U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
Post-Effective Amendment No. 3
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 4
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(Check appropriate box or boxes)
WELLS FAMILY OF REAL ESTATE FUNDS
(Exact Name of Registrant as Specified in Charter)
6200 The Corners Parkway, Suite 250
Atlanta, Georgia 30092
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 448-1010
Jill W. Maggiore
Wells Asset Management, Inc.
6200 The Corners Parkway, Suite 250
Atlanta, Georgia 30092
(Name and Address of Agent for Service)
Copies to:
Wade Bridge
Integrated Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ___________pursuant to paragraph (a) of Rule 485
Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
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WELLS FAMILY OF REAL ESTATE FUNDS
6200 THE CORNERS PARKWAY, SUITE 250
ATLANTA, GEORGIA 30092
WELLS S&P REIT INDEX FUND
---------------------------------------------------------------
The Wells S&P REIT Index Fund (the "Fund"), a series of the Wells Family of
Real Estate Funds, seeks to provide investment results corresponding to the
performance of the S&P Real Estate Investment Trust Composite Price Index by
investing in the stocks included in the Index.
Wells Asset Management, Inc. serves as the investment manager to the Fund.
Gateway Investment Advisers, L.P. manages the Fund's investments under the
supervision of Wells Asset Management, Inc.
The Fund offers three classes of shares, each with a different combination
of sales loads, ongoing fees and other features. The different distribution
arrangements permit you to choose the method of purchasing shares that you
believe is most beneficial given the amount of your purchase, the length of time
you expect to hold the shares and other relevant circumstances.
This Prospectus includes important information about the Wells S&P REIT Index
Fund that you should know before investing. You should read the Prospectus and
keep it for future reference.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY........................................................
EXPENSE INFORMATION........................................................
INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS..................................................
OPERATION OF THE FUND......................................................
BUYING FUND SHARES.........................................................
DISTRIBUTION PLANS.........................................................
REDEEMING SHARES...........................................................
DIVIDENDS AND DISTRIBUTIONS................................................
TAXES......................................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.......................
FINANCIAL HIGHLIGHTS.......................................................
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RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide investment results corresponding to the
performance of the S&P Real Estate Investment Trust Composite Index (the "S&P
REIT Index" or the "Index").
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
Normally, at least 90% of the Fund's total assets are invested in the
stocks included in the S&P REIT Index. The Fund will invest in stocks
represented in the Index, in proportions substantially similar to the Index. The
Fund is normally invested in all of the stocks which comprise the Index, except
when changes are made to the Index itself.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The Fund's investment return and net asset value will fluctuate and when you
sell shares you may receive more or less than the amount you paid for them. As
with any mutual fund investment, there is a risk that you could lose money by
investing in the Fund. The Fund is subject to, among other risks:
MARKET RISK - Stock prices, including prices of REIT stocks, may decline
over short or extended periods. In a declining stock market, stock prices
for all REIT's may decline, regardless of any one company's prospects. As a
result, the Fund may also decline in a declining stock market.
REAL ESTATE INDUSTRY RISK - When REIT profits, revenues, or the value of
real estate property owned by REITs decline or fail to meet market
expectations, REIT stock prices may decline as well. Therefore, the Fund's
performance may fluctuate accordingly.
INTEREST RATE RISK - Increases in interest rates typically lower the
present value of a REIT's future earnings stream, and may make financing
property purchases and improvements more costly. Since the market price of
REIT stocks may change based upon investors' collective perceptions of
future earnings, the value of the Fund will generally decline when
investors anticipate or experience rising interest rates.
INVESTMENT COMPETITION RISK - REITs compete with other investment
opportunities (e.g., general business stocks, bonds, money market
instruments, etc.) for investors' dollars. If investors invest in these
opportunities instead of REITs, then the Fund may decline in value.
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INDUSTRY CONCENTRATION RISK - The Fund concentrates its investments in a
single industry and could experience larger price fluctuations than funds
invested in a broader range of industries.
EXPENSE INFORMATION
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
- - how the Fund's performance has varied for each full calendar year shown on
the chart below, and
- - how the Fund's average annual returns compare to the index it tracks.
How the Fund has performed is in the past does not indicate how the Fund will
perform in the future.
Class A Performance (based on calendar years)
- -6.24%
- ------
1999
During the period shown in the bar chart, the highest return for a calendar
quarter was 9.45% (quarter ending June 30, 1999) and the lowest return for a
calendar quarter was -8.75% (quarter ending September 30, 1999).
The 4% sales charge applicable to Class A shares of the Fund is not reflected in
the bar chart; if reflected, returns would be lower than those shown. The
performance of Class B and Class C may vary from that shown above because of
differences in sales charges and fees.
Average Annual Returns (as of December 31, 1999)
1 Year Since Inception
Class A shares -10.00% -16.21% (Inception Date March 2, 1998)
S&P REIT Index -5.86% -12.89%
Class B shares -12.73% (Inception Date May 7, 1999)
S&P REIT Index -11.71%
Class C shares -12.06% (Inception Date May 5, 1999)
S&P REIT Index -11.16%
The above table shows total returns from a hypothetical investments in Class A,
Class B and Class C shares of the Fund. These returns are compared to the S&P
REIT index for the same periods to demonstrate how the Fund compared to the
index it tracks. The performance of Classes A, B and C vary because of
differences in sales charges and fees.
For the purposes of this calculation we assumed:
- - a sales charge of 4% for Class A shares,
- - sales charge at the end of the period and deduction of the applicable
contingent deferred sales charge for Class B and Class C shares, and
- - no adjustment for taxes paid by an investor on the reinvested income and
capital gains
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THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY
AND HOLD SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your investment)
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Maximum Sales Charge (Load)
Imposed on Purchases 4.00% None None
Maximum Contingent Deferred Sales Charge
(Load) None(1) 5.00%(2) 1.00%
Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fee None(3) None(3) None(3)
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Management Fees .50% .50% .50%
Distribution (12b-1) Fees (4) .25% 1.00% 1.00%
Other Expenses 1.36% 1.78% 1.51%
----- ----- -----
Total Annual Fund Operating Expenses 2.11%* 3.28%* 3.01%*
===== ===== =====
* The actual Total Annual Fund Operating Expenses for Class A, Class B and
Class C shares for the fiscal year ended December 31, 1999 were 0.99%,
1.74% and 1.74%, respectively. The Adviser intends to continue waiving fees
and reimbursing Fund expenses in order to maintain Total Annual Fund
Operating Expenses at or below 0.99% for Class A shares of the Fund and at
or below 1.74% for Class B shares and Class C shares of the Fund. However,
this arrangement may be discontinued at any time at the option of the
Adviser.
(1) Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of 1.00% if a redemption
occurred within one year of purchase and a commission was paid to a
participating unaffiliated dealer.
(2) Class B shares pay a 5.00% contingent deferred sales load if shares are
redeemed in the first year. The contingent deferred sales load will be
incrementally reduced over time. After the sixth year, no contingent
deferred sales load will be assessed.
(3) A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently
$9. See "How to Redeem Shares.
(4) During the fiscal period ended December 31, 1999, Class A and Class B
shares paid $331 and $4, respectively, in distribution (12b-1) fees.
Distribution fees may be accrued at a rate of up to 0.25%, 1.00% and 1.00%
of the Fund's average net assets attributable to Class A, Class B and Class
C shares, respectively. Of the 1.00% distribution fees for Class B and
Class C shares, 0.75% is an asset based sales charge.
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Costs after five and ten years are not provided for Class B and
Class C shares because the public offering of these classes has not yet
commenced as of the date of the this prospectus. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares* $605 $1,034 $1,489 $2,744
Class B Shares* 831 1,310 1,812 3,576
Class C Shares* 404 1,030 1,682 3,427
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class B Shares $331 1,010 1,712 3,576
Class C Shares 304 930 1,582 3,327
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INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
Investment Objective
- --------------------
The Fund seeks to provide investment results corresponding to the
performance of the S&P REIT Index by investing in the stocks included in the
Index.
Investment Strategies
- ---------------------
The Fund attempts to duplicate the investment results of the S&P REIT
Index. The Index is made up of approximately 100 stocks which constitute a
representative sample of all publicly traded Real Estate Investment Trusts.
The Fund is not actively managed by investment advisers who buy and sell
securities based on research and analysis. Instead, the Fund is "passively
managed," where the investment advisers attempt to match, as closely as
possible, the performance of the target index by either holding all the
securities in the index or by holding a representative sample. Indexing appeals
to many investors because of its simplicity (indexing is a straightforward
market-matching strategy); diversification (indexes generally cover a wide
variety of companies and industries); relative performance predictability (an
index fund is expected to move in the same direction - - up or down - - as its
target index).
To be included in the Index, a REIT must be traded on a major U.S. stock
exchange. As of December 31, 1999, 100 REITs were included in the Index. The
Index is rebalanced every calendar quarter as well as each time that a REIT is
removed from the Index because of corporate activity such as a merger,
acquisition, leveraged buyout, bankruptcy, IRS removal of REIT status,
fundamental change in business, or a change in shares outstanding.
What is a REIT?
- ---------------
A Real Estate Investment Trust ("REIT") is a pooled investment vehicle
which invests primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity REITs, mortgage
REITs or hybrid REITs. An equity REIT, which owns properties, generates income
from rental and lease properties. Equity REITs also offer the potential for
growth as a result of property appreciation and, in addition, occasional capital
gains from the sales of appreciated property. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive income from the collection
of interest payments. Hybrid REITs are designed to strike a balance between
equity investments and mortgage backed investments. They will derive their
income from the collection of rents, the realization of capital gains from the
sale of properties and from the collection of interest payments on outstanding
mortgages held within the trust.
Investors buy shares in REITs rather than investing directly in properties
because direct ownership of real estate can be costly and difficult to quickly
convert into cash. REITs do not have to pay income taxes if they meet certain
Internal Revenue Code requirements. To qualify, a REIT must distribute at least
95% of its taxable income to its shareholders and receive at least 75% of that
income from rents, mortgages and sales of property. REITs offer investors
greater liquidity and diversification than does direct ownership of a handful of
properties.
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The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or warranty, express or
implied, to the purchasers of the Fund or any member of the public regarding the
advisability of investing in securities generally, or in the Fund particularly
or the ability of the Index to track the market performance of real estate
investment trusts. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P REIT Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund or the purchasers of the Fund into
consideration in determining, composing or calculating the REIT Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the shares of the Fund or the timing of the issuance or sale of
the shares of the Fund or in the determination or calculation of the equation by
which the shares of the Fund are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P REIT
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, PURCHASERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P REIT INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P REIT INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Under normal market conditions, at least 90% of the Fund's total assets
will be invested in the stocks included in the S&P REIT Index. The proportion of
the Fund's assets invested in each stock held in the Fund's portfolio is
substantially similar to the proportion of the Index represented by the stock.
For example, if a stock represents 2% of the value of the Index, the Fund
invests approximately 2% of its assets in the stock. The Fund will normally be
invested in all of the stocks which comprise the S&P REIT Index, except when
changes are made to the Index itself. The Index is currently made up of
approximately 95% equity REITs, 2% mortgage REITs and 3% hybrid REITs; however,
these percentages are subject to change at any time at the discretion of S&P.
The Sub-Adviser monitors daily the composition of the Index and makes
adjustments to the Fund's portfolio as necessary in order to correlate with the
Index.
The Fund will attempt to achieve a correlation between its performance and
that of the Index of at least 0.95, without taking into account expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the Fund's NAV, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the
Index. The Fund's ability to correlate its performance with the Index, however,
may be affected by, among other things, changes in securities markets, the
manner in which the Index is calculated by S&P and the timing of purchases and
redemptions. If the Fund consistently fails to achieve its targeted correlation,
the Fund will reassess its investment strategies, cash management policies and
expense ratio in an attempt to achieve a correlation of 0.95 or higher.
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Money market instruments will typically represent a portion of the Fund's
portfolio as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities and to provide for shareholder redemptions and
operational expenses of the Fund.
Investment Risks
- ----------------
There is no assurance that the Fund's investment objective will be met.
Generally, if the securities owned by the Fund increase in value, the value of
the shares of the Fund which you own will increase. Similarly, if the securities
owned by the Fund decrease in value, the value of your shares will also decline.
In this way, you participate in any change in the value of the securities owned
by the Fund.
The Fund, though not invested directly in real estate, still is subject to
the risks associated with investing in real estate, which include:
o possible declines in the value of real estate
o risks related to general and local economic conditions
o possible lack of availability of mortgage funds
o overbuilding
o changes in interest rates
o environmental problems
Investing in REITs involves certain risks in addition to those risks
associated with investing in the real estate industry in general, which include:
o dependency upon management skills
o limited diversification
o the risks of financing projects
o heavy cash flow dependency
o default by borrowers
o self-liquidation
o possibility of failing to maintain exemptions from the Investment
Company Act of 1940
o in many cases, relatively small market capitalization, which may
result in less market liquidity and greater price volatility
OPERATION OF THE FUND
The Fund is a diversified series of the Wells Family of Real Estate Funds
(the "Trust"), an open-end management investment company organized as an Ohio
business trust. The Board of Trustees supervises the business activities of the
Trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Fund.
The Trust retains Wells Asset Management, Inc. (the "Adviser"), 6200 The
Corners Parkway, Suite 250, Atlanta, Georgia, to provide general investment
supervisory services to the Fund and to manage the Fund's business affairs. The
controlling shareholder of the Adviser is Leo F. Wells III. Mr. Wells, through
various organizations under his control, has extensive experience in the
acquisition, disposition, management, leasing and development of investment real
estate. The Fund pays the Adviser a fee at the annual rate of .50% of the
average value of its daily net assets.
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Gateway Investment Advisers, L.P. (the "Sub-Adviser"), 400 TechneCenter
Drive, Milford, Ohio, has been retained by the Adviser to manage the Fund's
investments. The Adviser (not the Fund) pays the Sub-Adviser's fee for its
services to the Fund. The Sub-Adviser, including its predecessor, has been
managing assets for institutional and individual investors since 1977. The
Sub-Adviser has approximately 10 years of experience in managing portfolios
which correlate to an index, including mutual funds.
BUYING FUND SHARES
You may open an account with the Fund by investing the minimum amount
required for the type of account you open. You may invest additional amounts in
an existing account at any time. Several different account options and minimum
investment amounts options are detailed below.
- --------------------------------------------------------------------------------
Account Options
Regular Accounts
- ----------------
Tax-Deferred Retirement Plans
- -----------------------------
TRADITIONAL IRA
Assets grow tax-deferred and contributions may be Deductible. Withdrawals and
distributions are Taxable in the year made.
