") is hereby amended to reflect the following new information:
New Transfer Agent
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The Fund has appointed Ultimus Fund Solutions, LLC as the new transfer agent and
shareholder servicing agent of the Fund.
Address and Phone Number of Fund
--------------------------------
Inquiries concerning the Fund, shareholder accounts, and purchases or
redemptions of shares in the Fund should now be addressed to:
Wells S&P REIT Index Fund
c/o Ultimus Fund Solutions
P.O. Box 46707
Cincinnati, Ohio 45246-9453
1-800-282-1581
For persons desiring to invest in the Fund by bank wire, your bank should now
use the following wire instructions:
Firstar Bank
Cincinnati, Ohio
ABA # 042000013
For Wells S&P REIT Index Fund
Acct. # 821663622
For further credit to [SHAREHOLDER'S NAME AND ACCT. #]
For further information concerning purchases or redemptions of Fund shares, see
"Buying Fund Shares" and "Redeeming Your Shares" in the Prospectus.
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WELLS FAMILY OF REAL ESTATE FUNDS
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STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May 1, 2000
Revised September 20, 2000
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, 2000. A copy of the Fund's Prospectus can be obtained by writing
the Fund at 135 Merchant Street, Suite 230, Cincinnati, Ohio 45246 or by calling
the Fund nationwide toll-free 800-282-1581.
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STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Wells Family of Real Estate Funds
6200 The Corners Parkway
Atlanta, Georgia 30092
THE TRUST................................................................... 3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS............................... 4
INVESTMENT LIMITATIONS...................................................... 6
TRUSTEES AND OFFICERS....................................................... 7
THE INVESTMENT ADVISER...................................................... 10
THE SUB-ADVISER............................................................. 11
THE UNDERWRITER............................................................. 11
DISTRIBUTION PLANS.......................................................... 12
SECURITIES TRANSACTIONS..................................................... 13
CODE OF ETHICS.............................................................. 15
PORTFOLIO TURNOVER.......................................................... 15
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................ 15
OTHER PURCHASE INFORMATION.................................................. 16
TAXES....................................................................... 17
REDEMPTION IN KIND.......................................................... 18
HISTORICAL PERFORMANCE INFORMATION.......................................... 19
PRINCIPAL SECURITY HOLDERS.................................................. 21
CUSTODIAN................................................................... 22
AUDITORS.................................................................... 22
TRANSFER AGENT.............................................................. 22
ANNUAL REPORT............................................................... 23
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THE TRUST
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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 one series of shares
to investors, the Wells S&P REIT Index Fund (the "Fund").
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to the Fund with each other share of the Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares so long as the proportionate beneficial
interest in the assets belonging to the Fund are in no way affected. In case of
any liquidation of the Fund, the holders of shares of the Fund 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.
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. 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
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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 list of some of the terms and investment policies found in the Prospectus
appears below. This list also notes and describes investment options, not
described in the Prospectus, that may be used by the Fund.
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 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
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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 may also include shares of money
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
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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.
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;
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(8) Invest for the purpose of exercising control or management of another
issuer;
(9) Invest in interests in oil, gas or other mineral exploration or development
programs, except that the Fund may invest in the securities of companies
(other than those which are not readily marketable) which own or deal in
such things;
(10) Invest in interests in real estate or real estate limited partnerships
(although it may invest in real estate investment trusts and purchase
securities secured by real estate or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein);
(11) Invest more than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others (a) securities for which
no readily available market exists or which have legal or contractual
restrictions on resale and (b) repurchase agreements not terminable within
seven days; or
(12) Purchase the securities of any issuer if such purchase at the time thereof
would cause less than 75% of the value of the total assets of the Fund to
be invested in cash and cash items (including receivables), securities
issued by the U.S. Government, its agencies or instrumentalities,
securities of other investment companies, and other securities for the
purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the
Fund and to not more than 10% of the outstanding voting securities of such
issuer.
Percentage restrictions stated as an investment limitation apply at the
time of investment; if a later increase or decrease in percentage beyond the
specified limits results from a change in securities values or total assets, it
will not be considered a violation. However, in the case of the borrowing
limitation (limitation number 1, above), the Fund will, to the extent necessary,
reduce its existing borrowings to comply with the limitation.
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
and their compensation for the fiscal year ended December 31, 1999. 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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Compensation
Name Age Position Held From the Trust
---- --- ------------- --------------
*Leo F. Wells III 55 President and Trustee $ 0
*Jill M. Maggiore 42 Vice President 0
+John L. Bell 59 Trustee 1,000
+Richard W. Carpenter 62 Trustee 1,000
Bud Carter 62 Trustee 750
Donald S. Moss 64 Trustee 750
+Walter W. Sessoms 65 Trustee 1,000
Robert G. Dorsey 43 Vice President 0
Mark J. Seger 38 Treasurer 0
John F. Splain 44 Secretary 0
* Mr. Wells and Ms. Maggiore, 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, 6200 The Corners Parkway, 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.
JILL M. MAGGIORE, 6200 The Corners Parkway, Atlanta, Georgia, is Vice
President of Mutual Funds of Wells Real Estate Funds. Ms. Maggiore joined Wells
Real Estate Funds in March 1998. She is responsible for all aspects of the Wells
Mutual Fund including acting as the Portfolio Manager. She also provides the
firm's industry research and statistical analysis for comparative performance
studies. Prior to joining Wells Real Estate Funds, Ms. Maggiore worked for
Keogler Investment Advisory in Atlanta. In this capacity, she was a founding
partner and member of the Board. She was responsible for running the Packaged
Product Department (including Mutual Funds, Insurance, and Partnerships),
Research Department, and Conference Department. She also acted as the Firm's
National Sales Manager and Home Office Branch Manager. While with KIA, Ms.
Maggiore helped the firm grow from ground level to raising over $40 million
dollars a year. The Firm was sold in 1998 to SunAmerica Financial.
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Ms. Maggiore holds a Bachelor of Business degree from Auburn University. She is
also a registered NASD principal and holds Accident and Sickness, Life, Variable
Annuity and Variable Life Insurance Licenses.
JOHN L. BELL, 800 Mount Vernon Highway, Suite 230, Atlanta, Georgia, is the
General Partner of JB Family LLP (an investment firm). He is also the past owner
and Chief Executive Officer of Bell-Mann, Inc. (a flooring company).
RICHARD W. CARPENTER, 5570 Glenridge Drive, Atlanta, Georgia, is President
and Director of the following business entities: Reamark Holdings, Corp.(a real
estate company); Commonwealth Oil Refining Company (an oil terminal); Leisure
Technology, Inc. (a real estate company); and Wyatt Energy, Inc. (an oil
terminal). In addition, he is also the Managing Partner of Carpenter Properties
LP (a real estate company) and a Director of TaraCorp (a manufacturing company).
He also serves as a Director of First Liberty Financial Corp. and First Liberty
Savings Bank.
BUD CARTER, 100 Mt. Shasta Lane, Alpharetta, Georgia, is the Regional
Manager Senior Vice President of The Executive Committee. He is also Board
Manager of Warebase 9 (an Internet Media Company).
DONALD S. MOSS, 181 Hummingbird Circle, Highlands, North Carolina, is
presently retired. He previously worked for Avon Products, Incorporated.
WALTER WOODROW SESSOMS, 5995 River Chase Circle, Atlanta, Georgia, is
presently retired. He previously served as a Group President for BellSouth
Telecommunications from December, 1991 through June, 1997.
ROBERT G. DORSEY, 135 Merchant Street, Cincinnati, Ohio, is a Managing
Director of Ultimus Fund Solutions, LLC (a registered transfer agent) and
Ultimus Fund Distributors, LLC (a registered broker-dealer). Prior to March
1999, he was President of Countrywide Fund Services, Inc. (a mutual fund
services company).
JOHN F. SPLAIN, 135 Merchant Street, Cincinnati, Ohio, is a Managing
Director of Ultimus Fund Solutions, LLC and Ultimus Fund Distributors, LLC.
Prior to March 1999, he was First Vice President and Secretary of Countrywide
Fund Services, Inc. and affiliated companies.
MARK J. SEGER, 135 Merchant Street, Cincinnati, Ohio, is a Managing
Director of Ultimus Fund Solutions, LLC and Ultimus Fund Distributors, LLC.
Prior to March 1999, he was First Vice President of Countrywide Fund Services,
Inc.
Each non-interested Trustee will receive an annual retainer of $6,000, paid
in $500 per month payments and a $125 fee for each Board meeting attended and
will be reimbursed for travel and other expenses incurred in the performance of
their duties.
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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 periods ended December 31, 1999 and
1998, the Fund accrued advisory fees of $86,810 and $26,576, respectively.
However, in order to reduce the operating expenses of the Fund, the Adviser
voluntarily waived its entire advisory fee for each year and reimbursed the Fund
for $ 198,373 and $97,030, respectively, 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
accounting expenses, expenses of registering shares under federal and state
securities laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations and such extraordinary or
non-recurring expenses as may arise, such as litigation to which the Fund may be
a party. The Fund may have an obligation to indemnify the Trust's officers and
Trustees with respect to such litigation, except in instances of willful
misfeasance, bad faith, gross negligence or reckless disregard by such officers
and Trustees in the performance of their duties. The Adviser bears promotional
expenses in connection with the distribution of the Fund's shares to the extent
that such expenses are not assumed by the Fund under their plan of distribution
(see below). The compensation and expenses of any officer, Trustee or employee
of the Trust who is an officer, director, employee or stockholder of the Adviser
are paid by the Adviser.
By its terms, the Trust's advisory agreement will remain in force until
January 12, 2001 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.
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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
periods ended December 31, 1999 and 1998, the Adviser paid the Sub-Adviser fees
of $86,810 and $21,623, respectively.
By its terms, the sub-advisory agreement will remain in force until January
12, 2001 and from year to year thereafter, subject to annual approval by (a) the
Board of Trustees or (b) a vote of the majority of the Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting on such approval.
The sub-advisory agreement may be terminated at any time, on sixty days' written
notice, without the payment of any penalty, by the Board of Trustees, by a vote
of the majority of the Fund's outstanding voting securities, or by the Adviser
or Sub-Adviser. The sub-advisory agreement automatically terminates in the event
of its assignment, as defined by the 1940 Act and the rules thereunder.
THE UNDERWRITER
---------------
Wells Investment Securities, Inc. (the "Underwriter"), 6200 The Corners
Parkway, 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.
During the fiscal periods ended December 31, 1999 and 1998, the aggregate
commissions collected on sales of the Fund's Class A shares were $292,553 and
$357,246, respectively, of which the Underwriter paid $245,316 and $322,162,
respectively, to unaffiliated broker-dealers
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in the selling network and retained $47,237 and $35,084, respectively, from
underwriting and broker commissions. During the fiscal year ended December 31,
1999, the Underwriter collected $1,017 and $53 in contingent deferred sales
charges on redemptions of Class B and Class C shares, respectively.
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, 2001 and from year to year thereafter, subject to annual approval by
(a) the Board of Trustees or (b) a vote of the majority of the Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Trust's underwriting agreement may be terminated at any time,
on sixty days' written notice, without the payment of any penalty, by the Board
of Trustees, by a vote of the majority of the Fund's outstanding voting
securities, or by the Adviser. The underwriting agreement automatically
terminates in the event of its assignment, as defined by the 1940 Act and the
rules thereunder.
DISTRIBUTION PLANS
------------------
CLASS A SHARES -- As stated in the Prospectus, the Fund has adopted a plan
of distribution with respect to the Class A shares of the Fund (the "Class A
Plan") pursuant to Rule 12b-1 under the 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. For the fiscal year ended December 31, 1999, the Class A shares paid
$331 in distribution expenses. These expenses were all in the form of payments
to broker-dealers.
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 brokers based on the average
value of the Fund's Class B and Class C shares owned by clients of such brokers.
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
-12-
<PAGE>
inquiries, payments to brokers and dealers for selling and assisting in the
distribution of Class B and Class C shares, costs of advertising and promotion
and any other expenses related to the distribution of the Class B and Class C
shares. Unreimbursed expenditures will not be carried over from year to year.
The Fund may make payments to dealers and other persons in an amount up to .75%
per annum of the average value of Class B and Class C shares owned by their
clients, in addition to the .25% account maintenance fee described above.
GENERAL INFORMATION. The continuance of the Plans must be specifically
approved at least annually by a vote of the Trust's Board of Trustees and by a
vote of the Trustees who are not interested persons of the Trust and have no
direct or indirect financial interest in the Plans (the "Independent Trustees")
at a meeting called for the purpose of voting on such continuance. A Plan may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of the applicable
class of the Fund. In the event a Plan is terminated in accordance with its
terms, the Fund will not be required to make any payments for expenses incurred
after the termination date. The Plans may not be amended to increase materially
the amount to be spent for distribution without shareholder approval. All
material amendments to the Plans must be approved by a vote of the Trust's Board
of Trustees and by a vote of the Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plans will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plans should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification 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
-13-
<PAGE>
capability, financial responsibility and responsiveness of the broker or dealer
and the brokerage and research services provided by the broker or dealer. The
Sub-Adviser generally seeks favorable prices and commission rates that are
reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the dealers who make a
market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer.
The Sub-Adviser is specifically authorized to select brokers to buy and
sell securities for the Fund and 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 periods ended December 31, 1999 and 1998, the
amount of brokerage transactions and related commissions for the Fund directed
to brokers due to research services provided were $17,850,419 and $33,973,
respectively, and $14,396,170 and $22,880, respectively.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Sub-Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Sub-Adviser in servicing all of its accounts and not all such
services may be used by the Sub-Adviser in connection with the Fund.