SPOUSAL IRA
An IRA in the name of a non-working spouse by a Working spouse.
ROTH IRA
An IRA with tax free growth of assets and distributions, if certain conditions
are met. Contributions are not deductible.
IRA stands for "Individual Retirement Account." IRAs are special types of
accounts that offer different tax Advantages. You should consult your tax
professional to help decide which is right for you.
You may also open accounts for:
- - Keogh Plans for self-employed individuals
- - Qualified pension and profit-sharing plans for employees, including those
profit-sharing plans with a 401(k) provision
- - 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
- --------------------------------------------------------------------------------
Minimum Investment
Requirements
Initial Additional
------- ----------
Regular Accounts $2,500 None
Tax-Deferred $1,000 None
Retirement Plans
Automatic Investment
Plans:
Regular Accounts $2,500 $100
Tax-Deferred
Retirement Plans $1,000 $100
Automatic Investment Plan
- -------------------------
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account on either the 15th or
the last business day of the month or both. The Fund pays the costs associated
with these transfers, but reserves the right, upon thirty days' written notice,
to make reasonable charges for this service. Your depository institution may
impose its own charge for debiting your account which would reduce your return
from an investment in the Fund.
Direct Deposit Plans
--------------------
You may purchase shares of the Fund through direct deposit plans offered by
certain employers and government agencies. These plans enable you to have all or
a portion of your payroll or social security checks transferred automatically to
purchase shares of the Fund.
- --------------------------------------------------------------------------------
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OPENING A NEW ACCOUNT. To open an account with us, please follow the steps
outlined below.
1. Complete the enclosed Account Application. Be sure to indicate the type of
account you wish to open, the amount of money you wish to invest, and which
class of shares you wish to purchase. If you do not indicate which class
you wish to purchase, we will invest your purchase in Class A shares.
2. Write a check for your initial investment to "Wells S&P REIT Index Fund."
Mail your completed Account Application and your check to the following
address:
WELLS S&P REIT INDEX FUND
C/O INTEGRATED FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
You may also establish an account through your broker-dealer. Since your
broker-dealer may charge you fees for his or her services other than those
described in this Prospectus, you should ask your broker-dealer about fees
before investing.
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ADDING TO YOUR ACCOUNT. You may make additional purchases for your account at
any time. These purchases may be made by mail, wire transfer or by contacting
your broker-dealer (ask your broker-dealer about any fees for his or her
services). Additional purchases must include your name and account number to
ensure proper crediting. Use the address above for additional purchases by mail,
and call us c/o our transfer agent, Integrated Fund Services, at 800-282-1581
for wiring instructions. Your additional purchase requests must contain your
account name and number to permit proper crediting.
MISCELLANEOUS. In connection with all purchases of Fund shares, we observe the
following policies and procedures:
o We price direct purchases based on the next public offering price (net
asset value plus any applicable sales load) or at net asset value ("NAV")
after your order is received. Direct purchase orders received by the
Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's
public offering price or NAV. Purchases orders received by dealers prior to
4:00 p.m., Eastern time, on any business day and transmitted to the
Transfer Agent by 5:00 p.m., Eastern time, that day are confirmed at the
public offering price or NAV determined as of the close of the regular
session of trading on the New York Stock Exchange on that day.
o We do not accept third party checks for any investments.
o We may open accounts for less than the minimum investment or change minimum
investment requirements at any time.
o We may refuse to accept any purchase request for any reason or no reason.
o We mail you confirmations of all your purchases or redemptions of Fund
shares.
o Certificates representing shares are not issued.
o We may bar excessive traders from purchasing shares. Frequent trades,
involving either substantial Fund assets or a substantial portion of your
account or accounts controlled by you, can disrupt management of the Fund
and raise its expenses.
o If your order to purchase shares is canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by
the Fund or the Transfer Agent incur in the transaction.
o There is no fee for purchases made by wire, but we may charge you for this
service upon thirty days' prior notice.
The Fund's Account Application contains provisions in favor of the Fund,
the Transfer Agent and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services made available to
investors.
EXCHANGE PRIVILEGE
You may exchange shares of the Fund for shares of the Wells Money Market
Account ("Money Market"). A sales load may be imposed (if applicable) equal to
the excess, if any, of the sales load rate applicable to the shares being
acquired over the sales load rate, if any, previously paid on the shares being
exchanged.
If you make an exchange involving Class B or Class C shares, the amount of
time you hold shares of the Wells Money Market account will not be added to the
holding period of your original shares into which you exchanged for the purpose
of calculating contingent deferred sales
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charges if you later redeem the exchanged shares. However, if you exchange back
into your original Class B or Class C shares, the prior holding period of your
Class B or Class C shares will be added to your current holding period of Class
B or Class C shares in calculating the contingent deferred sales load.
You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt Fund
performance. If you exceed that limit, the Fund or the Underwriter, in its sole
discretion, may reject any further exchange orders.
You may request an exchange by sending a written request to the Transfer
Agent. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges also may be requested by telephone. If you are unable
to execute your exchange by telephone (for example during times of unusual
market activity), you should consider requesting your exchange by mail or by
visiting the Transfer Agent's offices at 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202. An exchange will be effected at the next determined NAV
(or offering price if a sales load is applicable) after receipt of a request by
the Transfer Agent.
Exchanges may only be made for shares of Funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of Fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact the Transfer Agent to obtain a
copy of the Money Market prospectus.
Choosing a Share Class
----------------------
The Fund offers three classes of shares: Class A shares, Class B shares and
Class C shares. These Classes, which represent interests in the same portfolio
of investments and have the same rights, differ primarily in sales loads and
expenses to which they are subject. Before choosing a Class, you should consider
the following factors, as well as any other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to you depends
on the amount and intended length of your investment. You should consider Class
A shares if you prefer an initial sales load. If you qualify for reduced sales
loads by investing over $50,000 -- or, in the case of purchases of $1 million or
more, no initial sales load, -- you may find Class A shares attractive because
similar sales load reductions are not available with respect to Class B or Class
C shares. Moreover, Class A shares are subject to lower ongoing expenses than
are Class B or Class C shares over the term of the investment. As an
alternative, Class B and Class C shares are sold without any initial sales load
so the entire purchase price is immediately invested in the Fund. Any investment
return on these investments may partially or wholly offset the higher annual
expenses; however, because the Fund's future return cannot be predicted, there
can be no assurance that this would be the case.
Finally, you should consider the effect of contingent deferred sales loads
and any conversion rights of each Class in the context of your investment
timeline. For example, Class C shares are subject to a significantly lower
contingent deferred sales load upon redemption than Class B shares, however,
unlike Class B shares, they do not convert to Class A shares after a stated
period of time. Class C shares, therefore, are subject to a 1.00% annual 12b-1
fee for an
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indefinite period of time, while Class B shares will convert to Class A shares
after approximately eight years and will be subject to only a .25% annual 12b-1
fee. Thus, Class B shares may be more attractive than Class C shares if you have
a longer term investment outlook. On the other hand, if you are unsure of the
length of time you intend to invest or the conversion feature is not attractive
to you, you may wish to elect Class C shares.
Set forth below is a chart comparing the sales loads, 12b-1 fees and
conversion options applicable to each Class of shares:
CONVERSION
CLASS SALES LOAD 12B-1 FEE FEATURE
- --------------------------------------------------------------------------------
A Maximum 4.00% initial sales load reduced 0.25% None
for purchases of $50,000 and over; shares
sold without an initial sales load
generally subject to a 1.00% contingent
deferred sales load during first year
- --------------------------------------------------------------------------------
B Maximum 5.00% contingent deferred sales 1.00% Class B shares
load during the first year decreasing to will automatically
0 after six years convert to Class
A shares after
approximately
eight years
- --------------------------------------------------------------------------------
C 1.00% contingent deferred sales load 1.00% None
during first year
- --------------------------------------------------------------------------------
If you are investing $1 million or more, it is generally more beneficial
for you to buy Class A Shares because there is no front-end sales load and the
annual expenses are lower. Therefore, any purchase of $1 million or more is
automatically invested in Class A Shares.
Class A Shares
--------------
Class A shares are sold at NAV plus an initial sales load. In some cases,
reduced initial sales loads for the purchase of Class A shares may be available,
as described below. Investments of $1 million or more are not subject to a sales
load at the time of purchase but may be subject to a contingent deferred sales
load of 1.00% on redemptions made within one year after purchase if a commission
was paid by Wells Investment Securities, Inc. (the "Underwriter") to a
participating unaffiliated broker. Class A shares are also subject to an annual
12b-1 fee of up to
- 13 -
<PAGE>
.25% of the Fund's average daily assets allocable to Class A shares.
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares:
Sales Load as % of:
Dealer
Public Net Reallowance
Offering Amount as %of Public
Amount of Investment Price Invested offering Price
- -------------------- ----- -------- --------------
Less than $50,000 4.00% 4.17% 3.50%
$50,000 but less than $100,000 3.50 3.63 3.00
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.50
$1,000,000 or more None None None
For initial purchases of Class A shares of the Fund of $1 million or more and
subsequent purchases further increasing the size of the account, a dealer's
commission of 1.00% of such purchases from $1 million to $5 million, .50% of
such purchases from $5 million to $50 million and .25% of such purchases in
excess of $50 million may be paid by the Underwriter to participating
unaffiliated brokers through whom such purchases are effected. No commission
will be paid if the purchase represents the reinvestment of a redemption from
the Fund made during the previous twelve months. Redemptions of Class A shares
may result in the imposition of a contingent deferred sales load if the broker's
commission described in this paragraph was paid in connection with the purchase
of such shares. See "Contingent Deferred Sales Load for Certain Purchases of
Class A Shares" below.
Under certain circumstances, the Underwriter may increase or decrease the
reallowance to brokers. The Underwriter receives that portion of the initial
sales load which is not reallowed to the brokers who sell shares of the Fund.
The Underwriter retains the entire sales load on all direct initial investments
in the Fund and on all investments in accounts with no designated dealer of
record.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the
cost or current NAV (whichever is higher) of your existing Class A shares of the
Fund with the amount of any current purchases in order to take advantage of the
reduced sales loads set forth in the table above. Purchases made pursuant to a
Letter of Intent may also be eligible for the reduced sales loads. The minimum
initial investment under a Letter of Intent is $10,000. You should contact the
Transfer Agent for information about the Right of Accumulation and Letter of
Intent.
PURCHASES AT NET ASSET VALUE. Banks, bank trust departments and savings and
loan associations, in their fiduciary capacity or for their own accounts, may
purchase Class A shares of the Fund at NAV. To the extent permitted by
regulatory authorities, a bank trust department may charge fees to clients for
whose account it purchases shares at NAV. Federal and state credit unions may
also purchase Class A shares at NAV.
- 14 -
<PAGE>
In addition, Class A shares of the Fund may be purchased at NAV by
broker-dealers who have a sales agreement with the Underwriter and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
Class A shares at NAV if their investment adviser or financial planner has
entered into an administrative services agreement with the Fund. The investment
adviser or financial planner must notify the Fund that an investment qualifies
as a purchase at NAV.
Trustees, directors, officers and employees of the Trust, the Adviser, the
Sub-Adviser, the Underwriter or the Transfer Agent, including members of the
immediate families of such individuals and employee benefit plans established by
such entities, may also purchase Class A shares of the Fund at NAV.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Underwriter and the shares are
redeemed within one year from the date of purchase. The contingent deferred
sales load will be paid to the Underwriter and will be equal to the commission
percentage paid at the time of purchase (either 1.00%, .50% or .25% depending on
the amount of purchase) as applied to the NAV at the time of purchase of the
Class A shares being redeemed. If a purchase of Class A shares is subject to the
contingent deferred sales load, you will be so notified on the confirmation you
receive for such purchase. Class A shares of the Fund held for at least one year
will not be subject to the contingent deferred sales load.
Class B Shares
--------------
Class B shares are sold at NAV without an initial sales load so that the
full amount of your purchase payment may be immediately invested in the Fund.
Class B shares are subject to an annual 12b-1 fee of up to 1.00% of the Fund's
average daily net assets allocable to Class B shares. A contingent deferred
sales load will be imposed on redemptions of Class B shares that take place
within six years of the purchase date. The contingent deferred sales load will
be a percentage of the dollar amount of shares redeemed and will be assessed on
an amount equal to the NAV at the time of purchase of the Class B shares being
redeemed. The size of this sales load will depend on how long you have held your
shares, as set forth in the following table:
CDSL as a
Year Since Purchase Percentage of
Payment Made Amount Redeemed
- --------------------------------- ---------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter None
- 15 -
<PAGE>
The Underwriter intends to pay a commission of 4.00% of the purchase amount to
your broker at the time you purchase Class B shares.
CONVERSION TO CLASS A SHARES. Class B shares will convert automatically to
Class A shares, based on the relative NAVs of the shares of the two Classes on
the conversion date, approximately eight (8) years after the date of your
original purchase of those shares. Class B shares you have acquired through
automatic reinvestment of dividends and distributions will be converted in
proportion to the total number of Class B shares you have purchased and own.
Class C Shares
--------------
Class C shares are sold at NAV without an initial sales load so that the
full amount of your purchase payment may be immediately invested in the Fund. A
contingent deferred sales load of 1.00% will be imposed on redemptions of Class
C shares made within one year of their purchase. The contingent deferred sales
load will be a percentage of the dollar amount of shares redeemed and will be
assessed on an amount equal to the NAV at the time of purchase of the Class C
shares being redeemed. A contingent deferred sales load will not be imposed upon
redemptions of Class C shares held for at least one year. Class C shares are
subject to an annual 12b-1 fee of up to 1.00% of the Fund's average daily net
assets allocable to Class C shares. The Underwriter intends to pay a commission
of 1.00% of the purchase amount to your broker at the time you purchase Class C
shares.
Additional Information on the Contingent Deferred Sales Load
------------------------------------------------------------
The contingent deferred sales load is waived for any partial or complete
redemption following death or disability (as defined in the Internal Revenue
Code) of a shareholder (including one who owns the shares with his or her spouse
as a joint tenant with rights of survivorship) from an account in which the
deceased or disabled is named. The Underwriter may require documentation prior
to waiver of the load, including death certificates, physicians' certificates,
etc.
All sales loads imposed on redemptions are paid to the Underwriter. In
determining whether the contingent deferred sales load is payable under each
Class of shares, it is assumed that shares not subject to the contingent
deferred sales load are the first redeemed followed by other shares held for the
longest period of time. The contingent deferred sales load will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that you open an account and purchase 1,000 shares
at $10 per share and that six months later the NAV per share is $12 and, during
such time, you have acquired 50 additional shares through reinvestment of
distributions. If at such time you should redeem 450 shares (proceeds of
- 16 -
<PAGE>
$5,400), 50 shares will not be subject to the load because of dividend
reinvestment. With respect to the remaining 400 shares, the load is applied only
to the original cost of $10 per share and not to the increase in NAV of $2 per
share. Therefore, $4,000 of the $5,400 redemption proceeds will be charged the
load. At the rate of 5.00%, the contingent deferred sales load would be $200. At
the rate of 1.00%, the contingent deferred sales load would be $40. In
determining whether an amount is available for redemption without incurring a
deferred sales load, the purchase payments made for all Class B shares in your
account are aggregated and the purchase payments made for all Class C shares in
your account are aggregated.
DISTRIBUTION PLANS
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted three
separate plans of distribution under which each of its three Classes of shares
may directly incur or reimburse the Underwriter for certain expenses related to
the distribution of its shares, including payments to securities dealers and
other persons, including the Underwriter and its affiliates, who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of Fund shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by the Transfer Agent or the Trust;
expenses of formulating and implementing marketing and promotional activities,
including direct mail promotions and mass media advertising; expenses of
preparing, printing and distributing sales literature and prospectuses and
statements of additional information and reports for recipients other than
existing shareholders of the Fund; expenses of obtaining such information,
analyses and reports with respect to marketing and promotional activities as the
Trust may, from time to time, deem advisable; and any other expenses related to
the distribution of each of the respective Classes.
The annual limitation for payment of expenses pursuant to the Class A Plan
is .25% of the Fund's average daily net assets allocable to Class A shares. The
annual limitation for payment of expenses pursuant to the Class B Plan and the
Class C Plan is 1.00% of the Fund's average daily net assets allocable to Class
B shares and Class C shares, respectively. The payments permitted by the Class B
Plan and the Class C Plan fall into two categories. First, the Class B shares
and the Class C shares may each directly incur or reimburse the Underwriter in
an amount not to exceed .75% per year of the Fund's average daily net assets
allocable to Class B shares and Class C shares for certain distribution-related
expenses as described above. The Class B Plan and Class C Plan also provide for
the payment of an account maintenance fee of up to .25% per year of the Fund's
average daily net assets allocable to Class B shares and Class C shares, which
may be paid to dealers based on the average value of Fund shares owned by
clients of such dealers. Because these fees are paid out of the Fund's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales loads. In the
event a Plan is terminated by the Trust in accordance with its terms, the Fund
will not be required to make any payments for expenses incurred after the date
the Plan terminates. The Underwriter may make payments to dealers and other
persons in an amount up to .75% per annum of the average value of Class B and
Class C shares owned by their clients, in addition to the .25% account
maintenance fee described above.
- 17 -
<PAGE>
REDEEMING YOUR SHARES
To redeem your shares, send a written request to us c/o our Transfer Agent,
Integrated Fund Services, with your name, account number and the amount you wish
to redeem. You must sign your request exactly as your name appears on the Fund's
account records. Mail your written redemption request to:
WELLS S&P REIT INDEX FUND
C/O INTEGRATED FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
If you would like your redemption proceeds deposited free of charge
directly into your account with a commercial bank or other depository
institution via an Automated Clearing House (ACH) transaction, contact the
Transfer Agent for more information.
We redeem shares based on the current NAV on the day we receive a valid
request for redemption, less any contingent deferred sales load due on the
redeemed shares. Be sure to review "Buying Fund Shares" above to determine
whether your redemption is subject to a contingent deferred sales load.
You may also place a wire redemption request through your broker-dealer to
redeem your shares. The broker-dealer is responsible for ensuring that
redemption requests are transmitted to us in proper form in a timely manner. The
broker-dealer may charge you additional or different fees for redeeming shares
than those described in this Prospectus. If you request a redemption by wire,
you will be charged a $9 processing fee. We reserve the right to change the
processing fee upon thirty days' notice. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to your designated account.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE is required for any redemption which is $25,000 or more,
which is mailed to an address other than your address of record or if your
name(s) or address on your account has been changed within thirty days.
- 18 -
<PAGE>
Additional Information About Accounts and Redemptions
- -----------------------------------------------------
SMALL ACCOUNTS. Due to the high costs of maintaining small accounts, we may ask
that you increase your account balance if your account falls below $2,500 (or
$1,000 for a retirement account). If the account remains under $2,500 (or $1,000
for a retirement account) thirty days after we notify you, we may close your
account and send you the proceeds, less any applicable sales load.
AUTOMATIC WITHDRAWAL PLAN. If your account's value is at least $5,000, you may
be eligible for our automatic withdrawal program that allows you to withdraw a
fixed amount from your account each month, calendar quarter or year. Under the
program, we send withdrawals to you or to another person you designate. Each
withdrawal must be $50 or more, and you should note that a withdrawal involves a
redemption of shares that may result in a gain or loss for federal income tax
purposes. Please contact us for more information about the automatic withdrawal
program.
REINVESTMENT PRIVILEGE. If you have redeemed shares of the Fund, you may
reinvest all or part of the proceeds without any additional sales load. This
reinvestment must occur within ninety days of the redemption and the privilege
may only be exercised once per year.
MISCELLANEOUS. In connection with all redemptions of Fund shares, we observe the
following policies and procedures:
o We may refuse any redemption request involving recently purchased shares
until your check for the recently purchased shares has cleared. To
eliminate this delay, you may purchase shares of the Fund by certified
check or wire.
o We may delay mailing redemption proceeds for up to seven days (most
redemption proceeds are mailed within three days after receipt of a
request),
o We may process any redemption request that exceeds $250,000 or 1% of the
Fund's assets (whichever is less) by paying the redemption proceeds in
portfolio securities rather than cash (typically referred to as "redemption
in kind", see the Statement of Additional Information for further
discussion).
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment
income, if any, on a quarterly basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
You should indicate your choice of option on your application. If no option
is selected, distributions will automatically be reinvested in additional shares
of the Fund (see "Share Option" below). All distributions will be based on the
NAV in effect on the payable date.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
Distributions are paid according to the following options:
SHARE OPTION - income distributions and capital gains distributions reinvested
in additional shares without a sales load.
INCOME OPTION - income distributions and short-term capital gains distributions
paid in cash; long-term capital gains distributions reinvested
in additional shares without a sales load.
CASH OPTION - income distributions and capital gains distributions paid in
cash.
- --------------------------------------------------------------------------------
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then-current NAV
and your account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
An investor who has received any dividend or capital gains distribution
from the Fund in cash may return the distribution to the Transfer Agent within
thirty days of the distribution date for reinvestment at the NAV next determined
after its return. The investor or his dealer must notify the Transfer Agent that
a distribution is being reinvested pursuant to this provision.
TAXES
The Fund intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. Distributions of
net investment income as well as from net realized short-term capital gains, if
any, are taxable as ordinary income. Dividends distributed by the Fund from net
investment income are not eligible for the dividends received deduction
available to corporations.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) by the Fund are taxable to you as
capital gains, without regard to how long you have held your Fund shares.
Capital gains distributions may be taxable at different rates depending on the
length of time the Fund holds its assets. Redemptions and Exchanges of shares of
the Fund are taxable events on which you may realize a gain or loss.
The Fund will mail a statement to you annually indicating the amount and
federal income tax status of all distributions made during the year. Because
REITs cannot provide complete information about the taxability of their
distributions until after the end of the calendar year, the Trust plans to ask
the Internal Revenue Service each year for an extension on issuing Forms
1099-DIV ("1099s") for the Fund. If this request is approved, we expect to mail
1099's to Fund shareholders in non-retirement plan accounts during February. The
Fund's distributions may be
- 20 -
<PAGE>
subject to federal income tax whether received in cash or reinvested in
additional shares. In addition to federal taxes, you may be subject to state and
local taxes on distributions.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the public offering price
(NAV plus applicable sales load) of Class A shares and the share price (NAV) of
Class B and C shares is determined as of the close of the regular session of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time). The
Trust is open for business on each day the New York Stock Exchange is open for
business and on any other day there is sufficient trading in the Fund's
investments that its NAV might be materially affected. The NAV per share of the
Fund is calculated by dividing the sum of the value of the securities held by
the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent. The price at which a purchase or redemption of Fund shares
is effected is based on the next calculation of NAV after the order is placed.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (3) securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (4) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The NAV per share of the Fund will fluctuate with the value of the
securities it holds.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance. Certain information reflects financial results for
a single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information, relates to
the Class A, Class B and Class C shares of the Fund, has been audited by Arthur
Andersen LLP, whose report, along with the Fund's financial statements, are
included in the Statement of Additional Information, which is available upon
request. Information for Class B and Class C shares represents the period from
their initial offering. Class B and Class C shares have less than 1 year of
operations.
- 21 -
<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.
(D) Not annualized.
(E) Annualized.
- 22 -
<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.
(D) Not annualized.
(E) Annualized.
- 23 -
<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.
(D) Not annualized.
(E) Annualized.
- 24 -
<PAGE>
WELLS S&P REIT INDEX FUND
6200 The Corners Parkway, Suite 250
Atlanta, Georgia 30092
BOARD OF TRUSTEES
Leo F. Wells III
John L. Bell
Richard W. Carpenter
Bud Carter
Donald S. Moss
Walter W. Sessoms
INVESTMENT ADVISER
WELLS ASSET MANAGEMENT, INC.
6200 The Corners Parkway, Suite 250
Atlanta, Georgia 30092
SUB-ADVISER
GATEWAY INVESTMENT ADVISERS, L.P.
400 TechneCenter Drive
Milford, Ohio 45150
UNDERWRITER
WELLS INVESTMENT SECURITIES, INC.
6200 The Corners Parkway, Suite 250
Atlanta, Georgia 30092
INDEPENDENT AUDITORS
ARTHUR ANDERSEN LLP
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
INTEGRATED FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Services
- --------------------
Nationwide: (Toll-Free) 800-282-1581
- 25 -
<PAGE>
Additional information about the Fund is included in the Statement of Additional
Information, which is hereby incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-888-744-2337.
Information about the Fund, including the SAI, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-202-942-8090. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-0102.
File No. 811-8355
- 26 -
<PAGE>
WELLS FAMILY OF REAL ESTATE FUNDS
---------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May 1, 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 312 Walnut Street, 21st floor, Cincinnati, Ohio 45202 or by calling
the Fund nationwide toll-free 800-282-1581.
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STATEMENT OF ADDITIONAL INFORMATION
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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....................................................... 8
THE INVESTMENT ADVISER...................................................... 11
THE SUB-ADVISER............................................................. 12
THE UNDERWRITER............................................................. 13
DISTRIBUTION PLANS.......................................................... 13
SECURITIES TRANSACTIONS..................................................... 15
PORTFOLIO TURNOVER.......................................................... 17
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................ 17
OTHER PURCHASE INFORMATION.................................................. 18
TAXES....................................................................... 19
REDEMPTION IN KIND.......................................................... 21
HISTORICAL PERFORMANCE INFORMATION.......................................... 21
PRINCIPAL SECURITY HOLDERS.................................................. 24
CUSTODIAN................................................................... 24
AUDITORS.................................................................... 24
INTEGRATED FUND SERVICES, INC............................................... 25
ANNUAL REPORT............................................................... 26
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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 two series of shares,
the Wells S&P REIT Index Fund and the Wells S&P REIT Variable Annuity Index
Fund. This Statement of Additional Information relates to the Wells S&P REIT
Index Fund (the "Fund"). Information relating to the Wells S&P REIT Index
Variable Annuity Fund is contained in a separate Statement of Additional
Information.
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to the Fund with each other share of the Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares so long as the proportionate beneficial
interest in the assets belonging to the Fund are in no way affected. In case of
any liquidation of the Fund, the holders of shares of the Fund will be entitled
to receive as a class a distribution out of the assets, net of the liabilities,
belonging to the Fund. No shareholder is liable to further calls or to
assessment by the Fund without his express consent.
Each Class of shares represent an interest in the same assets of the Fund,
have the same rights and are identical in all material respects except that (1)
Class B and Class C shares bear the expenses of higher distribution fees; (2)
Class B shares automatically convert to Class A shares after approximately 8
years, resulting in lower annual expenses; (3) certain other Class specific
expenses will be borne solely by the Class to which such expenses are
attributable, including transfer agent fees attributable to a specific class of
shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expense of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares;
and (4) each Class has exclusive voting rights with respect to matters relating
to its own distribution arrangements. The Board of Trustees may classify and
reclassify the shares of the Fund into additional classes of shares at a future
date.
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 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.
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DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
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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 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-
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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 asset value
will be exaggerated. If, while such borrowing is in effect, the value of the
Fund's
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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
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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;
(8) Invest for the purpose of exercising control or management of another
issuer;
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(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
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The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the 1940 Act, is indicated by an asterisk.
Compensation
Name Age Position Held From the Trust
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*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 1,000
Donald S. Moss 64 Trustee 1,000
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+Walter W. Sessoms 65 Trustee 1,000
Theresa M. Samocki 30 Treasurer 0
Tina D. Hosking 31 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 Investment 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. Ms. Maggiore
holds a Bachelor of Business degree from Auburn University. She is also a
registered NASD rep, 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.
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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.
THERESA M. SAMOCKI, Cincinnati, Ohio, is Vice President and Fund Accounting
Manager of Integrated Fund Services, Inc. (a registered transfer agent). She is
also Vice President of IFS Fund Distributors (a registered broker-dealer).
TINA D. HOSKING, Cincinnati, Ohio, is Vice President and Associate General
Counsel of Integrated Fund Services, Inc. and IFS Fund Distributors, Inc. (a
registered broker-dealer).
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.
THE INVESTMENT ADVISER
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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
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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.
THE SUB-ADVISER
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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.
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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
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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.
For the fiscal periods ended December 31, 1999 and 1998, the aggregate
commissions collected on sales of the Class A shares were $292,553 and $357,246,
respectively, of which the Underwriter paid $251,174 and $322,162, respectively,
to unaffiliated broker-dealers in the selling network and retained $41,379 and
$35,084, respectively, from underwriting and broker commissions. For the fiscal
period ended December 31, 1999, the aggregate commissions collected on sales of
Class B and Class C shares were $39,991 and $10,562, respectively, of which the
Underwriter paid $39,991 and $10,562, respectively, to unaffiliated
broker-dealers in the selling network. The Underwriter did not retain any of the
commissions for the sale of Class B and Class C shares.