Subject to the requirements of the 1940 Act and procedures adopted by the
Board of Trustees, the Fund may execute portfolio transactions through any
broker or dealer and pay brokerage commissions to a broker (i) which is an
affiliated person of the Trust, or (ii) which is an affiliated person of such
person, or (iii) an affiliated person of which is an affiliated person of the
Trust, the Adviser, the Sub-Adviser or the Underwriter.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Sub-Adviser and other
affiliates of the Trust or the Sub-Adviser may effect securities transactions
which are executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. The Fund will not effect
any brokerage transactions in its portfolio securities with the Sub-Adviser if
such transactions would be unfair or unreasonable to its shareholders.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers. Although the Fund does not anticipate any
ongoing arrangements with other brokerage firms, brokerage business may be
transacted from time to time with other firms. Neither the Adviser nor the
Sub-Adviser, nor affiliates of the Trust, the Adviser, or the Sub-Adviser will
receive reciprocal brokerage business as a result of the brokerage business
-14-
<PAGE>
transacted by the Fund with other brokers.
CODE OF ETHICS
--------------
The Trust, the Adviser, Sub-Adviser and Underwriter have each adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Adviser, Sub-Adviser and Underwriter and, as described below, imposes
additional, more onerous, restrictions on investment personnel of the Adviser
and Sub-Adviser. The Code requires that all employees of the Adviser,
Sub-Adviser and Underwriter preclear any personal securities transactions (with
limited exceptions, such as U.S. Government obligations). The preclearance
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. In addition, no
employee may purchase or sell any security which, at that time, is being
purchased or sold (as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by the Fund. The substantive restrictions
applicable to investment personnel of the Adviser, Sub-Adviser include a ban on
acquiring any securities in an initial public offering. Furthermore, the Code
provides for trading "blackout periods" which prohibit trading by investment
personnel of the Adviser and Sub-Adviser within periods of trading by the Fund
in the same (or equivalent) security.
PORTFOLIO TURNOVER
------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Sub-Adviser anticipates that the Fund's portfolio turnover rate
normally will not exceed 100%. A 100% turnover rate would occur if all of the
Fund's portfolio securities were replaced once within a one year period. For the
fiscal periods ended December 31, 1999 and 1998, the Fund's annualized portfolio
turnover rate was 17% and 9%, respectively.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon cash flows into and out of the Fund,
changes in the S&P REIT Index and market and other conditions, and it will not
be a limiting factor when the Sub-Adviser believes that portfolio changes are
appropriate.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
----------------------------------------------------
The share price (net asset value) and the public offering price (net
asset value plus applicable sales load) of the shares of the Fund are determined
as of the close of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Trust may also be open for business on other days in
which there is sufficient trading in the Fund's portfolio securities that its
net asset value might be materially
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<PAGE>
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
Integrated Fund Services, Inc. (the "Transfer Agent") that an investment
qualifies for a reduced sales load. The reduced sales load will be granted upon
confirmation of the purchaser's holdings by the Fund.
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any "purchaser" (as defined below) of Class
A shares of the Fund who submits a Letter of Intent to the Transfer Agent. The
Letter must state an intention to invest in the Fund within a thirteen month
period a specified amount which, if made at one time, would qualify for a
reduced sales load. A Letter of Intent may be submitted with a purchase at the
beginning of the thirteen month period or within ninety days of the first
purchase under the Letter of Intent. Upon acceptance of this Letter, the
purchaser becomes eligible for the reduced sales load applicable to the level of
investment covered by such Letter of Intent as if the entire amount were
invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Fund to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases at
the purchaser's cost (without a retroactive downward adjustment of the sales
load). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. For purposes of determining the applicable sales load
and for purposes of the Letter of Intent and Right of Accumulation privileges, a
purchaser includes an individual, his or her spouse and their children under the
age of 21, purchasing shares for his, her or their own account; a trustee or
other fiduciary purchasing shares for a single fiduciary account
-16-
<PAGE>
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
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. As of December 31, 1999, the Fund had capital loss
carryforwards for federal income tax purposes of $357,546, which expire through
the year December 31, 2007.
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
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<PAGE>
capital gains recognized during the one year period ending on October 31 of the
calendar year plus undistributed amounts from prior years. The Fund intends to
make distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
The Internal Revenue Code requires a REIT to distribute at least 95% of its
taxable income to investors. In many cases, however, because of "non-cash"
expenses such as property depreciation, an equity REIT's cash flow will exceed
its taxable income. The REIT may distribute this excess cash to offer a more
competitive yield (in other words, provide investors with a higher
distribution). This portion of the distribution is classified as return of
capital. The portion of your distributions that is classified as a return of
capital is generally not taxable to you. However, when you receive a return of
capital, your cost basis (that is, the adjusted cost of your investment, which
is used to determine a capital gain or loss for tax purposes) is decreased by
the amount of the return of capital. This, in turn, will affect the capital gain
or loss you realize when you sell or exchange any of your Fund shares.
Two other important tax considerations about return of capital:
* If you do not reinvest your distributions (that is, you receive your
distributions in cash), your original investment in the Fund will be
reduced by the amount of return of capital and capital gains included
in the distribution.
* A return of capital is generally not taxable to you; however, any
return of capital distribution would be taxable as a capital gain once
your cost basis is reduced to zero (which could happen if you do not
reinvest your distributions and return of capital in those
distributions is significant).
REDEMPTION IN KIND
------------------
When it in the best interest 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.
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<PAGE>
HISTORICAL PERFORMANCE INFORMATION
----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
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's
Class A, Class B and Class C shares average annual returns for the period ended
December 31, 1999 are:
1 Year Since Inception
------ ---------------
Class A Shares -10.00% -16.17% (Inception Date March 2, 1998)
Class B Shares -12.73% (Inception Date May 7, 1999)
Class C Shares -12.06% (Inception Date May 5, 1999)
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable initial sales load which, if included, would reduce
total return. A nonstandardized quotation may also indicate average annual
compounded rates of return without including the effect of the applicable
initial sales load or over periods other than those specified for average annual
total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
From time to time, the Fund may also advertise its yield. A yield quotation
is based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
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<PAGE>
6
Yield = 2[(a-b/cd + 1) - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized. The yield of the Class A shares for the
thirty days ended March 31, 2000 was 7.82%.
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 and S&P REIT Index, which is made up of approximately 100 stocks which
constitute a representative sample of all publicly traded Real Estate Investment
Trusts. Comparative performance may also be expressed by reference to a ranking
prepared by a mutual fund monitoring service, such as Lipper Analytical
Services, Inc. or Morningstar, Inc., or by one or more newspapers, newsletters
or financial periodicals. Performance comparisons may be useful to investors who
wish to compare the Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is no guarantee of future
results.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
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<PAGE>
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 April 14, 2000, Donaldson Lufkin & Jenrette Securities Corporation,
P.O. Box 2052, Jersey City, New Jersey, owned of record 28.49% of the
outstanding Class B shares of the Fund and 24.24% of the outstanding shares of
the Class C shares of the Fund; First Trust Corporation, PO Box 173301, Denver,
Colorado 80217-3301 owned of record 6.67% of the outstanding shares of the Class
B shares of the Fund; Sterling Trust Company, PO Box 2526, Waco, Texas
76702-2526 owned of record 6.99% of the outstanding shares of the Class B shares
of the Fund; SG Cowen Securities, Financial Square, New York, New York, owned of
record 6% of the outstanding Class B shares of the Fund; and Resources Trust
Company, PO Box 5900, Denver, Colorado 80217 owned of record 7.30% of the
outstanding shares of the Class C shares of the Fund .
As of April 14, 2000, 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.
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<PAGE>
CUSTODIAN
---------
Firstar, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained to
act as Custodian for the Fund's investments. Firstar 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, 2000. 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.
TRANSFER AGENT
--------------
Effective September 20, 2000, the Trust has retained Ultimus Fund
Solutions, LLC (the "Transfer Agent"), 135 Merchant Street, Suite 230,
Cincinnati, Ohio 45246, to act as its transfer agent. 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 $1,500 per month
with respect to each Class of shares. 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 base fee of $2,500 per month plus as
asset-based fee computed as a percentage of the Fund's average net assets. In
addition, the Fund pays all costs of external pricing services.
The Transfer Agent also provides administrative services to the Fund. In
this capacity, the Transfer Agent supplies non-investment related statistical
and research data, internal regulatory compliance services and executive and
administrative services. The Transfer Agent supervises the preparation of tax
returns, reports to shareholders of the Fund, reports to and filings with the
Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For the performance of these
administrative services, the Fund pays the Transfer Agent a fee at the annual
rate of .15% of the average value of its daily net assets up to $50 million,
.125% of such assets from $50 million to $100 million, .1% of such assets from
$100 million to $250 million, .075% of such assets from $250 million to $500
million, and .05% of such assets in excess of $500 million, provided, however,
that the minimum fee is $2,000 per month.
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<PAGE>
Prior to September 20, 2000, Integrated Fund Services, Inc. ("Integrated")
provided the transfer agency, accounting and administrative services described
above with respect to the Transfer Agent. Integrated is an indirect wholly-owned
subsidiary of The Western and Southern Life Insurance Company. For the fiscal
year ended December 31, 1999, Integrated received from the Fund transfer agency
fees, accounting services fees and administrative services fees of $42,614,
$40,000 and $26,009, respectively. For the fiscal period ended December 31,
1998, Integrated received from the Fund transfer agency fees, accounting
services fees and administrative services fees of $10,800, $18,000 and $10,042,
respectively.
ANNUAL REPORT
-------------
The Fund's Annual Financial Statements as of December 31, 1999, which have
been audited by Arthur Andersen LLP, are attached to this Statement of
Additional Information.
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<PAGE>
WELLS S&P REIT INDEX FUND
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
BOARD OF TRUSTEES Wells
Leo F. Wells III S&P
John L. Bell REIT INDEX FUND
Richard W. Carpenter
Bud Carter
Donald S. Moss
Walter W. Sessoms
INVESTMENT ADVISER
Wells Asset Management, Inc. Annual Report
6200 The Corners Parkway, Suite 250 December 31, 1999
Atlanta, Georgia 30092
SUB-ADVISER
Gateway Investment Advisers, L.P.
400 TechneCenter Drive
Milford, Ohio 45150
UNDERWRITER [LOGO]
Wells Investment Securities, Inc. WELLS
6200 The Corners Parkway, Suite 250 Real Estate Funds
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 SERVICE
Nationwide: (Toll-Free) 800-282-1581
<PAGE>
LETTER TO SHAREHOLDERS February 2000
================================================================================
Dear Shareholder,
As we reflect on 1999, the Wells S&P REIT Index Fund continues to yield quite
impressive dividends which are currently averaging more than six times higher
than that of the S&P 500. Even better news is that real estate fundamentals
remain strong, and since December, struggling REIT share prices appear to be on
the road to recovery. Industry experts and observers attribute the lackluster
interest in REITs in 1999 to the overwhelming net investments in high-tech
stocks and everything-dot-com. However, most experts predict a bright 2000 for
REITs.
The recent success of e-commerce companies creates a demand for more office and
warehouse/distribution space. Simply put, that means more real estate to
accommodate a growing e-commerce economy. Nevertheless, because stock market
volatility remains a concern, investors and advisors will likely revisit the
topic of portfolio allocation and will look to REITs as the traditional
portfolio stabilizers they have historically proven to be. For existing REIT
investors, this means rallying prices for the tremendously undervalued REIT
share.
The Wells S&P REIT Index Fund continues to offer its investors broad
diversification, liquidity, growth opportunities, and cash dividends.
Additionally, Wells is the only company to offer a mutual fund that tracks
Standard and Poor's REIT Composite Index. The Fund characteristically invests at
least 95% of assets in stocks included in the index, in approximately the same
proportion. The remaining 5% is invested in cash to maintain liquidity.
In 1999, the Fund's portfolio reflected approximately 80% of the total US Public
REIT market capitalization and represented all REIT sectors and property types.
These investments include 101 REITs, 99 of which are on the New York Stock
Exchange, one on the American Stock Exchange, and one on The Nasdaq Stock
Market.
The long-term outlook for the REIT market: Understanding the REIT market in 1999
is important in projecting the future of REITs. We anticipate that strong real
estate fundamentals will be maintained. And, with REITs once again getting the
endorsements they deserve from high-profile investors like Warren Buffett, we
can look forward to a potential rebound of the REIT market. Meanwhile, REITs
continue to be attractive investments because they distribute nearly all of
their income to shareholders and they receive uniquely favorable tax treatment.
All things considered, long-term growth is to be expected while REITs should
continue to yield the cash flow that makes them a major income-producing
investment option.
We are proud of the Wells S&P REIT Index Fund and are grateful to our loyal
investors who have helped us to grow. We look forward to meeting your real
estate investment needs with many more distinctive products. Your questions and
comments are always welcome. Please do not hesitate to call us at (800)
282-1581.
Yours truly,
/s/ Leo F. Wells III
Leo F. Wells III
2
<PAGE>
PERFORMANCE INFORMATION
================================================================================
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
[GRAPHIC OMITTED]
12/31/99
--------
Wells S&P REIT Index Fund $7,235
S&P REIT Index $7,752
Past performance is not predictive of future performance.