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
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CLASS A SHARES -- As stated in the Prospectus, the Fund has adopted a plan
of distribution with respect to the Class A shares of the Fund (the "Class A
Plan") pursuant to Rule 12b-1 1940 Act which permits the Fund to pay for
expenses incurred in the distribution and promotion of its Class A shares,
including but not limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes, advertisements,
expenses of preparation and printing of sales literature, promotion, marketing
and sales expenses, and other distribution-related expenses, including any
distribution fees paid to securities brokers 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
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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 periods ended December 31, 1999 and 1998, the Class A
shares paid $331 and $0 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 dealers.
In addition, the Fund may pay up to an additional .75% per annum of its daily
net assets allocable to Class B and Class C shares for expenses incurred in the
distribution and promotion of the shares, including but not limited to,
prospectus costs for prospective shareholders, costs of responding to
prospective shareholder inquiries, payments to brokers and dealers for selling
and assisting in the distribution of Class B and Class C shares, costs of
advertising and promotion and any other expenses related to the distribution of
the Class B and Class C shares. Unreimbursed expenditures will not be carried
over from year to year. The Fund may make payments to brokers 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. For the fiscal period ended December 31, 1999, the Class B and
Class C shares paid $4 and $0, respectively, in distribution expenses (payments
to broker-dealers).
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
- 12 -
<PAGE>
Plans and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. Distribution expenses
attributable to the sale of more than one class of shares of the Fund will be
allocated at least annually to each class of shares based upon the ratio in
which the sales of each class of shares bears to the sales of all the shares of
the Fund. In addition, the selection and nomination of those Trustees who are
not interested persons of the Trust are committed to the discretion of the
Independent Trustees during such period.
By reason of his controlling interest in the Adviser, Leo F. Wells may be
deemed to have a financial interest in the operation of the Plans.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of the
Fund's securities transactions and negotiation of commission rates where
applicable are made by the Sub-Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Sub-Adviser seeks best execution for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Sub-Adviser generally seeks favorable prices and commission rates
that are reasonable in relation to the benefits received.
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 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.
- 13 -
<PAGE>
Subject to the requirements of the 1940 Act and procedures adopted by the
Board of Trustees, the Fund may execute portfolio transactions through any
broker or dealer and pay brokerage commissions to a broker (i) which is an
affiliated person of the Trust, or (ii) which is an affiliated person of such
person, or (iii) an affiliated person of which is an affiliated person of the
Trust, the Adviser, the Sub-Adviser or the Underwriter.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Sub-Adviser and other
affiliates of the Trust or the Sub-Adviser may effect securities transactions
which are executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. The Fund will not effect
any brokerage transactions in its portfolio securities with the Sub-Adviser if
such transactions would be unfair or unreasonable to its shareholders.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers. Although the Fund does not anticipate any
ongoing arrangements with other brokerage firms, brokerage business may be
transacted from time to time with other firms. Neither the Adviser nor the
Sub-Adviser, nor affiliates of the Trust, the Adviser, or the Sub-Adviser will
receive reciprocal brokerage business as a result of the brokerage business
transacted by the Fund with other brokers.
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
- 14 -
<PAGE>
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 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
- 15 -
<PAGE>
to sell, the full amount indicated. During the term of a Letter of Intent,
shares representing 5% of the intended purchase will be held in escrow. These
shares will be released upon the completion of the intended investment. If the
Letter of Intent is not completed during the thirteen month period, the
applicable sales load will be adjusted by the redemption of sufficient shares
held in escrow, depending upon the amount actually purchased during the period.
The minimum initial investment under a Letter of Intent is $10,000.
A ninety-day backdating period can be used to include earlier purchases at
the purchaser's cost (without a retroactive downward adjustment of the sales
load). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. For purposes of determining the applicable sales load
and for purposes of the Letter of Intent and Right of Accumulation privileges, a
purchaser includes an individual, his or her spouse and their children under the
age of 21, purchasing shares for his, her or their own account; a trustee or
other fiduciary purchasing shares for a single fiduciary account although more
than one beneficiary is involved; employees of a common employer, provided that
economies of scale are realized through remittances from a single source and
quarterly confirmation of such purchases; or an organized group, 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
- 16 -
<PAGE>
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 carry forwards 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 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
- 17 -
<PAGE>
(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.
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
- 18 -
<PAGE>
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:
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 the 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.
- 19 -
<PAGE>
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to
obtain a more complete view of the Fund's performance before investing. Of
course, when comparing the Fund's performance to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return, investors should take into consideration
any relevant differences in funds such as permitted portfolio compositions and
methods used to value portfolio securities and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
that are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as Standard & Poor's Ratings 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 oustanding 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.
- 20 -
<PAGE>
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.
CUSTODIAN
- ---------
Firstar, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained to
act as Custodian for the Fund's investments. Star Bank, N.A. acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending December 31, 1999. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Funds as to certain accounting
matters.
INTEGRATED FUND SERVICES, INC.
- ------------------------------
The Trust has retained Integrated Fund Services, Inc. (the "Transfer
Agent") to act as its transfer agent. The Transfer Agent is an wholly-owned
subsidiary of The Western and Southern Life Insurance Company. The Transfer
Agent maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. The Transfer Agent receives from the Fund
for its services as transfer agent a fee payable monthly at an annual rate of
$20 per account, provided, however, that the minimum fee is $1,200 per month. In
addition, the Fund pays out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
The Transfer Agent also provides accounting and pricing services to the
Fund. For calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties,
the Fund pays the Transfer Agent a fee in accordance with the following
schedule:
Average Monthly Net Assets Monthly Fee
-------------------------- -----------
$ 0 - $ 50,000,000 $2,000
$ 50,000,000 - 100,000,000 $2,500
$100,000,000 - 200,000,000 $3,000
$200,000,000 - 300,000,000 $4,000
Over - 300,000,000 $5,000 + .001%
of average monthly
net assets.
- 21 -
<PAGE>
The Fund pays all costs of external pricing services.
The Transfer Agent also provides administrative services to the Fund. In
this capacity, the Transfer Agent supplies non-investment related statistical
and research data, internal regulatory compliance services and executive and
administrative services. The Transfer Agent supervises the preparation of tax
returns, reports to shareholders of the Fund, reports to and filings with the
Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For the performance of these
administrative services, the Fund pays the Transfer Agent a fee at the annual
rate of .15% of the average value of its daily net assets up to $50,000,000,
.125% of such assets from $50,000,000 to $100,000,000 and .1% of such assets in
excess of $100,000,000, provided, however, that the minimum fee is $1,000 per
month.
For the fiscal periods ended December 31, 1999 and 1998, the Transfer Agent
received transfer agency fees, accounting services fees and administrative
services fees of $42,614 ($23,418 from Class A shares, 9,600 from Class B shares
and $9,600 from Class C shares) $40,000 and $26,009, respectively, and $10,800,
$18,000 and $10,042, respectively, from the Fund.
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.
- 22 -
<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
Integrated 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.
13
<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.
14
<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.
15
<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 --
========== ==========
16
<PAGE>
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
<PAGE>
WELLS FAMILY OF REAL ESTATE FUNDS
---------------------------------
PART C. OTHER INFORMATION
- ------- -----------------
Item 23. Exhibits
- -------- --------
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of
Trust and Bylaws
(d) (i) Advisory Agreement with Wells Asset Management, Inc.*
(ii) Sub-Advisory Agreement with Gateway Investment Advisers,
L.P.*
(e) Underwriting Agreement with Wells Investment Securities,
Inc.*
(f) Inapplicable
(g) Custody Agreement with Firstar Bank, N.A.*
(h) (i) Administration Agreement with Countrywide Fund Services,
Inc.*
(ii) Accounting Services Agreement with Countrywide Fund
Services, Inc.*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) (i) Plan of Distribution Pursuant to Rule 12b-1*
(ii) Class B Plan of Distribution Pursuant to Rule 12b-1
(iii) Class C Plan of Distribution Pursuant to Rule 12b-1
<PAGE>
(n) Financial Data Schedule - Previously filed with Form N-SAR
(o) Rule 18f-3 Plan
(p) Code of Ethics
- -------------------------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A previously filed.
Item 24. Persons Controlled by or Under Common Control with Registrant.
- ------- -------------------------------------------------------------
None.
Item 25. Indemnification
- -------- ---------------
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. Subject
to and except as otherwise provided in the Securities Act of
1933, as amended, and the 1940 Act, the Trust shall indemnify
each of its Trustees and officers, including persons who serve at
the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person") against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered
Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, and
except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office
-2-
<PAGE>
Section 6.5 ADVANCES OF EXPENSES. The Trust shall advance
attorney's fees or other expenses incurred by a Covered Person in
defending a proceeding to the full extent permitted by the
Securities Act of 1933, as amended, the 1940 Act, and Ohio
Revised Code Chapter 1707, as amended. In the event any of these
laws conflict with Ohio Revised Code Section 1701.13(E), as
amended, these laws, and not Ohio Revised Code Section
1701.13(E), shall govern.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators. Nothing contained in this article shall affect
any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of
any such person."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant maintains a standard mutual fund and
-3-
<PAGE>
investment advisory professional and directors and officers liability
policy. The policy provides coverage to the Registrant, its Trustees
and officers, Wells Asset Management, Inc. (the "Adviser") and Wells
Investment Securities, Inc., the Trust's principal underwriter.
Coverage under the policy includes losses by reason of any act, error,
omission, misstatement, misleading statement, neglect or breach of
duty.
The Advisory Agreements with the Adviser provide that the Adviser
shall not be liable for any action taken, omitted or suffered to be
taken by it in its reasonable judgment, in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by the Advisory Agreements, or in accordance with
(or in the absence of) specific directions or instructions from the
Trust, provided, however, that such acts or omissions shall not have
resulted from the Adviser's willful misfeasance, bad faith or gross
negligence.
The Sub-Advisory Agreements with Gateway Investment Advisers, L.P.
(the "Sub-Adviser") provide that the Sub-Adviser shall be held
harmless and indemnified by the Adviser and the Trust from any and all
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) arising from any claim, demand, action, or
suit which results from any action taken, omitted or suffered to be
taken by it in its reasonable judgment, in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by the Sub-Advisory Agreements, or in accordance
with (or in the absence of) specific directions or instructions from
the Trust, provided, however, that such acts or omissions shall not
have resulted from the Sub-Adviser's willful misfeasance, bad faith or
gross negligence or reckless disregard of the Sub-Adviser's
obligations and duties under the Sub-Advisory Agreements.
Item 26. Business and Other Connections of the Investment Adviser
- ------- --------------------------------------------------------
(a) The Adviser is a Georgia corporation organized in June, 1997 to
provide investment advisory services to the Registrant. The
Adviser has no other business of a substantial nature.
The Sub-Adviser, a Delaware limited partnership, provides
investment advisory services to the Registrant, The Gateway Trust
and various other individual and institutional clients.
-4-
<PAGE>
(b) The directors and officers of the Adviser and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years:
(i) Leo F. Wells, III, President and Treasurer of the Adviser.
President and a Trustee of the Registrant.
President, Treasurer and a Director of Wells Investment
Securities, Inc., a registered broker-dealer and
Registrant's principal underwriter.
President of Wells & Associates, Inc.; Wells Management
Company, Inc.; Wells Capital, Inc.; Wells Real Estate Funds,
Inc.; Wells Advisors, Inc.; Wells Development Corporation;
and Wells Real Estate Investment Trust, Inc.
(ii) Linda L. Carson - Secretary of the Adviser.
Vice President, Accounting of Wells Capital, Inc.
The directors and officers of the Sub-Adviser and any other
business, profession, vocation or employment of a substantial
nature engaged in at any time during the past two years:
(i) Walter G. Sall, Chairman of the Board and a controlling
shareholder of the Sub-Adviser.
(ii) J. Patrick Rogers, President and a controlling shareholder
of the Adviser.
President of The Gateway Trust.
Item 27. Principal Underwriters
- -------- ----------------------
(a) Inapplicable
(b) Position with Position with
Name Underwriter Fund
---- ----------- ----
Leo F. Wells, III President, President and
Treasurer and Trustee
a Director
-5-
<PAGE>
The address of the above-named persons is 6200 The Corners
Parkway, Suite 250, Atlanta, Georgia 30092
(c) Inapplicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 6200 The Corners Parkway, Suite 250, Atlanta,
Georgia 30092 as well as at the offices of the Registrant's transfer
agent located at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202.
Item 29. Management Services
- -------- -------------------
Inapplicable
Item 30. Undertakings
- -------- ------------
Inapplicable
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta and State of Georgia, on the 1st day of May,
2000.
WELLS FAMILY OF REAL ESTATE FUNDS
By: /s/ Leo F. Wells
-----------------------
Leo F. Wells
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Leo F. Wells President May 1, 2000
- ----------------------------- and Trustee
Leo F. Wells
/s/ Jill W. Maggiore Vice President May 1, 2000
- -----------------------------
Jill W. Maggiore
/s/ Theresa M. Samocki Treasurer May 1, 2000
- -----------------------------
Theresa M. Samocki
Trustee
- -----------------------------
John L. Bell*
Trustee
- -----------------------------
Richard W. Carpenter*
Trustee By: /s/ Tind D. Hosking
- ----------------------------- -------------------
Bud Carter* Tina D. Hosking
Attorney in Fact*
Trustee May 1, 2000
- -----------------------------
Donald S. Moss*
Trustee
- -----------------------------
Walter W. Sessoms*
<PAGE>
INDEX TO EXHIBITS
-----------------
(a) Agreement and Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of Trust and
Bylaws
(d)(i) Advisory Agreement*
(ii) Sub-Advisory Agreement*
(e) Underwriting Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h)(i) Administration Agreement*
(ii) Accounting Services Agreement*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Agreement relating to Initial Capital*
(m)(i) Plan of Distribution Pursuant to Rule 12b-1*
(ii) Class B Plan of Distribution Pursuant to Rule 12b-1
(iii) Class C Plan of Distribution Pursuant to Rule 12b-1
(n) Financial Data Schedule - Previously filed with Form N-SAR
(o) Rule 18f-3 Plan
(p) Code of Ethics
----------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A previously filed.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -----------------------------------------
As independent public accountants, we hereby consent to the use in this
Post-Effective Amendment No. 3 of our report dated February 4, 2000 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
April 28, 2000
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1 FOR
CLASS B SHARES OF WELLS FAMILY OF REAL ESTATE FUNDS
-----------------------------------------------------------------
WHEREAS, Wells Family of Real Estate Funds (the "Trust"), an unincorporated
business trust organized under the laws of the State of Ohio, is an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest without par value (the "Shares"), which are divided into
separate Series of Shares; and
WHEREAS, the Trust issues shares of certain Series in Sub-Series (one of
which may be designated as Class B Shares); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Rule 12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit each Series and the holders of
its Class B Shares, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act, on the following terms and conditions:
1. DISTRIBUTION ACTIVITIES. Subject to the supervision of the Trustees of
the Trust, the Trust may, directly or indirectly, engage in any activities
related to the distribution of Class B Shares, which activities may include, but
are not limited to, the following: (a) maintenance fees or other payments to the
Trust's principal underwriter and to securities dealers and others who are
engaged in the sale of Class B Shares and who may be advising shareholders of
the Trust regarding the purchase, sale or retention of Class B Shares; (b)
expenses of maintaining personnel (including personnel of organizations with
which the Trust has entered into agreements related to this Plan) who engage in
or support distribution of Class B Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, office space and equipment, telephone facilities and expenses,
answering routine inquiries regarding the Trust, processing shareholder
transactions, and providing such other shareholder services as the Trust may
reasonably request; (c) formulating and implementing of marketing and
promotional activities, including,
<PAGE>
but not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (d) preparing, printing and
distributing sales literature; (e) preparing, printing and distributing
prospectuses and statements of additional information and reports of the Trust
for recipients other than existing shareholders of the Trust; and (f) obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable. The Trust is
authorized to engage in the activities listed above, and in any other activities
related to the distribution of Class B Shares, either directly or through other
persons with which the Trust has entered into agreements related to this Plan.
2. MAXIMUM EXPENDITURES. The expenditures to be made pursuant to Section 1
and the basis upon which payment of such expenditures will be made shall be
determined by the Trustees of the Trust, but in no event may such expenditures
exceed in any fiscal year an amount calculated at the rate of .75% of the
average daily net asset value of the Class B Shares of the Fund. Such payments
for distribution activities may be made directly by the Class B Shares or the
Trust's investment adviser or principal underwriter may incur such expenses and
obtain reimbursement from the Class B Shares.
3. MAINTENANCE FEE. In addition to the payments of compensation provided
for in Section 2 and in order to further enhance the distribution of its Class B
Shares, the Trust may pay the Trust's principal underwriter a maintenance fee,
accrued daily and paid monthly, in an amount equal to an annual rate of .25% of
the daily net assets of the Class B Shares of the Trust. When requested by and
at the direction of the Trust's principal underwriter, the Trust shall pay a
maintenance fee to dealers based on the amount of Class B Shares sold by such
dealers and remaining outstanding for specified periods of time, if any,
determined by the Trust's principal underwriter, in amounts up to .25% per annum
of the average daily net assets of the Class B Shares of the Trust. Any
maintenance fees paid to dealers shall reduce the maintenance fees otherwise
payable to the Trust's principal underwriter.
4. TERM AND TERMINATION. This Plan shall become effective on the date
hereof. Unless terminated as herein provided, this Plan shall continue in effect
for one year from the date hereof and shall continue in effect for successive
periods of one year thereafter, but only so long as each such continuance is
specifically approved by votes of a majority of both (i) the Trustees of the
Trust and (ii) the Rule 12b-1 Trustees, cast in person at a meeting called for
the purpose of voting on such approval. This Plan may be terminated with respect
to each Series at any time by vote of a majority of the Rule 12b-1 Trustees or
by vote of a majority (as defined in the 1940 Act) of the outstanding Class B
Shares of such Series of the Trust. In the event this Plan is terminated by any
Series in accordance
- 2 -
<PAGE>
with its terms, the obligations of the Class B Shares of such Series to make
payments to the Trust's principal underwriter pursuant to this Plan will cease
and such Series will not be required to make any payments for expenses incurred
after the date of termination.
5. AMENDMENTS. This Plan may not be amended with respect to any Series to
increase materially the amount of expenditures provided for in Sections 2 and 3
hereof unless such amendment is approved by a vote of the majority (as defined
in the 1940 Act) of the outstanding Class B Shares of such Series, and no
material amendment to this Plan shall be made unless approved in the manner
provided for annual renewal of this Plan in Section 4 hereof.
6. SELECTION AND NOMINATION OF TRUSTEES. While this Plan is in effect, the
selection and nomination of Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust shall be committed to the discretion of the
Trustees who are not interested persons of the Trust.
7. QUARTERLY REPORTS. The principal underwriter and the Treasurer of the
Trust shall provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
any related agreement, the purposes for which such expenditures were made and
the allocation of such expenditures as provided for in Section 8.
8. ALLOCATING EXPENDITURES BETWEEN CLASSES. Only distribution expenditures
properly attributable to the sale of a particular class of Shares may be used to
support the distribution fee charged to shareholders of such class of Shares.
Distribution expenses attributable to the sale of more than one class of Shares
of a Series will be allocated at least annually to each class of Shares based
upon the ratio in which the sales of each class of Shares bears to the sales of
all the Shares of such Series. For this purpose, Shares issued upon reinvestment
of dividends or distributions will not be considered sales.
9. RECORDKEEPING. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan, the agreements or
such reports, as the case may be, the first two years in an easily accessible
place.
10. LIMITATION OF LIABILITY. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of the State of Ohio and notice
is hereby given that this Plan is executed on behalf of the Trustees of the
Trust as trustees and not individually and that the obligations of this
instrument are not binding upon the Trustees or shareholders of the Trust
individually but are binding only upon the assets and property of the Trust.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as of the
date set forth below.
Dated: May 1, 1999
Attest: WELLS FAMILY OF
REAL ESTATE FUNDS
By: /s/ Tina D. Hosking By: /s/ Leo F. Wells
---------------------- --------------------
Secretary President
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1 FOR
CLASS C SHARES OF WELLS FAMILY OF REAL ESTATE FUNDS
-----------------------------------------------------------------
WHEREAS, Wells Family of Real Estate Funds (the "Trust"), an unincorporated
business trust organized under the laws of the State of Ohio, is an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest without par value (the "Shares"), which are divided into
separate Series of Shares; and
WHEREAS, the Trust issues shares of certain Series in Sub-Series (one of
which may be designated as Class C Shares); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Rule 12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit each Series and the holders of
its Class C Shares, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule
12b-1 under the 1940 Act, on the following terms and conditions:
1. DISTRIBUTION ACTIVITIES. Subject to the supervision of the Trustees of
the Trust, the Trust may, directly or indirectly, engage in any activities
related to the distribution of Class C Shares, which activities may include, but
are not limited to, the following: (a) maintenance fees or other payments to the
Trust's principal underwriter and to securities dealers and others who are
engaged in the sale of Class C Shares and who may be advising shareholders of
the Trust regarding the purchase, sale or retention of Class C Shares; (b)
expenses of maintaining personnel (including personnel of organizations with
which the Trust has entered into agreements related to this Plan) who engage in
or support distribution of Class C Shares or who render shareholder support
services not otherwise provided by the Trust's transfer agent, including, but
not limited to, office space and equipment, telephone facilities and expenses,
answering routine inquiries regarding the Trust, processing shareholder
transactions, and providing such other shareholder services as the Trust may
reasonably request; (c) formulating and implementing of marketing and
promotional activities, including, wells/classc.12b
<PAGE>
but not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (d) preparing, printing and
distributing sales literature; (e) printing and distributing prospectuses and
statements of additional information and reports of the Trust for recipients
other than existing shareholders of the Trust; and (f) obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable. The Trust is
authorized to engage in the activities listed above, and in any other activities
related to the distribution of Class C Shares, either directly or through other
persons with which the Trust has entered into agreements related to this Plan.
2. MAXIMUM EXPENDITURES. The expenditures to be made pursuant to Section 1
and the basis upon which payment of such expenditures will be made shall be
determined by the Trustees of the Trust, but in no event may such expenditures
exceed in any fiscal year an amount calculated at the rate of .75% of the
average daily net asset value of the Class C Shares of any Series of the Trust.
Such payments for distribution activities may be made directly by the Class C
Shares or the Trust's investment adviser or principal underwriter may incur such
expenses and obtain reimbursement from the Class C Shares.
3. MAINTENANCE FEE. In addition to the payments of compensation provided
for in Section 2 and in order to further enhance the distribution of its Class C
Shares, the Trust may pay the Trust's principal underwriter a maintenance fee,
accrued daily and paid monthly, in an amount equal to an annual rate of .25% of
the daily net assets of the Class C Shares of the Trust. When requested by and
at the direction of the Trust's principal underwriter, the Trust shall pay a
maintenance fee to dealers based on the amount of Class C Shares sold by such
dealers and remaining outstanding for specified periods of time, if any,
determined by the Trust's principal underwriter, in amounts up to .25% per annum
of the average daily net assets of the Class C Shares of the Trust. Any
maintenance fees paid to dealers shall reduce the maintenance fees otherwise
payable to the Trust's principal underwriter.
4. TERM AND TERMINATION. This Plan shall become effective on the date
hereof. Unless terminated as herein provided, this Plan shall continue in effect
for one year from the date hereof and shall continue in effect for successive
periods of one year thereafter, but only so long as each such continuance is
specifically approved by votes of a majority of both (i) the Trustees of the
Trust and (ii) the Rule 12b-1 Trustees, cast in person at a meeting called for
the purpose of voting on such approval. This Plan may be terminated with respect
to any Series at any time by vote of a majority of the Rule 12b-1 Trustees or by
vote of a majority (as defined in the 1940 Act) of the outstanding Class C
Shares of such Series of the Trust. In the event this Plan is terminated by any
Series in accordance with
- 2 -
<PAGE>
its terms, the obligations of the Class C Shares of such Series to make payments
to the Trust's principal underwriter pursuant to this Plan will cease and the
such Series will not be required to make any payments for expenses incurred
after the date of termination.
5. AMENDMENTS. This Plan may not be amended with respect to any Series to
increase materially the amount of expenditures provided for in Sections 2 and 3
hereof unless such amendment is approved by a vote of the majority (as defined
in the 1940 Act) of the outstanding Class C Shares of such Series, and no
material amendment to this Plan shall be made unless approved in the manner
provided for annual renewal of this Plan in Section 4 hereof.
6. SELECTION AND NOMINATION OF TRUSTEES. While this Plan is in effect, the
selection and nomination of Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust shall be committed to the discretion of the
Trustees who are not interested persons of the Trust.
7. QUARTERLY REPORTS. The principal underwriter and the Treasurer of the
Trust shall provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
any related agreement, the purposes for which such expenditures were made and
the allocation of such expenditures as provided for in Section 8.
8. ALLOCATING EXPENDITURES BETWEEN CLASSES. Only distribution expenditures
properly attributable to the sale of a particular class of Shares may be used to
support the distribution fee charged to shareholders of such class of Shares.
Distribution expenses attributable to the sale of more than one class of Shares
of a Series will be allocated at least annually to each class of Shares based
upon the ratio in which the sales of each class of Shares bears to the sales of
all the Shares of such Series. For this purpose, Shares issued upon reinvestment
of dividends or distributions will not be considered sales.
9. RECORDKEEPING. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan, the agreements or
such reports, as the case may be, the first two years in an easily accessible
place.
10. LIMITATION OF LIABILITY. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of the State of Ohio and notice
is hereby given that this Plan is executed on behalf of the Trustees of the
Trust as trustees and not individually and that the obligations of this
instrument are not binding upon the Trustees or shareholders of the Trust
individually but are binding only upon the assets and property of the Trust.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as of the
date set forth below.
Dated: May 1, 1999
Attest: WELLS FAMILY OF
REAL ESTATE FUNDS
By: /s/ Tina D. Hosking By: /s/ Leo F. Wells
---------------------- -------------------
Secretary President
RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE
MULTIPLE CLASS DISTRIBUTION SYSTEM OF THE
WELLS FAMILY OF REAL ESTATE FUNDS
- --------------------------------------------------------------------------------
The Wells Family of Funds (the "Trust") has adopted this Plan pursuant to
Rule 18f-3 promulgated under the Investment Company Act of 1940 (the "1940
Act"). The individual series of the Trust is referred to collectively, in whole
or in part, as the context requires, as the "Fund." The Trust is an open-end
management investment company registered under the 1940 Act. Wells Asset
Management, Inc. (the "Adviser") provides investment advisory and management
services to the Trust. Gateway Investment Advisers, L.P. (the "Sub-Adviser")
provides investment advisory and management services to the Trust. Wells
Investment Securities, Inc. (the "Underwriter") acts as principal underwriter
for the Trust.
This Plan permits the Fund to issue and sell three classes of shares for
the purpose of establishing a multiple class distribution system (the "Multiple
Class Distribution System"). The Plan further permits the Fund to assess a
contingent deferred sales load ("CDSL") on certain redemptions of each of the
classes of the Funds shares and to waive the CDSL in certain instances. These
guidelines set forth the conditions pursuant to which the Multiple Class
Distribution System will operate and the duties and responsibilities of the
Trustees of the Trust with respect to the Multiple Class Distribution System.
<PAGE>
DESCRIPTION OF THE MULTIPLE CLASS DISTRIBUTION SYSTEM
- -----------------------------------------------------
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUND. The Multiple Class
Distribution System enables the Fund to offer investors the option of purchasing
shares in one of three manners: (1) subject to a conventional front-end sales
load and a distribution fee not to exceed .25% of average net assets (Class A
shares); (2) subject to a CDSL of up to 5% and a distribution fee and service
fee of up to 1% of the average net assets (Class B shares);(3) subject to a CDSL
of 1% and a distribution fee and service fee of up to 1% of average net assets
(Class C shares).
The three classes will each represent interests in the same portfolio of
investments of the Fund. The three classes will be identical except that (i) the
distribution fees attributable to each class payable by the Fund pursuant to the
distribution plans adopted by the Fund in accordance with Rule 12b-1 under the
1940 Act will be higher for Class B and Class C shares than for Class A shares;
(ii) Class B shares will convert to Class A shares in approximately 8 years,
after their initial purchase; (iii) each class may bear different Class Expenses
(as defined below); (iv) each class will vote separately as a class with respect
to the Trust's Rule 12b-1 distribution plan; (v) each class may bear a different
name or designation. Investors purchasing Class A shares will do so at net asset
value plus a front-end sales load in the traditional manner. The sales load may
be subject to reductions for larger purchases, under a combined purchase
privilege, under a right of
- 2 -
<PAGE>
accumulation or under a letter of intent. The sales load may be subject to
certain other reductions permitted by Section 22(d) of the 1940 Act and set
forth in the registration statement of the Trust. The public offering price for
the Class A shares will be computed in accordance with Rule 22c-1, Section 22(d)
and other relevant provisions of the 1940 Act and the rules and regulations
thereunder. The Fund will also pay a distribution fee pursuant to the
appropriate Rule 12b-1 distribution plan at an annual rate of up to .25% of the
average daily net asset value of its Class A shares.