-----------------------------------------------
Wells S&P REIT Index Fund
Average Annual Total Return
1 Year Since Inception*
Class A (10.00%) (16.21%)
Class B N/A (12.73%)**
Class C N/A (12.06%)**
-----------------------------------------------
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class B and Class C shares based on the difference in
loads and fees paid by shareholders in the different classes. The initial public
offering of Class A shares commenced on March 2, 1998, the initial public
offering of Class B shares commenced on May 7, 1999 and the initial public
offering of Class C shares commenced on May 5, 1999.
**Represents the total return for each class from its respective initial public
offering to December 31, 1999.
3
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
================================================================================
ASSETS
Investment securities:
At acquisition cost ........................................ $ 24,568,368
============
At market value (Note 1) ................................... $ 21,607,646
Dividends receivable .......................................... 144,120
Receivable from Adviser (Note 3) .............................. 9,460
Receivable for capital shares sold ............................ 133,941
Receivable for securities sold ................................ 65,566
Organization expenses, net (Note 1) ........................... 23,984
Other assets .................................................. 45,512
------------
TOTAL ASSETS ............................................... 22,030,229
------------
LIABILITIES
Payable for capital shares redeemed ........................... 10,721
Payable for securities purchased .............................. 128,883
Payable to Administrator (Note 3) ............................. 11,190
Other accrued expenses and liabilities ........................ 17,076
------------
TOTAL LIABILITIES .......................................... 167,870
------------
NET ASSETS .................................................... $ 21,862,359
============
NET ASSETS CONSIST OF:
Paid-in capital ............................................... $ 26,019,014
Accumulated net realized losses from security transactions .... (1,195,933)
Net unrealized depreciation on investments .................... (2,960,722)
------------
Net assets .................................................... $ 21,862,359
============
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares ....................... $ 19,280,655
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ......... 2,834,007
============
Net asset value and redemption price per share (Note 1) ....... $ 6.80
============
Maximum offering price per share (Note 1) ..................... $ 7.08
============
PRICING OF CLASS B SHARES
Net assets applicable to Class B shares ....................... $ 1,306,303
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ......... 189,763
============
Net asset value, offering price and
redemption price per share (Note 1) ........................... $ 6.88
============
PRICING OF CLASS C SHARES
Net assets applicable to Class C shares ....................... $ 1,275,401
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ......... 185,835
============
Net asset value, offering price and
redemption price per share (Note 1) ........................... $ 6.86
============
See accompanying notes to financial statements.
4
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
================================================================================
INVESTMENT INCOME
Dividends .................................................. $ 1,149,485
------------
EXPENSES
Investment advisory fees (Note 3) .......................... 86,810
Custodian fees ............................................. 54,030
Transfer agent fees, Class A (Note 3) ...................... 23,418
Transfer agent fees, Class B (Note 3) ...................... 9,600
Transfer agent fees, Class C (Note 3) ...................... 9,600
Accounting services fees (Note 3) .......................... 40,000
Insurance expense .......................................... 36,811
Registration fees, Common .................................. 27,203
Registration fees, Class A ................................. 527
Registration fees, Class B ................................. 2,988
Registration fees, Class C ................................. 2,998
Administrative services fees (Note 3) ...................... 26,009
Professional fees .......................................... 23,028
Postage and supplies ....................................... 18,001
Amortization of organization expenses (Note 1) ............. 7,574
Reports to shareholders .................................... 5,098
Pricing expenses ........................................... 2,196
Trustees' fees and expenses ................................ 1,250
Distribution expenses, Class A (Note 3) .................... 331
Distribution expenses, Class B (Note 3) .................... 4
------------
TOTAL EXPENSES .......................................... 377,476
Fees waived and expenses reimbursed by the Adviser (Note 3) (198,373)
------------
NET EXPENSES ............................................ 179,103
------------
NET INVESTMENT INCOME ......................................... 970,382
------------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized losses from security transactions ............. (1,010,275)
Net change in unrealized appreciation/
depreciation on investments ............................. (1,502,786)
------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS ............. (2,513,061)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS .................... $ (1,542,679)
============
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1999 and 1998
===========================================================================================
Year Period
Ended Ended
December 31, December 31,
1999 1998(A)
-------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................. $ 970,382 $ 283,229
Net realized losses from security transactions ........ (1,010,275) (185,658)
Net change in unrealized appreciation/
depreciation on investments ........................ (1,502,786) (1,457,936)
------------ ------------
Net decrease in net assets from operations ............... (1,542,679) (1,360,365)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income, Class A ......... (914,054) (283,229)
Dividends from net investment income, Class B ......... (27,091) --
Dividends from net investment income, Class C ......... (29,237) --
Return of capital, Class A ............................ (232,688) (61,104)
Return of capital, Class B ............................ (11,705) --
Return of capital, Class C ............................ (8,711) --
------------ ------------
Decrease in net assets from distributions to shareholders (1,223,486) (344,333)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (Note 4):
CLASS A
Proceeds from shares sold ............................. 11,937,533 13,598,352
Net asset value of shares issued in reinvestment
of distributions to shareholders ................... 1,010,353 318,441
Payments for shares redeemed .......................... (3,137,252) (326,417)
------------ ------------
Net increase in net assets from Class A share transactions 9,810,634 13,590,376
------------ ------------
CLASS B
Proceeds from shares sold ............................. 1,398,817 --
Net asset value of shares issued in reinvestment
of distributions to shareholders ................... 27,124 --
Payments for shares redeemed .......................... (7,741) --
------------ ------------
Net increase in net assets from Class B share transactions 1,418,200 --
------------ ------------
CLASS C
Proceeds from shares sold ............................. 1,692,064 --
Net asset value of shares issued in reinvestment
of distributions to shareholders ................... 29,453 --
Payments for shares redeemed .......................... (307,505) --
------------ ------------
Net increase in net assets from Class C share transactions 1,414,012 --
------------ ------------
TOTAL INCREASE IN NET ASSETS ............................. 9,876,681 11,885,678
NET ASSETS:
Beginning of period (Note 1) .......................... 11,985,678 100,000
------------ ------------
End of period ......................................... $ 21,862,359 $ 11,985,678
============ ============
</TABLE>
(A) Represents the period from the commencement of operations (March 2, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND-- CLASS A
FINANCIAL HIGHLIGHTS
==================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
----------------------------------------------------------------------------------
Year Period
Ended Ended
December 31, December 31,
1999 1998 (A)
----------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period ............. $ 7.75 $ 10.00
---------- ----------
Income (loss) from investment operations:
Net investment income ........................... 0.38 0.26
Net realized and unrealized losses on investments (0.85) (2.20)
---------- ----------
Total from investment operations ................... (0.47) (1.94)
---------- ----------
Less distributions:
Dividends from net investment income ............ (0.38) (0.26)
Return of capital ............................... (0.10) (0.05)
---------- ----------
Total distributions ................................ (0.48) (0.31)
---------- ----------
Net asset value at end of period ................... $ 6.80 $ 7.75
========== ==========
Total return(B) .................................... (6.24%) (19.62%)(D)
========== ==========
Net assets at end of period (000's) ................ $ 19,281 $ 11,986
========== ==========
Ratio of net expenses to average net assets(C) ..... 0.99% 0.99%(E)
Ratio of net investment income to average net assets 5.58% 5.33%(E)
Portfolio turnover rate ............................ 17% 9%(E)
</TABLE>
(A) Represents the period from the initial public offering of Class A shares
(March 2, 1998) through December 31, 1998.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 2.11% and 3.30%(E) for the
periods ended December 31, 1999 and 1998, respectively (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
7
<PAGE>
WELLS S&P REIT INDEX FUND-- CLASS B
FINANCIAL HIGHLIGHTS
================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
--------------------------------------------------------------------------------
Period
Ended
December 31,
1999(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period ...................... $ 8.16
----------
Income (loss) from investment operations:
Net investment income .................................... 0.17
Net realized and unrealized losses on investments ........ (1.20)
----------
Total from investment operations ............................ (1.03)
----------
Less distributions:
Dividends from net investment income ..................... (0.17)
Return of capital ........................................ (0.08)
----------
Total distributions ......................................... (0.25)
----------
Net asset value at end of period ............................ $ 6.88
==========
Total return(B) ............................................. (12.73%)(D)
==========
Net assets at end of period (000's) ......................... $ 1,306
==========
Ratio of net expenses to average net assets(C) .............. 1.72%(E)
Ratio of net investment income to average net assets ........ 5.77%(E)
Portfolio turnover rate ..................................... 17%
(A) Represents the period from the initial public offering of Class B shares
(May 7, 1999) through December 31, 1999.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 3.28%(E) for the period
ended December 31, 1999 (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
8
<PAGE>
WELLS S&P REIT INDEX FUND-- CLASS C
FINANCIAL HIGHLIGHTS
================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
--------------------------------------------------------------------------------
Period
Ended
December 31,
1999(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period ...................... $ 8.09
----------
Income (loss) from investment operations:
Net investment income .................................... 0.20
Net realized and unrealized losses on investments ........ (1.17)
----------
Total from investment operations ............................ (0.97)
----------
Less distributions:
Dividends from net investment income ..................... (0.20)
Return of capital ........................................ (0.06)
----------
Total distributions ......................................... (0.26)
----------
Net asset value at end of period ............................ $ 6.86
==========
Total return(B) ............................................. (12.06%)(D)
==========
Net assets at end of period (000's) ......................... $ 1,275
==========
Ratio of net expenses to average net assets(C) .............. 1.73%(E)
Ratio of net investment income to average net assets ........ 5.59%(E)
Portfolio turnover rate ..................................... 17%
(A) Represents the period from the initial public offering of Class C shares
(May 5, 1999) through December 31, 1999.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 3.01%(E) for the period
ended December 31, 1999 (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
9
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
================================================================================
Market
COMMON STOCKS -- 97.2% Shares Value
--------------------------------------------------------------------------------
APARTMENT/RESIDENTIAL-- 23.3%
Apartment Investment & Management Company - Class A 13,700 $ 545,431
Archstone Communities Trust ........................ 28,600 586,300
Associated Estates Realty Corp. .................... 4,400 34,375
Avalon Bay Communities, Inc. ....................... 13,474 462,327
BRE Properties, Inc. - Class A ..................... 9,200 208,725
Camden Property Trust .............................. 8,275 226,528
Chateau Communities, Inc. .......................... 5,800 150,437
Colonial Properties Trust .......................... 4,700 108,981
Cornerstone Realty Income Trust, Inc. .............. 8,000 78,000
Equity Residential Properties Trust ................ 25,955 1,107,954
Essex Property Trust, Inc. ......................... 3,700 125,800
Gables Residential Trust ........................... 5,200 124,800
Home Properties of NY, Inc. ........................ 4,000 109,750
Manufactured Home Communities, Inc. ................ 4,900 119,131
Mid-America Apartment Communities, Inc. ............ 3,800 85,975
Pennsylvania Real Estate Investment Trust .......... 2,700 39,319
Post Properties, Inc. .............................. 7,900 302,175
Smith (Charles E.) Residential Realty, Inc. ........ 4,100 145,038
Summit Properties, Inc. ............................ 5,900 105,463
Sun Communities, Inc. .............................. 3,600 115,875
United Dominion Realty Trust, Inc. ................. 21,100 208,363
Walden Residential Properties, Inc. ................ 5,200 112,450
------------
5,103,197
------------
DIVERSIFIED-- 9.4%
Duke-Weeks Realty Corp. ............................ 25,640 499,980
Franchise Finance Corp. of America ................. 11,500 275,281
Glenborough Realty Trust, Inc. ..................... 6,400 85,600
Liberty Property Trust ............................. 13,700 332,225
National Golf Properties, Inc. ..................... 2,500 49,375
Pacific Gulf Properties, Inc. ...................... 4,200 85,050
Prison Realty Trust, Inc. .......................... 20,300 102,769
Spieker Properties, Inc. ........................... 13,300 484,619
U.S. Restaurant Properties, Inc. ................... 3,100 44,369
Washington Real Estate Investment Trust ............ 7,300 109,500
------------
2,068,768
------------
HEALTH CARE-- 5.4%
Health Care Property Investors, Inc. ............... 10,578 252,550
Health Care REIT, Inc. ............................. 5,800 87,725
Healthcare Realty Trust, Inc. ...................... 8,233 128,641
HRPT Properties Trust .............................. 27,000 243,000
LTC Properties, Inc. ............................... 5,600 47,250
Meditrust Corp. .................................... 29,200 160,600
10
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
================================================================================
Market
COMMON STOCKS -- 97.2% (Continued) Shares Value
--------------------------------------------------------------------------------
HEALTH CARE-- 5.4% (Continued)
National Health Investors, Inc. .................... 5,000 $ 74,375
Nationwide Health Properties, Inc. ................. 9,500 130,625
OMEGA Healthcare Investors, Inc. ................... 4,100 52,018
------------
1,176,784