Investors purchasing Class B shares will do so at net asset value per share
without the imposition of a sales load at the time of purchase. The Fund will
pay a distribution fee pursuant to the appropriate Rule 12b-1 distribution plan
at an annual rate of up to 1% of the average daily net asset value of its Class
B shares. In addition, an investor's proceeds from a redemption of Class B
shares made within six years of the time of their purchase generally will be
subject to a CDSL of up to 5% in year one, 4% in years 2 and 3, 3% in year 4, 2%
in year 5, and 1% in year 6. Redemptions of shares held for greater than six
years will not be subject to a CDSL. The CDSL will be made subject to the
conditions set forth below. The Class B alternative is designed to permit the
investor to purchase Class B shares without the assessment of a front-end sales
load and at the same time permit the Underwriter to pay financial intermediaries
selling shares of a Fund a 4% commission on the sale of the Class B shares.
- 3 -
<PAGE>
Investors purchasing Class C shares will do so at net asset value per share
without the imposition of a sales load at the time of purchase. The Fund will
pay a distribution fee pursuant to the appropriate Rule 12b-1 distribution plan
at an annual rate of up to 1% of the average daily net asset value of its Class
C shares. In addition, an investor's proceeds from a redemption of Class C
shares made within one year of time of their purchase generally will be subject
to a CDSL of 1%. Redemptions of shares held for greater than one year will not
be subject to a CDSL. The CDSL will be made subject to the conditions set forth
below. The Class C alternative is designed to permit the investor to purchase
Class C shares without the assessment of a front-end sales load and at the same
time permit the Underwriter to pay financial intermediaries selling shares of a
Fund a 1% commission on the sale of the Class C shares.
Under the Trust's distribution plans, the Underwriter will not be entitled
to any specific percentage of the net asset value of each class of shares of the
Fund or other specific amount. As described above, the Fund will pay a
distribution fee pursuant to its distribution plan at an annual rate of up to
.25% of the average daily net assets of such Fund's Class A shares and up to 1%
of the average daily net asset value of the Fund's Class B and Class C shares.
Under the Trust's distribution plans, payments will be made for expenses
incurred in providing distribution- related services (including, in the case of
the Class B and Class C shares, commission expenses as described in more detail
- 4 -
<PAGE>
below). Each Fund will accrue at a rate (but not in excess of the applicable
maximum percentage rate) which is reviewed by the Trust's Board of Trustees
quarterly. Such rate is intended to provide for accrual of expenses at a rate
that will not exceed the unreimbursed amounts actually expended for distribution
by a Fund. If at any time the amount accrued by a Fund would exceed the amount
of distribution expenses incurred with respect to the Fund during the fiscal
year (plus, in the case of Class B and Class C shares, prior unreimbursed
commission-related expenses), then the rate of accrual will be adjusted
accordingly. In no event will the amount paid by the Fund exceed the
unreimbursed expenses previously incurred in providing distribution-related
services.
Proceeds from the distribution fee and, in the case of Class B and Class C
shares, the CDSL, will be used to compensate financial intermediaries with a
service fee based upon a percentage of the average daily net asset value of the
shares maintained in the Fund by their customers and to defray the expenses of
the Underwriter with respect to providing distribution related services,
including commissions paid on the sale of Class B and Class C shares.
GENERAL. All three classes of shares of the Fund will have identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except for the differences mentioned above.
- 5 -
<PAGE>
Under the Multiple Class Distribution System, the Board of Trustees could
determine that any of certain expenses attributable to the shares of a
particular class of shares will be borne by the class to which they were
attributable ("Class Expenses"). Class Expenses are limited to (a) transfer
agency fees identified by the Trust as being attributable to a class of shares;
(b) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class; (c) SEC and Blue Sky registration fees
incurred by a class of shares; (d) the expenses of administrative personnel and
services as required to support the shareholders of a specific class; (e)
litigation or other legal expenses relating to a specific class of shares; (f)
Trustees' fees or expenses incurred as a result of issues relating to a specific
class of shares; (g) accounting fees and expenses relating to a specific class
of shares; and (h) additional incremental expenses not specifically identified
above that are subsequently identified and determined to be properly allocated
to one class of shares and approved by the Board of Trustees.
Under the Multiple Class Distribution System, expenses that are
attributable to the Fund but not to a particular class thereof ("Series
Expenses"), would be borne by each class on the basis of the net assets of such
class in relation to the aggregate net assets of the Fund. In addition to
distribution fees, Class Expenses may be applied to the shares of a particular
- 6 -
<PAGE>
class. Any additional Class Expenses not specifically identified above in the
preceding paragraph which are subsequently identified and determined to be
properly applied to one class of shares shall not be so applied until approved
by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may be
applied differently if their current application becomes no longer appropriate.
For example, if a Class Expense is no longer attributable to a specific class,
it may be charged to the Fund. In addition, if application of all or a portion
of a particular expense to a class is determined by the Internal Revenue Service
or counsel to the Trust to result in a preferential dividend for which, pursuant
to Section 562(c) of the Internal Revenue Code of 1986, as amended (the "Code"),
the Fund would not be entitled to a dividends paid deduction, all or a portion
of the expense may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be
borne by each class of shares, the net income of (and dividends payable with
respect to) one class may be different from the net income of (and dividends
payable with respect to) the other class of shares of the Fund. Dividends paid
to holders of each class of shares in the Fund would, however, be declared and
paid on the same days and at the same times and, except as noted with respect to
the varying distribution fees and Class Expenses would be determined and paid in
the same manner. To the extent that the Fund has undistributed net income, the
net asset value per share of each class of the Fund's shares will vary.
- 7 -
<PAGE>
The salient features of the Multiple Class Distribution System will be
described in the Fund prospectus. The Fund will disclose the respective
expenses, performance data, distribution arrangements, services, fees, sales
loads and deferred sales loads to each class of shares offered through the
prospectus. The shareholder reports of the Fund will disclose the respective
expenses and performance data applicable to each class of shares. The
shareholder reports will contain, in the statement of assets and liabilities and
statement of operations, information related to the Fund as a whole generally
and not on a per class basis. The Fund's per share data, however, will be
prepared on a per class basis with respect to all classes of shares of the Fund.
The information provided by the Underwriter or Adviser for publication in any
newspaper or similar listing of Fund net asset values and public offering prices
will separately present Class A, Class B and Class C shares.
The Class B and Class C alternatives are designed to permit the investor to
purchase Class B and Class C shares without the assessment of a front-end sales
load and the same time permit the Underwriter to pay financial intermediaries a
commission on the sale of such shares. Proceeds from the distribution fee and
the CDSL will be used to compensate financial intermediaries with a service fee
and to defray the expenses of the Underwriter with respect to providing
distribution related services, including commissions paid on the sale of Class B
and Class C shares.
- 8 -
<PAGE>
Class B shares will not be charged a CDSL if they are not redeemed within
six years of their purchase date. Class C shares will not be charged a CDSL if
they are not redeemed within one year of their purchase date. The CDSL for all
three classes of shares will be imposed on the net asset value of the shares
being redeemed at the time of their respective purchase. No CDSL will be imposed
on shares acquired through reinvestment of income dividends or capital gains
distributions. In determining whether a CDSL is applicable, unless the
shareholder otherwise specifically directs, it will be assumed that a redemption
is made first of any Class A, Class B or Class C shares derived from
reinvestment of distributions, second of Class B or Class C shares held for a
period long enough that no CDSL will be imposed, third of any Class A shares in
the shareholder's account, and forth of Class B or Class C shares held for a
period such that a CDSL will be imposed.
In addition, the Fund will waive the CDSL on redemptions following the
death or disability of a shareholder as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986. The Underwriter will require satisfactory proof
of death or disability before it determines to waive the CDSL. In cases of death
or disability, the CDSL may be waived where the decedent or disabled person is
either an individual shareholder or owns the shares with his or her spouse as a
joint tenant with rights of survivorship if the redemption is made within one
year of death or initial determination of disability.
- 9 -
<PAGE>
Under the Multiple Class Distribution System, Class B shares of the Fund
will be converted to Class A shares after approximately eight years, relative to
the net asset levels of both classes of shares. The conversion allows the
investor to take advantage of the lower distribution fees associated with Class
A shares.
LEGAL ANALYSIS
- --------------
The Adviser and the Underwriter believe that the Multiple Class
Distribution System as described herein will better enable the Fund to meet the
competitive demands of today's financial services industry. Under the Multiple
Class Distribution System, an investor will be able to choose the method of
purchasing shares that is most beneficial given the amount of his or her
purchase, the length of time the investor expects to hold his or her shares, and
other relevant circumstances. The System permits the Fund to facilitate both the
distribution of the securities and provide investors with a broader choice as to
the method of purchasing shares without assuming excessive accounting and
bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1
plans in the manner described is equitable and does not discriminate against any
group of shareholders. In addition, such arrangements should not give rise to
any conflicts of interest because the rights and privileges of each class of
shares are substantially identical.
- 10 -
<PAGE>
The Adviser and the Underwriter believe that the Multiple Class
Distribution System will not increase the speculative character of the shares of
the Fund. The Multiple Class Distribution System does not involve borrowing, nor
will it affect the Funds existing assets or reserves, and does not involve a
complex capital structure. Nothing in the Multiple Class Distribution System
suggests that it will facilitate control by holders of any class of shares.
The Adviser and the Underwriter believe that the ability of the Fund to
implement the CDSL is appropriate in the public interest, consistent with the
protection of investors, and consistent with the purposes fairly intended by the
policy and provisions of the 1940 Act. The CDSL arrangement will provide
shareholders the option of having their full payment invested for them at the
time of their purchase of shares of the Fund with no deduction of a sales
charge.
CONDITIONS OF OPERATING UNDER THE MULTIPLE CLASS DISTRIBUTION SYSTEM
- --------------------------------------------------------------------
The operation of the Multiple Class Distribution System shall at all times
be in accordance with Rule 18f-3 under the 1940 Act and all other applicable
laws and regulations, and in addition, shall be subject to the following
conditions:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund, and be identical in all material respects, except as
set forth below. The only differences among the various classes of the Fund will
relate
- 11 -
<PAGE>
solely to: (a) the impact of the disproportionate Rule 12b-1 distribution plan
payments allocated to each of the Class A shares Class B shares or Class C
shares of the Fund; (b) conversion of Class B shares to Class A shares
approximately 8 years after their initial purchase; (c) Class Expenses, which
are limited to (i) transfer agency fees (including the incremental cost of
monitoring a CDSL applicable to a specific class of shares), (ii) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders of a
specific class, (iii) SEC and Blue Sky registration fees incurred by a class of
shares, (iv) the expenses of administrative personnel and services as required
to support the shareholders of a specific class, (v) litigation or other legal
expenses relating to a specific class of shares, (vi) Trustees' fees or expenses
incurred as a result of issues relating to a specific class of shares, and (vii)
accounting fees and expenses relating to a specific class of shares; (d) the
fact that each class will vote separately as a class with respect to the Rule
12b-1 distribution plans or any other matter affecting only that class; (e) the
designation of each class of shares of the Fund. Any additional incremental
expenses not specifically identified above that are subsequently identified and
determined to be properly allocated to one class of shares shall not be so
allocated until approved by the Board of Trustees.
- 12 -
<PAGE>
2. The Trustees of the Trust, including a majority of the Trustees who are
not interested persons of the Trust, have approved this Plan as being in the
best interests of each class individually and the Fund as a whole. In making
this finding, the Trustees evaluated the relationship among the classes, the
allocation of expenses among the classes, potential conflicts of interest among
classes, and the level of services provided to each class and the cost of those
services.
3. Any material changes to this Plan, including but not limited to a change
in the method of determining Class Expenses that will be applied to a class of
shares, will be reviewed and approved by votes of the Board of Trustees of each
Trust, including a majority of the Trustees who are not interested persons of
the Trust.
4. On an ongoing basis, the Trustees of the Trust, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the interests of the
classes of shares. The Trustees, including a majority of the Trustees who are
not interested persons of the Trust, shall take such action as is reasonably
necessary to eliminate any such conflicts that may develop. The Adviser will be
responsible for reporting any potential or existing conflicts to the Trustees.
If a conflict arises, the Adviser at its own cost will remedy such conflict up
to and including establishing a new registered management investment company.
- 13 -
<PAGE>
5. The Trustees of the Trust will receive quarterly and annual Statements
complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from
time to time. In the Statements, only distribution expenditures properly
attributable to the sale of a class of shares will be used to support the Rule
12b-1 fee charged to shareholders of such class of shares. Expenditures not
related to the sale of a particular class will not be presented to the Trustees
to justify any fee attributable to that class. The Statements, including the
allocations upon which they are based, will be subject to the review and
approval of the Trustees who are not interested persons of the Trust in the
exercise of their fiduciary duties.
6. Dividends paid by a Fund with respect to each class of shares, to the
extent any dividends are paid, will be calculated in the same manner, at the
same time, on the same day, and will be in the same amount, except that
distribution fee payments and Class Expenses relating to each respective class
of shares will be borne exclusively by that class.
7. Applicants have established the manner in which the net asset value of
the multiple classes of shares will be determined and the manner in which
dividends and distributions will be paid. Attached hereto as Exhibit A is a
procedures memorandum and worksheets with respect to the methodology and
procedures for calculating the net asset value and dividends and distributions
of the various classes and the proper allocation of income and expenses among
the classes.
- 14 -
<PAGE>
8. The Underwriter represents that it has in place, and will continue to
maintain, adequate facilities in place to ensure implementation of the
methodology and procedures for calculating the net asset value and dividends and
distributions among the various classes of shares.
9. The Underwriter has adopted compliance standards as to when Class A,
Class B and Class C shares may appropriately be sold to particular investors.
The Underwriter will require all persons selling shares of the Fund to agree to
conform to such standards.
10. The Fund will briefly describe the salient features of the Multiple
Class Distribution System in its prospectus. The Fund will disclose the
respective expenses, performance data, distribution arrangements, services,
fees, sales loads and deferred sales loads applicable to each class of shares
offered through the prospectus. The Fund will disclose the respective expenses
and performance data applicable to each class of shares in every shareholder
report. The shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the Fund as a
whole generally and not on a per class basis. The Fund's per share data,
however, will be prepared on a per class basis with respect to all classes of
shares of the Fund. The information provided by the Trust for publication in any
newspaper or similar listing of the Fund's net asset value and public offering
price will separately present Class A, Class B and Class C shares.