------------
HOTEL-- 5.2%
Equity Inns, Inc. .................................. 7,600 51,300
FelCor Lodging Trust, Inc. ......................... 13,500 236,250
Hospitality Properties Trust ....................... 11,600 221,125
Host Marriott Corp. ................................ 46,900 386,925
MeriStar Hospitality Corp. ......................... 9,800 156,800
RFS Hotel Investors, Inc. .......................... 5,100 53,231
Winston Hotels, Inc. ............................... 3,400 27,625
------------
1,133,256
------------
INDUSTRIAL/OFFICE-- 28.9%
AMB Property Corp. ................................. 17,700 352,894
Arden Realty, Inc. ................................. 13,000 260,812
Bedford Property Investors, Inc. ................... 4,600 78,487
Boston Properties, Inc. ............................ 13,900 432,637
Brandywine Realty Trust ............................ 7,700 126,087
CarrAmerica Realty Corp. ........................... 13,700 289,413
CenterPoint Properties Corp. ....................... 4,200 150,675
Cornerstone Properties, Inc. ....................... 26,600 389,025
Cousins Properties, Inc. ........................... 6,600 223,987
Crescent Real Estate Equities Co. .................. 24,700 453,863
EastGroup Properties, Inc. ......................... 3,300 61,050
Equity Office Properties Trust ..................... 51,700 1,273,113
First Industrial Realty Trust, Inc. ................ 7,800 214,013
Highwoods Properties, Inc. ......................... 12,700 295,275
Kilroy Realty Corp. ................................ 5,700 125,400
Koger Equity, Inc. ................................. 5,500 92,813
Mack-Cali Realty Corp. ............................. 12,000 312,750
Parkway Properties, Inc. ........................... 2,100 60,506
Prentiss Properties Trust .......................... 7,700 161,700
ProLogis Trust ..................................... 33,090 636,983
Reckson Associates Realty Corp. .................... 10,400 213,200
SL Green Realty Corp. .............................. 5,000 108,750
------------
6,313,433
------------
MORTGAGE-- 1.0%
Dynex Capital, Inc.* ............................... 2,325 14,967
Indymac Mortgage Holdings, Inc. .................... 15,700 200,175
------------
215,142
------------
11
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
================================================================================
Market
COMMON STOCKS -- 97.2% (Continued) Shares Value
--------------------------------------------------------------------------------
RETAIL CENTERS-- 19.5%
Bradley Real Estate, Inc. .......................... 4,900 $ 85,443
Burnham Pacific Properties, Inc. ................... 6,600 61,875
CBL & Associates Properties, Inc. .................. 5,100 105,187
Chelsea GCA Realty, Inc. ........................... 3,300 98,175
Commercial Net Lease Realty ........................ 6,200 61,612
Developers Diversified Realty Corp. ................ 12,300 158,363
Federal Realty Investment Trust .................... 8,300 156,144
General Growth Properties, Inc. .................... 10,600 296,800
Glimcher Realty Trust .............................. 4,900 63,087
IRT Property Co. ................................... 6,800 53,125
JDN Realty Corp. ................................... 6,900 111,262
JP Realty, Inc. .................................... 3,600 56,250
Kimco Realty Corp. ................................. 12,500 423,438
Kranzco Realty Trust ............................... 2,200 19,387
Macerich Co. (The) ................................. 7,000 145,688
Mills Corp. ........................................ 4,900 87,588
New Plan Excel Realty Trust ........................ 18,160 287,155
Prime Retail, Inc. ................................. 8,877 49,933
Realty Income Corp. ................................ 5,500 113,438
Simon Property Group, Inc. ......................... 35,600 816,575
Taubman Centers, Inc. .............................. 10,900 117,175
Urban Shopping Centers, Inc. ....................... 3,700 100,363
Vornado Realty Trust ............................... 17,600 572,000
Weingarten Realty Investors ........................ 5,500 214,156
------------
4,254,219
------------
SELF STORAGE-- 4.5%
Public Storage, Inc. ............................... 27,934 633,753
Shurgard Storage Centers, Inc. - Class A ........... 6,000 139,125
Sovran Self Storage, Inc. .......................... 2,600 49,237
Storage USA, Inc. .................................. 5,700 172,425
------------
994,540
------------
TOTAL COMMON STOCKS (Cost $24,220,061) ............. $ 21,259,339
------------
CASH EQUIVALENTS-- 1.6% (Cost $348,307)
Firstar Stellar Treasury Fund ...................... 348,307 $ 348,307
------------
TOTAL INVESTMENT SECURITIES-- 98.8% (Cost $24,568,368) $ 21,607,646
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.2% ....... 254,713
------------
NET ASSETS-- 100.0% ................................ $ 21,862,359
============
* Non-income producing security.
See accompanying notes to financial statements.
12
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Wells S&P REIT Index Fund (the Fund) is a diversified series of the Wells
Family of Real Estate Funds (the Trust), an open-end management investment
company registered under the Investment Company Act of 1940. The Trust was
organized as an Ohio business trust on June 4, 1997. The Fund was capitalized on
December 22, 1997, when Leo F. Wells III, the President of the Fund's investment
adviser, Wells Asset Management, Inc. (the Adviser), purchased the initial
10,000 shares of the Fund at $10 per share. The public offering of Class A
shares of the Fund commenced on March 2, 1998. The Fund had no operations prior
to the public offering of Class A shares except for the initial issuance of
shares. The public offering of Class B shares and Class C shares commenced on
May 7, 1999 and May 5, 1999, respectively.
The Fund seeks to provide investment results corresponding to the performance of
the S&P Real Estate Investment Trust Composite Index (the Index) by investing in
the stocks included in the Index.
The Fund offers three classes of shares: Class A shares (sold subject to a
maximum front-end sales load of 4% and a distribution fee of up to 0.25% of the
average daily net assets attributable to Class A shares), Class B shares (sold
subject to a maximum 5% contingent deferred sales load if redeemed within six
years of purchase and an annual distribution fee of up to 1% of the average
daily net assets attributable to Class B shares) and Class C shares (sold
subject to a 1% contingent deferred sales load if redeemed within one year of
purchase and an annual distribution fee of up to 1% of the average daily net
assets attributable to Class C shares). Each class of shares represents an
interest in the same assets of the Fund, has the same rights and is identical in
all material respects except that (1) Class B shares and Class C shares bear the
expenses of higher distribution fees; (2) Class B shares automatically convert
to Class A shares after approximately eight years, resulting in lower annual
expenses; (3) certain other class specific expenses will be borne solely by the
class to which such expenses are attributable; and (4) each class has exclusive
voting rights with respect to matters relating to its own distribution
arrangements.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of the regular session of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time). Securities traded on stock exchanges or quoted by
NASDAQ are valued at their last sales price on the principal exchange where the
security is traded or, if not traded on a particular day, at the closing bid
price. Securities traded in the over-the-counter market, and which are not
quoted by NASDAQ, are valued at their last sales price or, if not available, at
their last quoted bid price.
Share valuation -- The net asset value per share of each class of shares of the
Fund is calculated daily by dividing the total value of the Fund's assets
attributable to that class, less liabilities attributable to that class, by the
number of shares of that class outstanding, rounded to the nearest cent. The
maximum offering price per share of Class A shares of the Fund is equal to the
net asset value per share plus a sales load equal to 4.17% of the net asset
value (or 4% of the offering price). The offering price of Class B shares and
Class C shares is equal to the net asset value per share.