- 15 -
<PAGE>
11. The Trust will comply with the provisions of Rule 6c-10 under the 1940
Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as it
may be amended.
- 16 -
<PAGE>
WELLS FAMILY OF REAL ESTATE FUNDS
MULTIPLE-CLASS FUND
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
<PAGE>
INTRODUCTION
------------
Wells Family of Real Estate Funds (the "Trust") is an Ohio business trust
registered under the Investment Company Act of 1940 as open-end management
investment company. Wells Asset Management, Inc. (the "Adviser") acts as the
investment manager to the Fund, Gateway Investment Advisers, L.P. (the "Sub-
Adviser")acts as sub-adviser to the Fund and Wells Investment Securities, Inc.
(the "Underwriter") serves as the Fund's principal underwriter. The Underwriter
is an affiliate of the Adviser. The Trust presently offers the following series
of shares (the "Fund") representing interests in separate investment portfolios:
Wells S&P REIT Index Fund
The Fund may offer multiple classes of shares as more fully described in
the Trust's Rule 18f-3 Plan. The Multiple Class Distribution System would enable
the Fund to offer investors the option of purchasing shares in three different
manners: (1) subject to a conventional front-end sales load and a distribution
fee not to exceed .25% of average net assets (Class A shares); (2) subject to a
contingent deferred sales charge of up to 5% (reduced to 0, after sixth year)
and a distribution fee and service fee of up to 1% of average net assets (Class
B shares); or (3) subject to a contingent deferred sales charge and a
distribution fee and service fee of up to 1% of average net assets (Class C
shares). The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. Future series of the Trust may declare
dividends daily or periodically. The Fund and any future series of the Trust
will declare and pay substantially all net realized gains, if any, at least
annually.
Pursuant to an Accounting Services Agreement, Integrated Fund Services,
Inc. ("Integrated") maintains the Fund's accounting records and performs the
daily calculations of the Fund's net asset value. Thus, the procedures and
internal accounting controls for the Fund include the participation of
Integrated.
The internal accounting control environment at Integrated provides for
minimal risk of error. This has been accomplished through the use of competent
and well-trained employees, adequate facilities and established internal
accounting control procedures.
Additional procedures and internal accounting controls have been designed
for the multiple class funds. These procedures and internal accounting controls
have been reviewed by management of the Trust and Integrated to ensure that the
risks associated with multiple-class funds are adequately addressed.
The specific internal accounting control objectives and the related
methodology, procedures and internal accounting controls to achieve these stated
objectives are outlined below.
<PAGE>
METHODOLOGY, PROCEDURES AND INTERNAL
------------------------------------
ACCOUNTING CONTROLS FOR MULTIPLE-CLASS FUNDS
--------------------------------------------
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of the Fund are
accurately calculated.
(2) Recorded expenses of the Fund are properly allocated between each class of
shares.
(3) Dividend distributions are accurately calculated for each class of shares.
1. Control Objective
The daily net asset value for all classes of shares of the Fund are
accurately calculated.
Methodology, Procedures and Internal Accounting Controls
- --------------------------------------------------------
a. Securities of the Fund will be valued daily at their current market
value by a reputable pricing source. Security positions will be reconciled from
the Trust's records and to custody records and reviewed for completeness and
accuracy.
b. Prepaid and intangible assets will be amortized over their estimated
useful lives. These assets will be reviewed monthly to ensure a proper
presentation and amortization during the period.
c. Investment income, realized and unrealized gains or losses will be
calculated daily from Integrated's portfolio system and reconciled to the
general ledger. Yields and fluctuations in security prices will be monitored on
a daily basis by Integrated personnel. Interest and dividend receivable amounts
will be reconciled to holdings reports.
d. An estimate of all expenses for the Fund will be accrued daily. Daily
expense accruals will be reviewed and revised, as required, to reflect actual
payments made to vendors.
- 2 -
<PAGE>
e. Capital accounts for each class of shares will be updated based on daily
share activity and reconciled to transfer agent reported outstanding shares.
f. All balance sheet asset, liability and capital accounts will be
reconciled to subsidiary records for completeness and accuracy.
g. For the Fund, a pricing worksheet (see attached example) will be
prepared daily which calculates the net asset value of outstanding shares and
the percentage of net asset value of such class to the total of all classes of
shares. Investment income and joint expenses will be allocated by class of
shares according to such percentages. Realized and unrealized gains will be
allocated by class of shares according to such percentages.
h. Prior day net assets by class will be rolled forward to current day net
assets by class of shares by adjusting for current day income, expense and
distribution activity. (There may or may not be distribution activity in the
periodic dividend funds.) Net assets by class of shares will then be divided by
the number of outstanding shares for each class to obtain the net asset value
per share. Net asset values will be reviewed and approved by supervisors.
i. Net asset values per share of the different classes of shares for daily
dividend funds should be identical except with respect to possible differences
attributable to rounding. Differences, if any, will be investigated by the
accounting supervisor.
j. Net asset values per share of the different classes of shares for the
periodic dividend funds may be different as a result of accumulated income
between distribution dates and the effect of class specific expenses. Other
differences, if any, will be investigated by the accounting supervisor.
2. Control Objective
Recorded expenses of the Fund are properly allocated between each class of
shares.
Methodology, Procedures and Internal Accounting Controls
a. Expenses will be classified as being either joint or class specific on
the pricing worksheet.
- 3 -
<PAGE>
b. Expenses attributable to the Fund but not to a particular class thereof
will be borne by each class on the basis of the net assets of such class in
relation to the aggregate net assets of the Fund. These expenses could include,
for example, advisory fees and custodian fees, and fees related to the
preparation of separate documents for current shareholders of the Fund.
c. Class specific expenses are those identifiable with each individual
class of shares. These expenses include 12b-1 distribution fees; transfer agent
fees as identified by Integrated as being attributable to a specific class;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a particular class; SEC and Blue Sky registration fees; the expenses of
administrative personnel and services required to support the shareholders of a
specific class; litigation or other legal expenses relating solely to one class
of shares; Trustees' fees incurred as a result of issues relating to one class
of shares; and accounting fees and expenses relating to a specific class of
shares.
d. Joint expenses will be allocated daily to each class of shares based on
the percentage of the net asset value of shares of such class to the total of
the net asset value of shares of all classes of shares. Class specific expenses
will be charged to the specific class of shares. Both joint expenses and class
specific expenses are compared against expense projections.
e. The total of joint and class specific expense limits will be reviewed to
ensure that voluntary or contractual expense limits are not exceeded. Amounts
will be adjusted to ensure that any limits are not exceeded. Expense waivers and
reimbursements will be calculated and allocated to each class of shares based
upon the pro rata percentage of the net assets of the Fund as of the end of the
prior day, adjusted for the previous day's share activity.
f. The Fund and each class will accrue distribution expenses at a rate (but
not in excess of the applicable maximum percentage rate) which will be reviewed
by the Board of Trustees on a quarterly basis. Such distribution expenses will
be calculated at an annual rate not to exceed .25% of the average daily net
assets of the Fund's Class A shares and not to exceed 1% of
- 4 -
<PAGE>
the average daily net assets of the Fund's Class B and Class C shares. Under the
distribution plans, payments will be made only for expenses incurred in
providing distribution related services. Unreimbursed distribution expenses of
the Underwriter will be determined daily and the Underwriter shall not be
entitled to reimbursement for any amount with respect to any day on which there
exist no unreimbursed distribution expenses.
g. Expense accruals for both joint and class specific expenses are reviewed
each month. Based upon these reviews, adjustments to expense accruals or expense
projections are made as needed.
h. Expense ratios and yields for each class of shares will be reviewed
daily to ensure that differences in yield relate solely to acceptable expense
differentials.
i. Any change to the classification of expenses as joint or class specific
is reviewed and approved by the Board of Trustees.
j. Integrated will perform detailed expense analyses to ensure that
expenses are properly charged to the Fund and to each class of shares. Any
expense adjustments required as a result of this process will be made.
3. Control Objective
Dividend distributions are accurately calculated for each class of shares.
Methodology, Procedures and Internal Accounting Controls
a. The Fund declares substantially all net investment income periodically.
b. Investment income, including amortization of discount and premium, where
applicable, is recorded by the Fund and is allocated to each class of shares
based upon its pro rata percentage of the net assets of the Fund as of the end
of the prior day, adjusted for the previous day's share activity.
c. The Fund will determine the amount of accumulated income available for
all classes after deduction of allocated expenses but before consideration of
any class specific expenses. This amount will be divided by total outstanding
shares for all classes combined to arrive at a gross dividend rate for all
shares. From
- 5 -
<PAGE>
this gross rate, a class specific amount per share for each class (representing
the unique and incrementally higher, if any, expenses accrued during the period
to that class divided by the shares outstanding for that class) is subtracted.
The result is the actual per share rate available for each class in determining
amounts to distribute.
d. Realized capital gains, if any, are allocated daily to each class based
upon its relative percentage of the total net assets of the Fund as of the end
of the prior day, adjusted for the previous day's share activity.
e. Capital gains are distributed at least once every twelve months with
respect to each class of shares.
f. The capital gains distribution rate will be determined on the ex-date by
dividing the total realized gains of the Fund to be declared as a distribution
by the total outstanding shares of the Fund as of the record date.
g. Capital gains dividends per share should be identical for each class of
shares within the Fund. Differences, if any, will be investigated and resolved.
h. Distributions are reviewed annually by Integrated at fiscal year end and
as required for excise tax purposes during the fiscal year to ensure compliance
with IRS regulations and accuracy of calculations.
There are several pervasive procedures and internal accounting controls
which impact all three of the previously mentioned objectives.
a. Integrated's supervisory personnel will be involved on a daily basis to
ensure that the methodology and procedures for calculating the net asset value
and dividend distribution for each class of shares is followed and a proper
allocation of expenses among each class of shares is performed.
b. Integrated fund accountants will receive overall supervision. Their work
with regard to multiple class calculations will be reviewed and approved by
supervisors.
c. Integrated's pricing worksheets will be clerically checked and verified
against corresponding computer system generated reports.
- 6 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
------ ------ ------ ------
1 Prior day NAV per share (unrounded) ______ ______ ______
Allocation Percentages
----------------------
Complete for all Funds:
2 Shares O/S - prior day ______ ______ ______ ______
3 Prior day shares activity ______ ______ ______ ______
4 Adjusted shares O/S [2 + 3] ______ ______ ______ ______
5 Adjusted net assets [4 x 1] ______ ______ ______ ______
6 % Assets by class ______ ______ ______ ______
For daily dividend funds complete Rows 7 - 11
For periodic (non daily) dividend funds insert
same # from Rows 2 - 6
7 Settled shares prior day ______ ______ ______ ______
8 Prior day settled shares activity ______ ______ ______ ______
9 Adjusted settled shares O/S [7 & 8] ______ ______ ______ ______
10 Adjusted settled assets [9 x 1] ______ ______ ______ ______
11 % Assets by class ______ ______ ______ ______
Income and Expenses
-------------------
12 Daily income * Expenses: ______ ______ ______ ______
13 Management Fee* ______ ______ ______ ______
14 12-1 Fee ______ ______ ______ ______
15 Other Joint Expenses* ______ ______ ______ ______
16 Direct Class Expenses ______ ______ ______ ______
17 Daily expenses [13+14+15+16] ______ ______ ______ ______
18 Daily Net Income [12 - 17] ______ ______ ______ ______
19 Dividend Rate (Daily Dividend Funds Only) ______ ______ ______
[18/9]
Capital
-------
20 Income distribution ______ ______ ______ ______
21 Undistributed Net Income [18 - 20] ______ ______ ______ ______
22 Capital share activity ______ ______ ______ ______
23 Realized Gains/Losses:
24 Short-Term** ______ ______ ______ ______
25 Long-Term** ______ ______ ______ ______
26 Capital gain distribution ______ ______ ______ ______
27 Unrealized appreciation/depreciation** ______ ______ ______ ______
28 Daily net asset change ______ ______ ______ ______
[21 + 22 + 24 + 25 + 26 + 27]
- 7 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
------ ------ ------ ------
NAV Proof
---------
29 Prior day net assets ______ ______ ______ ______
30 Current day net assets [28 + 29] ______ ______ ______ ______
31 NAV per share [30 / 4] ______ ______ ______ ______
32 Sales Load as a percent of offering price ______ ______
33 Offering Price [31 / (100% - 32)] ______ ______
* - Allocated based on Line 11 percentages.
** - Allocated based on Line 6 percentages.
- 8 -
<PAGE>
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
Statement of Assets and Liabilities
- -----------------------------------
- Assets and liabilities will be disclosed in accordance with standard
reporting format.
- The following will be disclosed for each class:
Net Assets:
Class A Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $_____ per share based
on _____ shares outstanding.
Class B Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $_____ per share based
on _____ shares outstanding.
Class C Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $_____ per share based
on _____ shares outstanding.
- 9 -
<PAGE>
Statement of Operations
- -----------------------
- Standard reporting format, except that class specific expenses will be
disclosed for each class.
Statement of Changes in Net Assets
- ----------------------------------
- Show components by each class of shares and in total as follows:
Current Year
- --------------------------------------------------------------------------------
Total Class A Class B Class C
- ----- ------- ------- -------
Prior Year
- --------------------------------------------------------------------------------
Total Class A Class B Class C
- ----- ------- ------- -------
Selected Share Data and Ratios
- ------------------------------
- Show components by each class as follows:
Current Year
- --------------------------------------------------------------------------------
Class A Class B Class C
- ------- ------- -------
Prior Years
- --------------------------------------------------------------------------------
Class A Class B Class C
- ------- ------- -------
Notes to Financial Statements
- -----------------------------
- Note on share transactions will include information on each class of
shares for two years.
- Notes will include additional disclosure regarding allocation of
expenses between classes.
- Notes will describe the distribution arrangements, incorporating
disclosure on any class 12b-1 fee arrangements.
- 10 -
CODE OF ETHICS
WELLS FAMILY OF REAL ESTATE FUNDS
WELLS ASSET MANAGEMENT, INC.
WELLS INVESTMENT SECURITIES, INC.
A. INTRODUCTION
------------
Rule 17j-1 under the Investment Company Act of 1940 (the "Act") requires
registered investment companies and their investment advisers to adopt
codes of ethics and reporting requirements to prevent fraudulent, deceptive
and manipulative practices. Wells Family of Real Estate Funds (the "Trust")
is registered as an open-end management investment company under the Act.
Wells Asset Management, Inc. ("Wells") is the investment adviser of the
Trust. Wells Investment Securities, Inc. ("Wells") is the underwriter of
the Trust. Except as otherwise specified herein, this Code applies to all
employees, officers, directors and trustees of Wells and the Trust.