The redemption price per share of each class of shares of the Fund is equal to
the net asset value per share. However, Class B shares are subject to a maximum
contingent deferred sales load of 5% on amounts redeemed within one year of
purchase, incrementally reduced to 0% over a six year period from the date of
purchase. Class C shares are subject to a contingent deferred sales load of 1%
on amounts redeemed within one year of purchase.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
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<PAGE>
Distributions to shareholders -- Distributions to shareholders arising from net
investment income are declared and paid quarterly. Net realized short-term
capital gains, if any, may be distributed throughout the year and net realized
long-term capital gains, if any, are distributed at least once each year. Income
dividends and capital gain distributions are determined in accordance with
income tax regulations.
Allocations between classes -- Investment income earned, realized capital gains
and losses, and unrealized appreciation and depreciation are allocated daily to
each class of shares based upon its proportionate share of total net assets of
the Fund. Class specific expenses are charged directly to the class incurring
the expense. Common expenses which are not attributable to a specific class are
allocated daily to each class of shares based upon its proportionate share of
total net assets of the Fund.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Organization expenses -- Expenses of organization, net of certain expenses paid
by the Adviser, have been capitalized and are being amortized on a straight-line
basis over five years.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which the Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
As of December 31, 1999, the Fund had capital loss carryforwards for federal
income tax purposes of $357,546, which expire on December 31, 2007. In addition,
the Fund elected to defer until its subsequent tax year $141,835 of capital
losses incurred after October 31, 1999. These capital loss carryforwards and
"post-October" losses may be utilized in future years to offset net realized
capital gains, if any, prior to distribution to shareholders.
As of December 31, 1999, net unrealized depreciation on investments was
$3,657,274 for federal income tax purposes, of which $195,421 related to
appreciated securities and $3,852,695 related to depreciated securities based on
a federal income tax cost basis of $25,264,920. 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, 1999, the Fund
reclassified $253,104 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 year ended December 31, 1999, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$15,178,264 and $2,861,405, respectively.
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<PAGE>
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of the Adviser or
of Countrywide Fund Services, Inc. (CFS), the administrative services agent,
shareholder servicing and transfer agent, and accounting services agent for the
Trust.
ADVISORY AGREEMENT
The Adviser provides general investment supervisory services to the Fund and
manages the Fund's business affairs pursuant to the terms of an Advisory
Agreement between the Adviser and the Trust. The Fund pays the Adviser an
investment advisory fee, computed and accrued daily and paid monthly, at an
annual rate of 0.50% of the average daily net assets of the Fund.
In order to reduce the operating expenses of the Fund, the Adviser voluntarily
waived its investment advisory fees of $86,810 and reimbursed the Fund for
$111,563 of other operating expenses during the year ended December 31, 1999.
SUB-ADVISORY AGREEMENT
Gateway Investment Advisers, L.P. (the Sub-Adviser) has been retained by the
Adviser to manage the Fund's investments pursuant to the terms of a Sub-Advisory
Agreement between the Sub-Adviser, the Adviser and the Trust. The Adviser (not
the Fund) pays the Sub-Adviser a fee, computed and accrued daily and paid
monthly, at an annual rate of 0.15% of the Fund's average daily net assets up to
$100 million; 0.10% of such net assets from $100 million to $200 million; and
0.07% of such net assets in excess of $200 million, subject to a $3,000 minimum
monthly fee.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related administrative and compliance services for the Fund. CFS supervises the
preparation of tax returns, reports to shareholders, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For these services, CFS
receives a monthly fee from the Fund at an annual rate of 0.15% of the Fund's
average daily net assets up to $50 million; 0.125% of such net assets from $50
million to $100 million; and 0.10% of such net assets in excess of $100 million,
subject to a $1,000 minimum monthly fee.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, CFS maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of the Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee from the Fund at an annual rate of $20 per
shareholder account, subject to a $1,200 minimum monthly fee for each class of
shares. In addition, the Fund pays CFS out-of-pocket expenses including, but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, CFS receives a monthly fee from the Fund, based on
current net assets and the number of classes of shares, of $4,000. In addition,
the Fund pays CFS certain out-of-pocket expenses incurred by CFS in obtaining
valuations of the Fund's portfolio securities.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement, Wells Investment Securities, Inc.
(the Underwriter) serves as the exclusive agent for the distribution of shares
of the Fund. For these services, the Underwriter earned $47,237, $1,017 and $53
from underwriting and broker commissions on the sale of Class A, Class B and
Class C shares of the Fund, respectively, during the year ended December 31,
1999. The Underwriter is an affiliate of the Adviser.
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<PAGE>
PLANS OF DISTRIBUTION
The Trust has adopted three separate plans of distribution under which each
class of shares of the Fund may directly incur or reimburse the Underwriter for
certain expenses related to the distribution of its shares. The annual
limitation for payment of expenses pursuant to the Class A Plan is 0.25% of the
Fund's average daily net assets attributable to Class A shares. The annual
limitation for payment of expenses pursuant to the Class B Plan and the Class C
Plan is 1.00% of the Fund's average daily net assets attributable to Class B
shares and Class C shares, respectively. For the year ended December 31, 1999,
the Fund paid Class A and Class B distribution expenses of $331 and $4,
respectively.
4. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
--------------------------------------------------------------------------------
Period Period
Ended Ended
Dec. 31, Dec. 31,
1999 1998
--------------------------------------------------------------------------------
CLASS A
Shares sold ...................................... 1,582,826 1,537,513
Shares issued in reinvestment of
distributions to shareholders ................. 141,650 39,308
Shares redeemed .................................. (437,158) (40,132)
---------- ----------
Net increase in shares outstanding ............... 1,287,318 1,536,689
Shares outstanding, beginning of period (Note 1) . 1,546,689 10,000
---------- ----------
Shares outstanding, end of period ................ 2,834,007 1,546,689
========== ==========
CLASS B
Shares sold ...................................... 186,532 --
Shares issued in reinvestment of
distributions to shareholders ................. 3,888 --
Shares redeemed .................................. (657) --
---------- ----------
Net increase in shares outstanding ............... 189,763 --
Shares outstanding, beginning of period .......... -- --
---------- ----------
Shares outstanding, end of period ................ 189,763 --
========== ==========
CLASS C
Shares sold ...................................... 225,698 --
Shares issued in reinvestment of
distributions to shareholders ................. 4,226 --
Shares redeemed .................................. (44,089) --
---------- ----------
Net increase in shares outstanding ............... 185,835 --
Shares outstanding, beginning of period .......... -- --
---------- ----------
Shares outstanding, end of period ................ 185,835 --
========== ==========
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
[LOGO]
Arthur Andersen
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, 1999, and the related statement
of operations, the statements 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 auditing standards generally accepted
in the United States. 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, 1999, 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, 1999, the results of its operations, the changes in its net assets,
and the financial highlights for the periods indicated thereon, in conformity
with accounting principles generally accepted in the United States.
/s/ Arthur Andersen
Cincinnati, Ohio,
February 4, 2000