This Code of Ethics is based on the principle that the officers, directors,
trustees and employees of Wells and the Trust have a fiduciary duty to
place the interests of the Trust before their own interests, to conduct all
personal securities transactions consistently with this Code of Ethics (the
"Code") and to do so in a manner which does not interfere with the
portfolio transactions of the Trust, or otherwise take unfair advantage of
their relationship to the Trust. Persons covered by this Code must adhere
to this general principle as well as comply with the specific provisions of
this Code. Technical compliance with this Code will not insulate from
scrutiny trades which indicate an abuse of an individual's fiduciary duties
to the Trust.
B. DEFINITIONS
-----------
1. "Access person" means (i) any employee, director, principal, trustee
or officer of the Trust or Wells, (ii) any employee of any company in
a control relationship to the Trust or Wells who, in the ordinary
course of his or her business, makes, participates in or obtains
information regarding the purchase or sale of securities for the Trust
or whose principal function or duties relate to the making of any
recommendation to the Trust regarding the purchase or sale of
securities and (iii) any natural person in a control relationship to
the Trust or Wells who obtains information concerning recommendations
made to the Trust with regard to the purchase or sale of a security. A
natural person in a control relationship or an employee of a company
in a control relationship does not become an "access person" simply by
virtue of the following:
<PAGE>
normally assisting in the preparation of public reports, but not
receiving information about current recommendations or trading; a
single instance of obtaining knowledge of current recommendations or
trading activity; or, infrequently and inadvertently obtaining such
knowledge. The Compliance Officer(s) for the Trust and Wells are
responsible for determining who are access persons.
2. A security is "being considered for purchase or sale" when the order
to purchase or sell such security has been given, or prior thereto
when, in the opinion of an investment manager, a decision, whether or
not conditional, has been made (even though not yet implemented) to
make the purchase or sale, or when the decision-making process has
reached a point where such a decision is imminent.
3. "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, except that the determination of direct or
indirect beneficial ownership shall apply to all securities which an
access person has or acquires. (See Appendix A for a more complete
description.)
4. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
5. "Disinterested trustee" means a trustee who is not an "interested
person" within the meaning of Section 2(a)(19) of the Act.
6. "Equivalent security" means any security issued by the same entity as
the issuer of a subject security, including options, rights, warrants,
preferred stock, restricted stock, phantom stock, bonds and other
obligations of that company, or a security convertible into another
security.
7. "Immediate family" of an individual means any of the following persons
who reside in the same household as the individual:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
step-parent father-in-law
-2-
<PAGE>
Immediate family includes adoptive relationships and any other
relationship (whether or not recognized by law) which the Compliance
Officer determines could lead to possible conflicts of interest,
diversions of corporate opportunity, or appearances of impropriety
which this Code is intended to prevent.
8. "Investment personnel" means those employees who provide information
and advice to an investment manager or who help execute the investment
manager's decisions.
9. "Investment manager" means any employee entrusted with the direct
responsibility and authority to make investment decisions affecting
the Trust.
10. "Purchase or sale of a security" includes, without limitation, the
writing, purchase or exercise of an option to purchase or sell a
security, conversions of convertible securities and short sales.
11. "Security" shall have the meaning set forth in Section 2(a)(36) of the
Act, except that it shall not include shares of registered open-end
investment companies, securities issued by the Government of the
United States, short-term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Act,
bankers' acceptances, bank certificates of deposit, commercial paper,
and such other money market instruments as designated by Wells and the
Board of Trustees of the Trust.
Security does not include futures contracts or options on futures
contracts (provided these instruments are not used to indirectly
acquire an interest which would be prohibited under this Code).
C. PRE-CLEARANCE REQUIREMENTS
--------------------------
All access persons shall clear in advance through the Compliance Officer
any purchase or sale, direct or indirect, of any Security in which such
access person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership interest. The applicable Compliance Officer
shall retain written records of such clearance requests.
The applicable Compliance Officer will not grant clearance for any purchase
or sale if the Security is currently being considered for purchase or sale
or being purchased or sold by the Trust. If the Security proposed to be
purchased or sold by the access person is an option, clearance will not be
granted if the Securities subject to the option are being considered for
purchase or sale as indicated above. If the Security proposed to be
purchased or sold is a convertible security, clearance will not be granted
if either that security or the securities into which it is convertible are
being considered for purchase or sale as indicated above.
-3-
<PAGE>
The applicable Compliance Officer may refuse to preclear a transaction if
he or she deems the transaction to involve a conflict of interest, possible
diversion of corporate opportunity, or an appearance of impropriety.
Clearance is effective, unless earlier revoked, until the earlier of (1)
the close of business on the fifth trading day, beginning on and including
the day on which such clearance was granted, or (2) the access person
learns that the information provided to the Compliance Officer in such
access person's request for clearance is not accurate. If an access person
places an order for a transaction within the five trading days but such
order is not executed within the five trading days (e.g., a limit order),
clearance need not be reobtained unless the person who placed the original
order amends such order in any way. Clearance may be revoked at any time
and is deemed revoked if, subsequent to receipt of clearance, the access
person has knowledge that a security to which the clearance relates is
being considered for purchase or sale.
D. EXEMPTED TRANSACTIONS
---------------------
The pre-clearance requirements in Section C of this Code shall not apply
to:
1. Purchases or sales which are non-volitional on the part of either the
access person or the Trust.
2. Purchases which are part of an automatic dividend reinvestment plan.
3. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
4. Purchases or sales by a disinterested trustee or a member of his or
her immediate family.
-4-
<PAGE>
E. PROHIBITED ACTIONS AND TRANSACTIONS
-----------------------------------
Notwithstanding a grant of clearance under Section C hereof, the following
actions and transactions are prohibited and will result in sanctions
including but not limited to the sanctions expressly provided for in this
Section.
1. Investment personnel and investment managers shall not acquire, for
any account in which such investment personnel or investment manager
has a beneficial ownership interest, any security in an initial public
offering.
2. Access persons shall not execute a securities transaction on a day
during which the Trust has a pending buy or sell order in that same
security or an equivalent security until that order is executed or
withdrawn. An access person shall disgorge any profits realized on
trades within such period. This prohibition does not apply to
disinterested trustees and their immediate families.
3. An investment manager shall not buy or sell a security within seven
calendar days before or after the Trust trades in that security or an
equivalent security unless the Trust's entire position in that
security or equivalent securities has been sold prior to the
investment manager's transaction and the investment manager is also
selling the security. An investment manager shall disgorge any profits
realized on trades within such period.
4. Investment personnel and investment managers shall not profit in the
purchase and sale, or sale and purchase, of the same (or equivalent)
securities within sixty (60) calendar days. Upon review by the
applicable Compliance Officer of such short-term trading by investment
personnel and investment managers, that Compliance Officer may, in his
or her sole discretion, allow exceptions when he or she has determined
that an exception would be equitable and that no abuse is involved.
Investment personnel and investment managers profiting from a
transaction for which the applicable Compliance Officer has not
granted an exception shall disgorge any profits realized on such
transaction.
5. Investment personnel and investment managers shall not accept from any
person or entity that does or proposes to do business with or on
behalf of the Trust a gift or other thing of more than de minimis
value or any other form of advantage. The solicitation or giving of
such gifts by investment personnel and investment managers is also
prohibited. For purposes of this subparagraph, "de minimis" means $100
or less if received in the normal course of business.
-5-
<PAGE>
6. Investment personnel and investment managers shall not serve on the
board of directors of publicly traded companies, absent prior
authorization from the applicable Compliance Officer provided,
however, that any directorships held by such investment personnel or
investment managers as of the date of the adoption of this Code of
Ethics shall be deemed to be authorized. The applicable Compliance
Officer will grant authorization only if it is determined that the
board service would be consistent with the interests of the Trust. In
the event board service is authorized, such individuals serving as
directors shall be isolated from those making investment decisions
through procedures designed to safeguard against potential conflicts
of interest, such as a Chinese Wall policy or investment restrictions.
7. Investment personnel and investment managers shall not acquire a
security in a private placement, absent prior authorization from the
applicable Compliance Officer. The applicable Compliance Officer will
not grant clearance for the acquisition of a security in a private
placement if it is determined that the investment opportunity should
be reserved for the Trust or that the opportunity to acquire the
security is being offered to the individual requesting clearance by
virtue of such individual's position with Wells or the Trust (as
applicable). An individual who has been granted clearance to acquire
securities in a private placement shall disclose such investment when
participating in a subsequent consideration by the Trust of an
investment in the issuer. A subsequent decision by the Trust to
purchase such a security shall be subject to independent review by
investment personnel with no personal interest in the issuer.
8. Investment personnel and investment managers shall not purchase during
the underwriting of the security any security which, due to its public
demand in relation to the amount offered, is likely to increase in
value.
9. Investment personnel and investment managers shall not engage in short
sales or margin trades of securities.
10. An access person shall not execute a securities transaction while in
possession of material non-public information regarding the security
or its issuer.
11. An access person shall not execute a securities transaction which is
intended to raise, lower, or maintain the price of any security or to
create false appearance of active trading (anti-market manipulation).
-6-
<PAGE>
12. An access person shall not execute a securities transaction involving
the purchase or sale of a security at a time when such access person
intends, or knows of another's intention, to purchase or sell that
security (or an equivalent security) on behalf of the Trust. This
prohibition would apply whether the transaction is in the same (e.g.,
two purchases) or the opposite (a purchase and sale) direction as the
transaction of the Trust.
13. An access person shall not cause or attempt to cause the Trust to
purchase, sell, or hold any security in a manner calculated to create
any personal benefit to such access person or his or her immediate
family. If an access person or his or her immediate family stands to
materially benefit from an investment decision for the Trust that the
access person is recommending or in which the access person is
participating, the access person shall disclose to the persons with
authority to make investment decisions for the Trust, any beneficial
ownership interest that the access person or his or her immediate
family has in such security or an equivalent security, or in the
issuer thereof, where the decision could create a material benefit to
the access person or his or her immediate family or the appearance of
impropriety.
F. REPORTING
---------
1. Each access person, except a disinterested trustee, shall arrange for
the applicable Compliance Officer to receive directly from the
broker-dealer effecting a transaction in any security in which such
access person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership interest, duplicate copies of
each confirmation for each securities transaction and periodic account
statements for each brokerage account in which such access person has
any beneficial ownership interest, unless such information is provided
pursuant to paragraph 2 of this Section.
2. In the event an access person, other than a disinterested trustee,
does not arrange for the provision of information by broker-dealers as
required in the preceding paragraph 1, the access person shall report
to the applicable Compliance Officer no later than 10 days after the
end of each calendar quarter the information described below with
respect to transactions in any security in which such access person
has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership interest in the security; provided, however, that
an access person shall not be required to make a report with respect
to transactions effected for any account over which such access person
does not have any direct or indirect influence:
-7-
<PAGE>
a. The date of the transaction and the name of the security;
b. The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition); and
c. The name of the broker, dealer or bank with or through whom the
transaction was effected.
Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or
she has any direct or indirect beneficial ownership in the security to
which the report relates.
3. Each access person, except a disinterested trustee, shall upon
commencement of employment and annually thereafter verify in writing
that all transactions in any security in which such access person has,
or by reason of such transaction has acquired, any direct or indirect
beneficial ownership in the security have been reported to the
applicable Compliance Officer. If an access person had no transactions
during the year, such access person shall so advise the applicable
Compliance Officer.
4. A disinterested trustee need only report a transaction in a security
if such trustee, at the time of that transaction, knew or, in the
ordinary course of fulfilling his or her official duties as a trustee,
should have known that, during the 15-day period immediately preceding
the date of the transaction by the trustee, such security was
purchased or sold by the Trust or was being considered for purchase or
sale by the Trust.
5. Wells or the Trust may, in its discretion, require an access person to
disclose in connection with a report, recommendation or decision of
such access person to purchase or sell a security any direct or
indirect beneficial ownership by such person of such security.
G. CONFIDENTIALITY OF TRANSACTIONS AND INFORMATION
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1. Every access person shall treat as confidential information the fact
that a security is being considered for purchase or sale by the Trust,
the contents of any research report, recommendation or decision,
whether at the preliminary or final level, and the holdings of the
Trust and shall not disclose any such confidential information without
prior consent from the applicable Compliance Officer. Notwithstanding
the foregoing, the holdings of the Trust shall not be considered
confidential after such holdings by the Trust have been disclosed in a
public report to shareholders or to the Securities and Exchange
Commission.
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2. Access persons shall not disclose any such confidential information to
any person except those employees and officers who need such
information to carry out the duties of their position with Wells or
the Trust (as applicable).
H. SANCTIONS
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Upon discovering a violation of this Code, Wells or the Board of Trustees
of the Trust (as applicable) may impose such sanctions as it deems
appropriate, including, without limitation, a letter of censure or
suspension or termination of the employment of the violator. All material
violations of this Code and any sanctions imposed with respect thereto
shall be reported periodically to the Board of Trustees of the Trust.
I. CERTIFICATION OF COMPLIANCE
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Each access person, except a disinterested trustee, shall annually certify
that he or she has read and understands this Code and recognizes that he or
she is subject hereto.
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APPENDIX A TO THE CODE OF ETHICS
"BENEFICIAL OWNERSHIP"
For purposes of this Code, "beneficial ownership" is interpreted in the same
manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder, except that the determination of direct or indirect
beneficial ownership applies to all securities which an access person has or
acquires. Wells and the Trust will interpret beneficial ownership in a broad
sense.
The existence of beneficial ownership is clear in certain situations, such as:
securities held in street name by brokers for an access person's account, bearer
securities held by an access person, securities held by custodians, pledged
securities, and securities held by relatives or others for an access person. An
access person is also considered the beneficial owner of securities held by
certain family members. The SEC has indicated that an individual is considered
the beneficial owner of securities owned by such individual's immediate family.
The relative's ownership of the securities may be direct (i.e., in the name of
the relative) or indirect.
An access person is deemed to have beneficial ownership of securities owned by a
trust of which the access person is the settlor, trustee or beneficiary,
securities owned by an estate of which the access person is the executor or
administrator, legatee or beneficiary, and securities owned by a partnership of
which the access person is a partner.
An access person must comply with the provisions of this Code with respect to
all securities in which such access person has a beneficial ownership interest.
If an access person is in doubt as to whether she or he has a beneficial
ownership interest in a security, the access person should report the ownership
interest to the applicable Compliance Officer. An access person may disclaim
beneficial ownership as to any security on required reports.
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